The auto sector will kick start reporting September quarter earnings, with Bajaj Auto results today.
Analysts tracking the sector are largely expecting Bajaj Auto to report a 9-15 per cent year-on-year (YoY) rise in September quarter profit. They see the two-wheeler maker to clock 10-17 per cent jump in top line growth.
They said volume data for automobile makers, be it two-wheeler or four-wheeler, was encouraging, as they broadly see margin for auto makers improving in the quarter, thanks to price increases, superior product mix and raw material tailwinds.
Saji John, Research Analyst at Geojit Financial Services said: “The volume data for Q2 was encouraging. Many auto makers, such as Maruti Suzuki, Tata Motors, and Eicher Motors (Royal Enfield), reported strong growth, relatively supported by the lower base of Q2FY22. On a QoQ basis, the average domestic volume increases for PV, CV, and two and three-wheeler makers are 13.5 per cent, 5.5 per cent, and 11.7 per cent, respectively, driven by easing semiconductor shortages and stocking channel inventory on the onset of the festive season.”
PV stands for passenger vehicle while CV stands for commercial vehicle.
John estimates the sector margin to improve in the second quarter, as a result of pricing increases, superior product mix, and raw material tailwinds. However, due to global uncertainties and currency fluctuation, OEM and component manufacturers’ export sales were under pressure. Furthermore, lower demand in the entry segment has pulled down the overall 2W volume. We are positive on selective OEM stocks like TVS Motor, Eicher Motor, and Mahindra & Mahindra (M&M).”
Ashwin Patil, Senior Research Analyst at LKP Securities also cited strong volumes for the auto industry across sectors. The only exception included exports in the two wheelers space, which depend on Africa, where currency depreciation and resulted slump in retail demand played the spoilsport.
Patil said the domestic demand was strong due to good monsoons (except for some eastern states), higher demand for new launches especially in the SUV space and supply side concerns easing.
There was also a pick-up in rural demand which helped two wheelers. Even CVs witnessed a sequential demand growth on revival in the economy, he said.
Patil added that the quarter witnessed a slurry of price hikes, which got absorbed well on the back of higher demand observed after two years of lacklustre demand.
This was true particularly for companies such as Maruti and M&M that saw meaningful high demand.
“Lower commodity prices and improving product mix should also help margin growth. Some positive impact of commodity price softening should be visible in Q2, but more impact to be seen in Q3 due to lag effect. We therefore expect a strong Q2 for the automobile industry” Patil said.
Meanwhile, Bank of America Securities has downgraded the auto sector to underweight while factoring the headwinds on crude and currency depreciation and also normalising demand.
