The auto company is expected to report strong sales growth of 17-18%, resulting in earnings before interest, tax, depreciation and amortization (EBITDA) of 36% for the third quarter of the fiscal year 2023-24 (FY24). expected to improve.
This will be driven by double-digit sales growth by two-wheeler original equipment manufacturers (OEMs) and continued surge in the passenger vehicle (PV) segment. Analysts believe margins will also be helped by favorable commodity prices.
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Analysts at Prabhudas Lilladhar said the auto industry as a whole recorded strong double-digit sales growth of 17% in the third quarter. This is due to strong growth in domestically produced motorcycles and three-wheelers.
During the quarter, export demand for two-wheelers increased by 2.5%.
Prabhudas Lilladhar expects the target companies’ total sales to increase year-on-year (year-on-year) by 20% (including Jaguar Land Rover) and 16% (excluding JLR).
“Commodity costs remain favorable and will continue to support earnings in the coming quarters. For our coverage, we have advanced our estimates by one quarter and revised our FY24-FY26 expected EBITDA estimates to -3% to 9%. We will make changes within the scope,” Prabhudas Lilladhar said.
Analysts at Motilal Oswal said in a December report that they expect EBITDA margins for the auto companies they cover (excluding JLR) to rise 160 bps year-on-year for the seventh consecutive quarter.
“This will be driven by improved gross margins, cost efficiencies and operating leverage,” the company said.
While the overall solar power industry grew around 14 per cent in the third quarter, analysts at Prabhudas Liladhar pointed out that Mahindra & Mahindra (M&M) gained a market share of 180 bps. Meanwhile, Maruti Suzuki India and Tata Motors fell by 250 bps and 100 bps, respectively.
“Growth in the PV segment was driven by SUVs. Retail performed significantly better due to widening discounts and continued demand, but lower shipments in December led to lower industry inventory levels,” Prabhudas said.・Mr. Lilladder said.
The commercial vehicle (CV) industry grew by around 3% year-on-year, with Mahindra & Mahindra and VECV gaining market share while Tata Motors and Ashok Leyland lost market share.
The medium and heavy commercial vehicle (M&HCV) segment continued to perform well, driven by strong demand from the end-user industry.
The tractor industry decreased by about 4%. Although the domestic market for three-wheelers continued to grow steadily at around 38%, exports remained sluggish at -14.4%.
Analysts said commodity prices in the third quarter were mostly stable or fell sequentially.
Base metals saw the biggest declines, with nickel down 14.2% and copper down 2.7% from the previous quarter.
However, steel prices rose 1.5% and zinc prices rose 1.9%. Aluminum and lead prices were flat quarter-over-quarter.
Analysts expect Maruti Suzuki to regain some of the lost market share and improve margins due to operating leverage, cost reductions and a good mix.
Tata Motors is expected to deliver strong profitability, profitability and free cash flow in the third quarter, benefiting from JLR’s volume growth.
Analysts feel that Tata Motors’ domestic CV unit will benefit from continued upcycling, operating leverage, and tailwinds from low cost of goods and low discounts.
Among other CV players, Ashok Leyland’s sales are flat, so it is likely to remain flat year-on-year. Analysts at MK said that realizations will decline quarter-on-quarter due to unfavorable product mix (lower MHCV share). “EBITDA margins are expected to continue to compress due to a lack of operating leverage (volumes down approximately 5% sequentially),” the analysts said.
Analysts at MK said Bajaj Auto’s earnings will be driven by higher unit sales (up 22% year-on-year). However, after that, the realization will further weaken amid the adverse conditions of declining exports and increasing share of two-wheeler models.
“EBITDA margin will decline by approximately 39 bps quarter-on-quarter despite the commodity decline due to lower contribution from three-wheelers,” MK said.
Hero MotoCorp’s sales volume grew approximately 18% year over year and 3% sequentially. MK expects average selling prices to rise 1% from the previous quarter. Profit margins are expected to rise approximately 24bps QoQ, driven by improved mix (lower share of entry bikes) and higher prices. This lies in lower input costs, pricing, and increased output.