Informist, Monday, Apr 24, 2023
By Darshan Nakhwa
MUMBAI – Most automobile manufacturers are expected to report robust growth in earnings for the March quarter over the year-ago period, but may see some moderation on a sequential basis, with Maruti Suzuki India Ltd, Tata Motors Ltd and Ashok Leyland Ltd being the outliers.
The improved on-year performance is likely to be driven by price hikes, lower input costs, wedding and festival season demand, and pre-buying ahead of the implementation of the second phase of Bharat Stage-6 norms. A year ago, supply chain issues and relatively higher raw material prices had taken a toll on volumes.
YEARLY GROWTH
According to the average of estimates compiled by Informist, the cumulative net profit of automobile manufacturers is expected to have more than doubled on year in Jan-Mar, and sales are seen increasing 27%. The optimism around net profit largely stems from expectations of Tata Motors reporting a consolidated net profit for the second consecutive quarter.
Among the various segments, passenger vehicle and commercial vehicle manufacturers are seen outpacing the earnings of two-wheeler companies. In Jan-Mar, total passenger vehicle dispatches surged 10.8% on year, driven by 19.6% growth in sales of sports utility vehicles, even as compact car sales rose just 1.6%. In 2022-23 (Apr-Mar), demand for SUVs in India increased, steered by urban buyers. However, sales of compact cars moderated due to sluggish rural demand, higher interest rates, inflation, and price hikes.
Among passenger vehicle makers, Tata Motors Ltd is expected to earn a profit on the back of strong growth in sales of passenger vehicles and Jaguar Land Rover models, as well as due to lower prices of raw materials compared to a year ago.
Maruti Suzuki India Ltd, India's largest carmaker, is seen posting the second-highest growth in earnings driven by its SUV push in 2022-23, even as its compact car sales moderated during the quarter. Maruti Suzuki India's SUV offerings include Brezza, Grand Vitara, Jimny, and Fronx.
Among various categories, sales volumes of commercial vehicles surged 7% on year in Jan-Mar, driven by the government's infrastructure development push, replacement demand, and pre-buying ahead of the implementation of phase-2 of BS-6.
Within commercial vehicles, dispatches of medium and heavy commercial vehicles jumped 18.3%, while volumes of light commercial vehicles — which are used for last-mile delivery by e-commerce firms — were flat.
Companies such as Ashok Leyland Ltd and Tata Motors Ltd, which have higher volumes of medium and heavy commercial vehicles compared to light commercial ones, are expected to post significant earnings growth, according to analysts.
In the two-wheelers category, companies with robust domestic dispatches are likely to report strong earnings growth compared to export-centric companies, said analysts. Hero MotoCorp Ltd and Eicher Motors Ltd are seen driving growth in this category, while export-centric manufacturer Bajaj Auto Ltd is likely to see some moderation.
During Jan-Mar, total two-wheeler dispatches declined close to 5% to 4.30 mln units, dragged down by a whopping 36.4% drop in exports compared to 6.3% on-year growth domestic volumes. Domestic dispatches have seen moderation due to rising inflation and higher interest rates.
SEQUENTIAL DROP
On a sequential basis, the cumulative net profit of automobile manufacturers is seen improving 21.2%, compared to 12.3% growth in revenues. This growth is likely to be driven by Maruti Suzuki India, Tata Motors and Ashok Leyland, according to analysts.
In the passenger vehicles segment, Maruti Suzuki India and Tata Motors are expected to report a strong sequential performance due to volume growth and higher realisation. On the commercial vehicle front, the Tata Group company and Ashok Leyland are seen reporting robust earnings compared to peers.
In the two-wheeler segment, most manufacturers are expected to report a muted sequential performance on account of reduction in volumes due to lower exports and sluggish rural demand. While Bajaj Auto's sequential earnings are likely to be impacted the most, Hero MotoCorp is seen delivering a decent performance led by slightly higher dispatches than in the previous quarter.
MARGIN EXPANSION
For most companies, earnings before interest, tax, depreciation and amortisation margins are seen expanding, both on year and sequentially, due to a richer product mix, price hikes, lower raw material costs, and better operating leverage, analysts said.
According to Axis Securities, Ashok Leyland is likely to post the highest sequential margin expansion of 220 basis points due to higher tonnage sales, operating leverage, and the benefit of lower steel prices. It will be followed by Maruti Suzuki India, with margin expansion of 65 bps on a higher share of SUVs in total sales.
As the benefit of a correction in commodity prices is reflected with a lag of a quarter, the correction in steel and aluminium prices in Oct-Dec is likely to be seen in this quarter's earnings, said Axis Securities.
Most companies hiked prices in the range of 1.5-2.0% during the quarter, which is expected to aid their margins, said Elara Capital.
In Jan-Mar, prices of major commodities increased marginally from the lows witnessed during the previous quarter.
OUTLOOK
Most brokerage firms have maintained a positive outlook on the sector for 2023-24 despite expectations of some moderation in sales volumes.
In 2022-23, companies benefited from a combination of pent-up demand and a low base, which was reflected in their earnings. However, the impact from price increases due to regulatory changes, higher interest rates, inflation, rising fuel costs, and the El-Nino weather phenomenon are likely to act as headwinds for the sector in 2023-24.
The El-Nino, which is likely to impact rainfall during the monsoon, will be a key monitorable for the two-wheeler and tractor segments, said Axis Securities. While the government's push to develop infrastructure will act as a tailwind for the commercial vehicles industry, new launches in the SUV category are likely to drive passenger vehicles sales, it said.
Following are the details of earnings estimates for nine automobile companies for Jan-Mar, collected from eight brokerage firms:
| Company | Sales | PAT | Sales | PAT | Sales | PAT | EBITDA | Result date |
No. of brokerages
polled
|
| -------Average------- | ----(Y-o-Y)----- | ----(Q-o-Q)---- | Mln Rupees | ||||||
| ------Mln Rupees----- | -----------% Change------------ | ||||||||
| Ashok Leyland | 117,328.6 | 8,088 | 35 | -10 | 31 | 124 | 12,469.5 | -- | 8 |
| Bajaj Auto | 84,174.9 | 14,170.4 | 8.9 | -3.5 | -6.9 | -4.9 | 15,748.4 | Apr 25 | 8 |
| Eicher Motors + | 36,773.6 | 7,884.4 | 17.1 | 29.2 | 0.3 | 6.4 | 8,922.6 | -- | 8 |
| Escorts Kubota | 21,859.7 | 1,901 | 16.9 | -6 | -3.4 | 2 | 2,003.3 | May 10 | 3 |
| Hero MotoCorp | 82,939 | 7,459.9 | 11.7 | 18.9 | 3.3 | 4.9 | 10,058.6 | May 4 | 8 |
| Maruti Suzuki India | 325,464.2 | 26,317.7 | 27.6 | 43.1 | 16.9 | 11.9 | 34,377.2 | Apr 26 | 8 |
| Mahindra & Mahindra | 220,576.7 | 17,649.3 | 28.8 | 36.6 | 1.9 | 15.5 | 28,253.8 | -- | 6 |
| Tata Motors + | 1,042,360 | 42,506.7 | 33.9 | NA | 18.7 | 43.7 | 130,140.5 | May 12 | 6 |
| TVS Motor Co | 65,589 | 3,511.8 | 18.6 | 27.9 | 0.2 | -0.4 | 6,594.2 | May 4 | 6 |
| Total | 1,997,065.7 | 1,29,489.2 | 27.2 | 109.5 | 12.3 | 21.2 | 2,48,568.2 | -- | -- |
Note:
+ Consolidated Figure
Y-o-Y: Year-on-Year
Q-o-Q: Quarter-on-Quarter
N.A.: Not Available
Rs: Rupees
Estimates from: Axis Securities, Elara Capital, ICICI Research, ICICI Securities, Kotak Institutional Equities, Nirmal Bang Equities, Nuvama Wealth Management, Prabhudas Lilladher. End
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