Automobile sector to report robust earnings growth across segments in Q4 Apextalk

The automobile sector is expected to report robust earnings in the March quarter, with more than 20 per cent volume growth in 4Ws and reversion in raw material costs would be the key triggers for the impressive sectoral earnings growth, according to analysts.

ICICI Securities expects revenue, EBITDA, and PAT growth of 18%, 30%, and 50% respectively.

In its report, for two-wheelers OEMs, it would be more of a flattish performance QoQ, but YoY earnings growth would be strong driven by revival in profitability from previous year lows. 

Export-centric OEMs like Bajaj Auto and TVS Motors faced headwinds in the overseas markets, yet their performance would remain flattish QoQ as export volume weakness got partly mitigated with improving domestic 2W volumes.  

“Our top picks are Tata Motors, M&M, TVS Motors in OEMS,” said ICICI Securities.

CV industry driven by seasonality and pre-buying  which beat the 5% price hikes due to RDE norms (effective Apr’23), reported 20% QoQ volume growth. 

“This would result in strong improvement in operating leverage. With discounts under control along with falling raw material prices, we expect EBITDA margin for the CV players to cross ~10% this quarter. For 2Ws, slightly lower volumes QoQ would result in static earnings QoQ, in general,” said ICICO Securities in its report.

The report said that key factors to watch out in the auto sector are outlook on volumes across segments in H1FY24, new launch pipeline for FY24 across segments, outlook on export revival, be it 2Ws or ancillaries, inventory levels, chip supply situation and outlook on discounting ahead, working capital management for FY23 and debt reduction trends; 

 “We expect a robust Q4FY23E, especially for the CV segment and allied players as against yet another tepid quarter for the 2Ws and allied ancillary companies (QoQ basis). We expect the automotive tyre players to report strong earnings despite subdued replacement demand on back of improving gross margins,” said the report.

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