Automobiles Q1 Results Preview - Signs Of Growth Moderation Visible In Most Segments: Motilal Oswal

Motilal Oswal Report

Q1 FY24 was a mixed bag from demand perspective, with signs of volume growth moderation in some segments. Demand largely remained intact for domestic two-wheelers and passenger vehicels, whereas volumes declined for commercial vehicles (due to pre-buy in Q4 FY23) and tractors (high inventory and Navratras in March 2023). Two-wheeler exports remained weak.

In terms of wholesale volumes, we estimate Q1 FY24 volumes to grow 3% YoY for two-wheelers, 33% YoY for three-wheelers, and 11% YoY for PVs, while it is expected to decline by 1% YoY for medium and heavy commercial vehicles, 6% YoY for light commercial vehicles, and 3% YoY for tractors. Domestic two-wheeler volumes grew 12% YoY whereas exports declined 20% YoY.

We estimate Ebitda margins to improve for the fifth quarter in a row on a YoY basis, with a 220 basis points YoY gain (up 50 bp QoQ) for our auto original equipment manufacturer universe (excluding Jaguar Land Rover), led by a better mix, favorable forex, and operating leverage benefits.

Except for CV-focused OEMs and Maruti Suzuki India Ltd., all other OEMs are likely to report margin expansion on a QoQ basis as well.

We revise our FY24E earnings per share for select companies to account for:

1. demand evolution in the domestic market,

2. weakness in exports, and

3. commodity price/forex changes.

We lower our FY24E EPS for Sona BLW Precision Forgings Ltd. (-5.6%), whereas upgrade our FY24E EPS for Ashok Leyland Ltd. (up 13%), Bajaj Auto Ltd. (up 9%), Tata Motors Ltd. (up 9%), and Maruti Suzuki (up 5%).

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