Automobiles Q2 Results Preview- Festive Season To See Healthy Volume Growth; Exports Recovering: Motilal Oswal

Motilal Oswal Report

From a demand standpoint, Q2 FY24 was a mixed bag as passenger vehicle and commercial vehicle continued to expand YoY but two-wheeler and tractors declined. While we anticipate a YoY decrease in two-wheeler volume, the domestic and export markets appear to be recovering for two-wheeler.

Dispatches for SUV remained strong fueled by order book execution and improvement in supply chain situation. However, demand moderated for lower-end PVs. Among all the segments, medium and heavy commercial vehicle appeared to be better placed despite a drop in discounts, driven by healthy demand across most of the underlying industries.

On a YoY basis, wholesale volumes are estimated to grow ~15% for MHCV, ~11% for PV, 20% for three-wheeler and 1% for light commercial vehicle. However, we estimate Q2 FY24 volumes to decline 2% YoY for two-wheeler and 4% YoY for tractors. Domestic two-wheeler volumes are expected to decline 3% YoY, whereas exports are likely to grow 3.5% YoY.

We estimate the Ebitda margin of our auto original equipment manufacturer Universe (excluding Jaguar Land Rover) to expand for the sixth consecutive quarter on a YoY basis. Ebitda margin is likely to improve 200 basis points YoY (+50 bp QoQ) driven by lower raw material costs, favorable forex and operating leverage benefits.

We are building our estimates based on stable commodity costs; however, we expect the benefits of favorable mix/forex and operating leverage to accrue and lead to sustained margin recovery. There has not been any material change in our FY24 earnings estimate for our coverage universe except for MRF Ltd. (+5%).

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