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Nirmal Bang Report
We expect Q3 FY22 earnings of auto and auto ancillary companies in our coverage universe to be relatively subdued due to sustained input cost headwinds and muted demand (weak festivals, supply chain constraints and moderating rural growth).
We anticipate gross margin contraction of 10-40 basis points on a QoQ basis due to continued raw material cost pressures. However, with major commodities showing signs of stabilising/moderating prices at current levels, we note that further impact on gross margins could be limited.
Ebitda margins should witness softer trends on YoY basis, but will be partially supported on a QoQ basis by positive operating leverage, price hikes and tight cost controls across most companies.
We surmise that current issues of supply chain constraints and rising Covid-19 cases are dynamic, but we see them leading to subdued demand and weak profitability in Q4 FY22 too.
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