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ICICI Direct Report
New launches in the sports utility vehicle space, QoQ improvement in vehicle wholesale volumes amid improving supply chain dynamics, affordable launch in the premium two-wheeler space by Royal Enfield (Hunter 350 cc), continued decline in key raw material prices and pick-up in electrification trend including ordering activity in the electric bus segment were key highlights for Q2 FY23E.
Total industry volumes in Q2 FY23 are expected to increase ~7% QoQ led by the robust performance in the passenger vehicle, commercial vehicle space, which grew more than 10% QoQ.
With management commentary guiding raw material benefits to accrue from H2 FY23, we expect gross margins to bottom out and marginally improve in the range of 20-50 basis points QoQ for our coverage this quarter, given the magnitude of raw material price decline (metals, plastics down 15-20% QoQ).
In the ancillary space, we expect sales to de-grow 1% QoQ with 60 bps expansion in Ebitda margins and consequent profit after tax remaining largely flat YoY. Muted show in the ancillary space is primarily driven by somewhat muted prospects in the export markets given the macro uncertainty.
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