The Indian auto sector is expected to report an aggregate revenue growth of 15% for the quarter ended March 31, 2024 with earnings before interest, taxes, depreciation and amortisation (EBITDA) seen to grow by a robust 28% according to average estimates of Prabhudas Lilladher and Nuvama. On the margins front, both these brokerages along with Motilal Oswal estimate an expansion while Yes Securities expects EBITDA margins to remain flat on the sequential basis having witnessed consecutive six quarters of expansion.

The fourth quarter, which is seasonally the best quarter for auto companies, is expected to see steady demand in the passenger vehicles segment and two wheelers, they noted.

Here’s what top brokerages estimate:

Prabhudas Lilladher

Prabhudas Lilladher (PL) anticipates 4QFY24 to deliver strong revenue and EBITDA growth of 15.5% and 31% YoY, respectively mainly led by passenger vehicle and 2W/3W companies as they continue to deliver strong volume. Benign commodity prices along with healthy volume growth could result in operating leverage benefit which should aid margins.

The brokerage expects aggregate ASP (average selling price) to remain flat as compared to the last year though it forecasts sequential recovery of 11%. For its coverage universe PL has changed its FY2024-26E revenue estimates by -2% to +5% and EBITDA estimates by -2% to +7%.

Maruti Suzuki & Mahindra & Mahindra (M&M) are its preferred picks. The brokerage has downgraded Bajaj Auto from ‘reduce’ to ‘sell’ as the valuation is expensive and continued performance is already priced in. It has reiterated an ‘accumulate’ rating on Tata Motors, Hero MotoCorp, Eicher Motors and Ceat. For TVS Motor Company and Endurance Technologies, the rating is ‘hold’.


Echoing sentiments similar to Prabhudas, Nuvama estimates aggregate revenue growth of 14% for the auto sector calling it “healthy”. The EBITDA is expected to be around 25%, lower than what PL estimates.”We forecast aggregate revenue/EBITDA (ex-Tata Motors) would grow 14%/25% YoY. Aggregate EBITDA margin (ex-TaMo) shall expand on a better scale, price hikes, commodity deflation and favourable currency movement,” Nuvama added. INR depreciation against the GBP/EUR is likely to aid profitability for Tata Motors-JLR, Samvardhana Motherson International, and Apollo Tyres.

Meanwhile, INR’s depreciation against the USD will be positive for Bajaj Auto, TVS, Bharat Forgings and Ramkrishna Forgings. Moreover, JPY depreciation against the INR is positive for Maruti Suzuki and Hero MotoCorp. It anticipates EBITDA growth in Maruti, Motherson Sumi Wiring, Tata Motors, Uno Minda, Bajaj Auto and TVS.

Motilal Oswal

In a Q4 review note, Motilal Oswal said that the PV segment is likely to report a healthy growth of 19% and 20% both on the year-on-year and quarter-on-quarter basis whereas other segments registered a slowdown in demand.

In its view, the 2W segment is estimated to have posted 14% YoY growth owing to a low base but on a QoQ basis volumes are likely to have declined 12%. The commercial vehicle (CV) wholesales may fall by 3% YoY over a high base of the last year and also due to lower demand before elections. Overall volume growth is expected to be 14% YoY excluding the tractor segment.

While the input costs is expected to remain stable QoQ in 4Q, its expects gross margin to improve 310 bps YoY for its OEM coverage universe led by improved

product mix and lower input costs. The EBITDA margin will likely remain stable sequentially, with 80bp YoY gain driven by better gross margins and cost efficiencies.

Yes Securities

Q4FY24 EBITDA margins for Yes’ OEM coverage universe is expected to remain flat QoQ at 14% versus 13.9% in 3QFY24 and 12.3% in 4QFY23, on the back of 6 consecutive quarters of margin expansion.

Yes expects margin expansion for select OEMs like Maruti Suzuki (+60 bps QoQ at 12.3%), Tata Motors (+60 bps QoQ at 14.5%), Ashok Leyland (+100bp QoQ at 13.1%). On the other hand, margins will likely contract for Bajaj Auto (70 bps QoQ at 19.4%), HMCL (90 bps QoQ at 13.1%), M&M (80 bps QoQ at 12%).

Demand trends were positive for 2W which registered healthy double -digit growth led by rural and urban sales while the same for PV/tractors were muted at mid-single digit growth/double digit decline. The PV demand started to moderate during the later part of the 3QFY24 leading to 20-25% increase in average discounts and rise in average inventory.

Its top picks include Tata Motors and TVS as Buy and Add from OEMs and Motherson Samvardhana and Exide as buys while Endurance as an ‘Add’ from ancillaries. We continue to remain positive on 2Ws owing to the peak-up in replacement demand and sustained recovery post festive). It remains selective in 2Ws picking TVS and Eicher Motors.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)


Source link