It’s been a mixed quarter for the auto manufacturers. While two-wheeler makers have clocked steady double digit sales growth, the going’s not that good for the passenger vehicle makers or the CV sector. But within the passenger vehicle space, UVs stand out. They continue to increase market share and have seen an average volume growth of 6% in Q1. Auto component makers too have been benefiting from replacement demand and flurry of new launches.
Two-wheelers continue to see traction
The two-wheeler space is buzzing with action- new launches, interesting offerings and the recently launched Bajaj CNG bike has surely added to the pace of sales. Despite it being a relatively lean quarter where wedding dates aren’t that common and there are very few festive occasions, two-wheelers clocked double digit volume growth, Going forward better economic sentiment coupled with steady monsoon is expected to add filip to the margins.
Swarnendu Bhushan -Co. Head of Research – Institutional Equities, Prabhudas Lilladher said, “we expect EBITDA margin to improve by 94bps YoY, led by a combination of premiumization and mix improvement. ”
The revival of the rural/commuter segment in recent months after the 2023 festive season is one of the most striking aspects. Most industry observers believe that the outlook remains strong for coming quarters, amid expectations of a healthy monsoon and price increases.
According to Emkay, “The two-wheelers are set to post strong double-digit revenue growth (led by ongoing volume recovery, which is spreading to rural as well), accompanied by healthy margin improvement YoY.”
Passenger Vehicles and CVs to see muted growth
The enthusiasm doesn’t spread to the PV sector though. The underlying trends are worrying with rising inventory levels (now 60 days across brands) and discounts. Higher discount and commodity prices may dent the margin performance to some extent too.
“For four-wheelers, we expect mid single-digit growth and benign margin performance amidst decline in underlying metrics like rising discounts. Ancillaries may continue outperforming OEMs on rising content per vehicle,” stated Emkay.
According to the Prabhudas Lilladher, “Our PV universe could increase by 12% YoY while margin could expand on the basis of better mix and price hikes in the last one year. Better mix, pricing actions as well as discipline on discounts may help the commercial vehicle segment.”
Party on for Auto ancillaries
The auto component makers, however, are better poised on the back of replacement demand and new launches. The expectation on the street is undeniably for double-digit revenue growth as a result of premiumization and growth in content per vehicle along with higher OEM production levels.
However Emkay highlighted that, “Margins on YoY basis are expected to improve by 55bps backed by higher scale; but sequentially we expect a decline of 80bps due to stable revenue and increase in commodity prices (e.g. that of rubber, aluminum, copper), which would be passed on with the usual lag. Growth in tyres is expected to be in the mid-single-digit (vs a low single-digit in Q4), amid improving demand.”
“Auto ancillaries may see a steady improvement in earnings buoyed by double-digit growth in two-wheeler OEMs, replacement demand in tires during summer, premiumization and steady execution of orders,” Prabhudas Lilladher pointed out.
