zzAutomakers are predicted to do well in the 4th quarter, with commercial vehicle (CV) and passenger vehicle (PV) manufacturers outperforming two-wheeler manufacturers. Gross margins are likely to improve slightly as the advantage of material price drops in the third quarter falls through to the 4th quarter, though with a lag.
Nomura predicts OEM revenue growth (excluding JLR) of 20% year on year, with operating earnings growth of 42% year on year. "We expect EBITDA margins to rise by 60 basis points quarter over quarter, driven by lower material and price increases," the company said in a report.
At the same time, Axis Securities predicts that vehicle Original Equipment Manufacturer (OEM) revenue would increase by 8% quarter on quarter, driven by growth of double digits in the CV and PV segments. The high performance of CVs and PVs may be slightly different by lower 2 year growth.
Commercial vehicles
Analysts predict that Commercial Vehicle players will report strong performance in operations in the March quarter, due to strong growth in volume, price increases, and operating efficiency. Changes and purchasing in advance ahead of the adoption of the BS-VI phase-2 emission rules drove volume growth for Commercial Vehicle manufacturers.
Passenger Vehicle
Sharekhan believes Maruti Suzuki leads the PV industry in terms of operational performance. While chip supply has significantly improved, normalization has yet to be achieved. Demand for PVs remains strong, with the possible exception of entry-level cars, which are experiencing difficulties in several markets.
According to Kotak Institutional Equities, Maruti Suzuki's revenues will climb by 12% quarter over quarter, driven by higher volumes and ASPs due to price increases and a wider lineup of products. Tata Motors' standalone revenues, on the other hand, are expected to rise 25% quarter on quarter.
Two-wheelers
Due to rural discomfort and market export limitations, consumer interest in two-wheeler vehicles keeps falling for other categories. However, domestic focused two-wheeler firms are likely to beat focused on exports Manufacturers in the March quarter.
According to Axis Securities, earnings growth for TVS and Eicher Motors will probably stay stable, while revenue for Bajaj Auto is expected to dip by 10% QoQ due to reduced sales volumes.
"Hero Motocorp appears to be the only standout in the two-wheeler space, with revenue projected to rise by 5%, due to slightly higher sales," according to the firm.
Tractors
In the tractors industry, quantity stress appears with big tractor manufacturers M&M (tractor) and Escorts having reported 15% and 12% reduction in sales due to a large customer base.
What should be your investment strategy?
Nifty auto has stayed flattish so far this year with Tata Motors being the top gainer of the bunch. According to Nomura, it keeps picking companies with an effective business cycle and a chance to increase market share, such as M&M and Ashok Leyland.
Axis Securities, on the other hand, Favours Maruti in the PV market, Ashok Leyland in the CV segment, and TVS Motors among the two-wheeler companies.
