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ICICI Securities Report
Post a period of falling gross margin across our auto coverage universe in the past three quarters, we expect the sector to see earnings stabilising finally in Q2 FY23.
Retail demand across segments, barring two-wheelers has been robust, despite Q2 being a seasonally adverse quarter for most players. Thus, with overall Ebitda margin being flat for the universe QoQ, we expect overall earnings for the space to remain flattish QoQ, with revenue being largely steady.
Next quarter onwards, we expect improved profitability amidst steady demand to drive earnings growth sequentially. Domestic retails in passenger vehicles, tractors and commercial vehicles were flat QoQ versus two-wheelers being down 11%, resulting in overall sectoral revenue being flat QoQ.
We believe operating leverage is unlikely to impact margin for most players this quarter, though partial lag impact of the decline in input commodity prices would start getting reflected in the gross margin.
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