Auto, Auto Ancillaries Q3 Results Preview- Improving Margin To Cushion Earnings Sequentially: ICICI Securities

ICICI Securities Report

Q3 FY23 has been a quarter of weak two-wheeler and passenger vehicle wholesales due to de-stocking as against strong commercial vehicle and tractor volumes.

Though retail demand across segments has been robust, driven by festive season, harvesting season and year-end discounts, personal mobility segment wholesales were subdued for majority players. Thus, we believe for CV and tractor players, profitability would improve ~200 bps QoQ led by the dual impact of better scale and lower input commodity costs.

For personal mobility space, we expect margins to remain flattish QoQ amid weaker scale, resulting in weaker earnings sequentially for majority.

In Q4 FY23, we expect earnings of whole space to improve led by superior scale (seasonal aspect) and lag effect of weaker commodity prices. Within ancillary businesses, we expect profitability of tyre players to recover by ~200 bps QoQ led by a combination of price hikes and decline in raw material basket cost.

For original equipment manufacturers centric ancillary players, both domestic and foreign, it would be a combination of flattish production QoQ as against a slight improvement in Ebitdam QoQ driven by the gradual easing in input cost inflation drivers.

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