Automobiles Sector Outlook And Top Idea Picks By Axis Securities

Axis Securities Report

In FY23, passenger vehicle/two-wheeler/commercial vehicle segments grew by 27%/17%/34% YoY led by healthy demand and the low base of the previous year. Demand momentum is expected to continue but at a slower growth rate in FY24 due to higher base of FY23.

We expected Ebitda margins to remain stable or even improve going forward. This will be led by a richer product mix, higher realisation, and positive operating leverage. Raw material input costs have remained largely benign over the last few months. Spot Steel hot rolled coil prices over the last three months are down 5% and 17% in India and China. Spot London Metal Exchange Zinc, Copper, and Aluminium are down by 22%, 5% and 6% respectively while Platinum and Palladium are up by 12% and 2% over the same period.

Top Picks Ideas from the sector

Maruti Suzuki India Ltd. - At the end of Q4 FY23, customer orders stood at ~4.12 lakh (~3.63 lakh in Q3 FY23) vehicles out of which ~one third are CNG models, also the recently launched SUV’s constitute good share of the order book. For FY24, Society of Indian Automobile Manufacturers estimates the PV industry to grow between 5-7% (post the robust 26% YoY growth in FY23). Management said the company’s volumes will grow better than these industry growth estimates. Average selling prices to remain higher: Higher share of SUVs in the sales mix with demand for the newer models and the bigger car sales could keep the ASPs strong.

Ashok Leyland Ltd. - Ashok Leyland expects the industry to grow between high single-digit to low teens in medium and heavy commercial vehicle and mid single-digit growth in the light commercial vehicle segment on a YoY basis in FY24. Also, passenger medium and heavy commercial (buses) demand is expected to grow by ~30% YoY in FY24 led by replacement demand from institutions. The management expects similar growth momentum in FY25, thereby indicating commercial vehicle upcycle to remain longish.

TVS Motor Company Ltd. - In FY23, the electric vehicle industry grew by 3.1 times YoY, and TVS Motors’ FY23 volumes improved to 97,000 units versus 10,000 units in FY22. The current order book of iQube is at 30,000 units. The iQube is now present in 235 touch points across 135 cities. The company will be launching EVs in different customer segments with a complete portfolio, in the range of 5-25KW in the next nine-10 months. E-three-wheelers, both passenger and cargo, will be launched in the upcoming quarter.

Mahindra CIE Automotive Ltd. - Post the hive-off of the German trucking business, the Ebitda margins have been positively impacted, led by lower energy prices, input cost pass-through, internal efficiencies and higher volumes. The company is confident to maintain current Ebitda margins (16.4% in Q1 CY23 versus 11% in Q4 CY22) on the back of lower energy prices, internal efficiencies, and higher volumes.

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