Bajaj Auto To Maruti Q3 Preview: Higher Input Costs, Chip Shortage To Weigh On Earnings
India’s automakers are likely staring at a quarter marred by a trifecta of troubles: elevated input costs, poor consumer sentiment, and a global chip crisis.
More than a dozen automobile companies that are set to report their financials for the quarter ended December are likely to see margins contract 275 basis points over the year earlier to 25.6%, according to estimates by Prabhudas Lilladher.
Reliance Securities expects the profit after tax of automakers in its coverage to slump 72% over the year earlier.
“The quarter saw the average price of key commodities increase faster,” analysts at KRChoksey said. The sharp rise in raw material prices, along with the shortage of semiconductor chips, has elevated the input cost of the auto companies, they said in a report.
According to Motilal Oswal, the “volume evolution in Q3 FY22 was a mixed bag, partly impacted by weak demand and partly by supply-side issues, which restricted the wholesale of passenger vehicles, premium motorcycles, and medium and heavy commercial vehicles”.
Wholesale volumes, the brokerage said, declined around 20% over the year earlier for two-wheelers, and 4.5% for passenger vehicles. Only commercial vehicle makers saw wholesales rise 7% year-on-year.
The automakers under Reliance Securities’ coverage are expected to witness 1% year-on-year decline in revenue in the third quarter, while higher raw material costs and lower production would impact their profitability. “Most companies within the OEM and auto ancillary segment are expected to report a profit in Q3 FY22, barring Ashok Leyland Ltd. and Tata Motors Ltd.”
According to analysts at Prabhudas Lilladher, enquiries and bookings have been encouraging for passenger vehicle makers in the third quarter, but semiconductor shortage has led to high waiting periods. PV demand continued to “remain strong with 5,00,000 order bookings”.
Emkay Global sees Maruti Suzuki India Ltd.’s revenue to grow 1% over the year ago, 21% for Mahindra & Mahindra Ltd.’s auto division and 67% for Tata Motors.
Domestic two-wheeler industry volumes declined 24% year-on-year, owing to muted demand and a high base in the corresponding period.
“We expect 11% revenue growth for Eicher Motors Ltd., 2% for Bajaj Auto Ltd. and 1% for TVS Motor Co., while we see a 21% fall for Hero MotoCorp Ltd.,” Emkay Global said, adding the momentum in exports is expected to be sustained.
The demand, however, is expected to be impacted in the near term as Covid cases mount, the brokerage said. It expects volume growth to turn positive from Q1 FY23.
Commercial vehicle makers continue to witness traction as freight availability increases and fleet utilization improves.
Emkay Global expects revenue growth of 20-35% for OEMs including Tata Motors’ commercial vehicles, Ashok Leyland and VE Commercial Vehicles Ltd. “We expect robust double-digit revenue growth in CVs for the next two years, supported by improving macros, government thrust on infra spending and recovery in replacement demand.”
Auto parts makers may benefit from a sequential growth in OEM volumes.
The utilization level at auto ancillaries such as Minda Industries Ltd., Balkrishna Industries Ltd., according to KRChoksey, are back to 75% in the nine months ended December versus below 30%. The increased utilization across OEMs and ancillary players will drive earnings rebound.
Emkay Global said Bharat Forge Ltd. should see year-on-year revenue growth of 45%, driven by a pickup in the underlying CV and industrials segments. “Companies that benefit from replacement demand, such as Exide Industries Ltd., Amara Raja Group and Apollo Tyres Ltd. may see 7-18% revenue growth,” it said. Minda Industries is likely to see 4% revenue growth, aided by growth in alloy wheels/sensor categories and improving content in other segments.