New Delhi: Automobile industry, which has been in the limelight since the outbreak of the Coronavirus pandemic, will kick-off financial year 2022 on a strong note, as many analysts expect growth in top line year-on-year (YoY) across the sector due to the low base.
Meanwhile, the profitability is expected to be weaker by 50-900 bps on quarter-to-quarter (Q-o-Q) basis due to a sustained rise in input costs and negative operating leverage. According to analysts this should be partly offset by cost saving initiatives and price hikes.
The brokerage firms, however, noted that YoY comparison of auto sector earnings performance is redundant as base quarter was severely impacted by COVID-19 and therefore most of them have given preference to volume trends on Q0Q basis.
The analysts see decline in revenues up to 20%, while slump in sales could be as much as 30%-35% sequentially on account of lockdowns and supply-chain constraints.
Auto and auto-ancillaries, barring tractors, lost more than one-third of the quarter’s sales over the April to June period due to the second wave of pandemic.
Analysts at ICICI Direct research foresee automotive original equipment manufacturers (OEM’s) bearing larger impact in Q1 FY22 and expect the revenues to decline about 21.6% q-o-q for the firms under its coverage, which includes Maruti Suzuki, Bajaj Auto, Hero MotoCorp, M&M, and Ashok Leyland. “The ancillary pack is seen posting 11.8% sequential revenue decline accompanied by 150 bps QoQ margin dip to 12.3%,” they said in their results preview report.
Estimates for Q1 FY22 (in INR crore)
| Revenue Change (%) | EBITDA Change (%) | PAT Change (%) | |||||||
| Companies | Q1 FY22E | YoY | QoQ | Q1 FY22E | YoY | QoQ | Q1 FY22e | YoY | QoQ |
| Apollo Tyres | 3,830 | 33.3 | -23.8 | 534 | 125.1 | -34.5 | 71 | Loss to profit | -75.4 |
| Ashok Leyland | 2,708 | 316 | -61.3 | -19 | -94.4 | Profit to loss | -187 | -51.9 | Profit to loss |
| Bajaj Auto | 7,394 | 140.1 | -14 | 1,173 | 187.1 | -23 | 1,093 | -107 | -17.9 |
| Balkrishna Industries | 1,676 | 80.5 | -4 | 485 | 110.5 | -10.4 | 310 | 154.3 | -16.8 |
| Bharat Forge | 1,135 | 165.8 | -13.2 | 286 | Loss to Profit | -20.3 | 150 | Loss to Profit | -27 |
| Eicher Motors | 1,812 | 121.5 | -38.4 | 314 | 8,185.7 | -50.5 | 222 | Loss to Profit | -57.9 |
| Escorts | 1,621 | 52.6 | -26.7 | 185 | 54.5 | -46.4 | 145 | 59.8 | -45.5 |
| Hero MotoCorp | 5,759 | 93.8 | -33.7 | 576 | 432.7 | -52.5 | 406 | 562.3 | -53.1 |
| M&M | 12,385 | 121.1 | -8.3 | 1,401 | 155.1 | -21.7 | 768 | 585.8 | 1,485.8 |
| Maruti Suzuki | 18,026 | 339 | -25 | 1,086 | Loss to Profit | -45.4 | 787 | Loss to Profit | -32.5 |
| Minda Industries | 1,710 | 310.1 | -23.6 | 180 | Loss to Profit | -40.5 | 49 | Loss to Profit | -65.4 |
| Motherson Sumi | 17,046 | 100.5 | -7.8 | 1,646 | Loss to Profit | -16 | 417 | Loss to Profit | -41.5 |
| Tata Motors | 56,672 | 77.2 | -36.1 | 6,964 | 302.4 | -52.4 | -1,663 | -80.3 | -78.1 |
| Total | 1,31,774 | 107.8 | -28.5 | 14,811 | 896.3 | 44.4 | 2,567 | Loss to Profit | Loss to Profit |
Source: Company, ICICI Direct ResearchICICI Direct expects the companies under its coverage to report an aggregate revenue and profit after tax (PAT) at INR 131,774 crore and INR 2,567 crore for the recently concluded quarter.
For research analysts at Kotak Institutional Equities, EBITDA for the companies under their coverage declined by 27% QoQ owing to negative operating leverage and raw material headwinds partly offset by cost-cutting initiatives.
“We expect gross margins to remain under pressure for most OEMs due to steep increase in steel and precious metal prices partly offset by price hikes taken during the quarter,” analysts said in the recent report.
Volume slump
Mohit Gupta and Ronak Mehta analysts tracking the sector for Nirmal Bang Institutional Equities, expect Maruti Suzuki to post a loss for the quarter under review, led by 28% sequential decline in volume at 353,614 units and EBITDA margin to fall by 150bps QoQ on account of negative operating leverage.
Mahindra & Mahindra, on the other hand, is seen taking a 20% QoQ hit in volumes despite being supported by healthy tractor sales April to June quarter.
Subdued economic activities are likely to push commercial vehicle maker Ashok Leyland’s QoQ volume by 59%, they said.
As for two-wheelers, Gupta and Mehta expect Hero MotoCorp’s sales volume to crash 35% QoQ at 1,014,913 units. As regards Bajaj Auto and TVS Motor, their volumes could be lower by 14% QoQ and 29% QoQ respectively.
Sharekhan expects auto components companies to perform better than auto OEMs due to exposure to export markets, which continued to remain robust in Q1FY2022. It is evident that companies with substantial reliance on export markets are thought to have offered comparative insulation while the ones with global presence are seen to deliver relatively steady performance during the quarter under review.
“Even auto OEMs such as Bajaj Auto, TVS Motors, and Maruti Suzuki continued to perform well in exports in Q1FY2021 due to lower impact of second wave of COVID-19 in export destinations,” it said in a results preview report.
As the economy is getting normalised post lifting of lockdown restrictions, analysts at Sharekhan continue to remain positive on the sector led by the expectation of pent-up demand which will come in in Q2 FY22. Rural sentiments continue to remain strong led by strong kharif production in the previous year, strong reservoir, and prediction of favourable monsoon this year, they said.
“Moreover, OEMs dependent on exports will be better positioned to drive volumes during the current scenario. We remain positive on the automobile sector and expect a strong rebound in FY2022E,” analysts opine.
| OEMs | Q1 FY22 | Q1 FY21 | Q4 FY21 | YoY% | QoQ% |
| Maruti Suzuki | 353,614 | 76,599 | 492,235 | 361.6 | -28.2 |
| M&M | 186,777 | 95,308 | 202,223 | 96 | -7.6 |
| Hero MotoCorp | 1,014,913 | 563,268 | 1,568,242 | 80.2 | -35.3 |
| Bajaj Auto | 1,006,014 | 443,103 | 1,169,664 | 127 | -14 |
| TVS Motor | 657,758 | 266,933 | 927,579 | 146.4 | -29.1 |
| Royal Enfield | 123,640 | 57,269 | 204,604 | 115.9 | -39.6 |
| Ashok Leyland | 17,987 | 3,814 | 44,009 | 371.6 | -59.1 |
Outlook
While the underlying demand remains strong, brokerages anticipate auto OEMs to pass on increasing input costs to customers in phases in the coming months.
Analysts underlined that the passenger vehicle segment, both for two-wheelers and four-wheelers, is expected to remain strong amid COVID-19, as a preference for personal transport.
Underscoring the demand traction in heavy trucks segments, they said M&HCV sales to continue, driven by rise in e-commerce, agriculture, infrastructure, and mining activities. On the flip side, the bus and three-wheeler segments will remain under pressure due to closure of schools, colleges, offices, and lower use of public transport.
“We expect the CV segment to recover strongly in FY2022 and FY2023, driven by improved economic activities, low interest rate regime, and better financing availability. We expect M&HCVs to outpace other automobile segments in FY2022 and FY2023, followed by growth in the tractor, passenger vehicle, and two-wheeler segments,” Sharekhan analysts added in the report note.
