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Sunday, January 23, 2022

Auto Q3 Preview | Auto companies can get support from commercial vehicles, but PV-two wheelers will increase the pressure

Auto company earnings: Due to lack of chip and weak sentiment in the rural market, the quarterly results of auto companies may show pressure on a year-on-year basis. However, with increased infrastructure activities, commercial vehicles may sell well. On a quarterly basis, the companies are expected to see recovery with strong results.

Besides, the operating performance of these companies is expected to take a hit due to increase in input costs like metals and oil. Normally, the effect of increase in input cost comes after some time but investors have already started pricing it.

There will be slight change in revenue

After starting a fall in November, the Nifty Auto index recovered on hopes that past worries would ease and economic activity would improve. Elara Capital expects a marginal change in the auto sector’s third quarter revenues with demand normalizing gradually. “In Q3 production was hit by semiconductor shortages and weak consumer sentiment, especially in rural areas,” Elara Capital said.

The brokerage expects Elara Auto Universe (excluding Tata Motors) EBITDA to decline by 25.9 per cent year-on-year (up 8.4 per cent quarter-on-quarter).

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Revenue expected to decline by 5%

Kotak Institutional Equities expects revenues of auto original equipment manufacturers to decline 5 per cent year-on-year on account of chip shortfall impacting passenger vehicles, light commercial vehicles and premium motorcycle segments and weak festive demand for two wheelers.

Concerns related to raw material will be heavy

The brokerage said EBITDA could decline by 43 per cent on a year-on-year basis due to raw material concerns. “We expect year-on-year pressure on gross margins of all OEMs on account of partial offset by price hikes on rise in raw materials,” the brokerage said.

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Tata Motors, Hero MotoCorp, Maruti Suzuki, Eicher Motors and Ashok Leylands have raised prices during the quarter in view of the increase in input cost and this may support the quarter-wise numbers, experts said.

How expensive is the raw material

During this period, the cost of input commodities such as aluminum (5.1 per cent quarterly), copper (3.3 per cent), natural rubber (2.6 per cent) and lead (1 per cent) increased, while steel cost declined by 8.2 per cent on a quarterly basis. Is.

According to Prabhudas Lilladher, the gross margin for OEMs (except Jaguar Land Rover) is expected to decline by 275 basis points on a yearly basis.


Shehnaz is a Corporate Communications Expert by profession and writer by Passion. She has experience of many years in the same. Her educational background in Mass communication has given her a broad base from which to approach many topics. She enjoys writing about Public relations, Corporate communications, travel, entrepreneurship, insurance, and finance among others.
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