Auto Sector On Recovery Path With Broad Based Volumes And Margins Improvement: Motilal Oswal

Caption:-  Auto volumes in 2QFY23 has recovered with the improvement in the supply of semiconductor chips and other factors.

With the improvement in the supply of semiconductor chips and early festive season demands, auto volumes in 2QFY23 has recovered across the segments.

According to Motilal Oswal, from 2HFY23E onwards, sustained demand recovery, enhancing chip supplies and softening commodities prices are anticipated to drive performance. We prefer four wheelers over two wheelers, which is aided by strong demand and stable competitive environment. We look forward that the CV demand momentum to continue in FY24/FY25. We favour corporations with higher visibility in terms of demand recovery, strong competitive positioning, margin drivers and balance sheet strength.

As per statement made by the brokerage firm in a report, total revenue auto universe (ex-TTMT) grew 33% YoY, EBITDA grew 40% YoY and adj. PAT grew 46% YoY to Rs 10,800 crore due to strong volume growth, rise in prices and moderating commodity cost inflation. The firm expect demand to remain robust for PVs, CVs, whereas the volume of two-wheelers is likely to sustain. However, it is expected that the tractor volumes will be muted for 2HFY23.

Additionally, Motilal Oswal stated in the report that almost all the relevant OEMs and auto component players indicated that the supplies of chips are enhancing with full normalcy by the mid of CY-23. Nevertheless, the major concern is the continued increase in working capital which led to an increase in net debt in 2QFY23 for auto companies.

The top picks by Motilal are Maruti Suzuki and Ashok Leyland. Bharat Forge and Apollo Tyre are the preferences among the auto component stocks. In addition to this, the brokerage likes Hero Motocorp as pure play on domestic two wheelers demand recovery.

For FY24E, the brokerage witness more upgrades than downgrades estimates due to revenue or volume upgrades and lower commodity prices.

 

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