Auto Q3 Results Preview: ICICI Securities expects passenger car, two-wheeler margins to stay flat, tractors to shine

Auto Q3 Earnings Preview: ICICI Securities has highlighted that that the personal mobility segments of two-wheeler and passenger vehicles have been weak in the October-December period on account of de-stocking. Volumes in the commercial vehicle and tractor segments are estimated to be strong backed by robust demand driven by the festive season, the harvesting season and year-end discounts, according to the brokerage.  

ICICI Securities expects the profitability of commercial vehicle and tractor makers to improve by 200 bps on a quarter-on-quarter basis in the three months to December 2022 led by improvement in scale and lower input commodity costs, according to a research report by the brokerage.

It sees margins in the personal mobility space remaining flat sequentially, leading to weaker numbers for most of the players.

The brokerage expects earnings to improve for the entire auto space from the quarter ending March 2023 on the back of superior scale and the lag effect of weaker commodity prices.

“We expect Q3FY23E earnings to sail through smoothly (QoQ), with weaker scale impact getting balanced by higher gross margin QoQ, with Q4 being a quarter of better scale and margin combined. Despite scale being closer to the FY19 highs in PVs/CVs, EBITDA for most is far lower than the FY19 levels led by lower gross margin, which we believe should gradually recover from Q3FY23,” ICICI Securities Analyst Basudeb Banerjee wrote in the report.

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ICICI Securities has highlighted the following as key factors to watch out for:

-Gross margin improvement across segments on a quarter-on-quarter basis

-Inventory levels, chip-supply situation, demand outlook

-New launch pipeline, timelines and pricing strategy ahead

-Outlook on input commodity costs with steel  prices again starting to inch up from November lows

ICICI Securities has TVS Motors, Ashok Leyland, Apollo Tyres, Balkrishna Industries and Mahindra CIE as its top picks for the auto sector.

Auto ancillaries

From the auto ancillary universe, ICICI Securities expects the profitability to improve by 200 bps sequentially for tyre players owing to price hikes and a decline in raw material costs.

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