Automobile Q4FY23 Preview: OEMs may register strong numbers amid higher volume growth

The automobile sector is expected to report strong earnings for the January-March quarter of the financial year 2022-23 (Q4FY23). Both the top and bottom line of the industry is likely to swell, while margins may expand and volumes grow during the last quarter of FY23.

ICICI Securities expect Q4FY23 to be a robust quarter for select auto companies led by year-on-year revenue/EBITDA/PAT growth of 18/30/50 per cent, respectively. Besides, over 20 per cent volume growth in four-wheelers is expected amid reversion in raw material costs, the brokerage said.

Strong volume growth across the segments in the previous fiscal gives confidence that the original equipment manufacturers to post robust growth in the March earnings, another domestic brokerage firm Sharekhan said in its preview report on the sector.

ICICI Securities in its preview report said two-wheeler makers’ growth in the March quarter would likely be flattish sequentially, however, YoY earnings growth would be driven by a revival in profitability from the previous year's lows.

With respect to EV growth, Sharekhan said the auto companies are taking a focused and balanced approach towards EV projects, this is helping the legacy players in building up a markable presence in the segment as most listed auto firms are preparing vigorous plans for the EV segment.

Domestic automotive tyre businesses should report strong earnings driven by improved margins amid falling raw material costing, ICICI Securities mentioned.

Sharekhan in its preview said the commercial and passenger vehicle players have performed better than two-wheeler players as the volume growth may be hit by dealer inventory management in Q4FY23 ahead of the implementation of BS-VI phase 2 norms from April.

A reduction in CNG prices and the apparent pause in the interest rate hike cycle are notable positives for the auto sector, Sharekhan said while pointing out key triggers that could led the industry to grow.

Key factors to watch out:

1) Outlook on volumes across segments in H1FY24;

2) New launch pipeline for FY24 across segments.

3) Outlook on export revival, be it 2Ws or ancillaries.

4) Inventory levels, chip supply situation and outlook on discounting ahead.

5) Working capital management for FY23 and debt reduction trends

6) Outlook on input commodity costs..