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Motilal Oswal Report
Auto original equipment manufacturers are projected to deliver ~9% YoY volume growth in Q2 FY25, mainly driven by a robust performance in the two-wheeler segment. Dispatches for two-wheelers are anticipated to have grown ~12% YoY, with domestic volumes rising ~11% and exports growing 13% YoY. Passenger vehicles volumes are projected to remain flat YoY, while commercial vehicle volumes are likely to decline 10% YoY. Apart from two-wheelers and three-wheelers, tractor volumes are projected to see ~7% YoY growth.
Revenue and Ebitda for our OEM coverage universe (excluding JLR) are expected to grow ~2% and 4% YoY during the quarter, respectively, while PAT is likely to remain flat. Ebitda margin is anticipated to improve 30bp YoY at 13.0%, driven largely by moderate commodity costs and favorable product mix. However, Ebitda margin is expected to contract 40 bp on a sequential basis due to weak demand and rising discounts.
Commodity costs have turned favorable in Q2 FY25, with steel, aluminum, copper, and lead prices declining 5-6% QoQ. However, the full benefit may not be reflected in Q2 due to the lag effect from Q1, when the commodity basket saw a sequential rise. Meanwhile, rubber prices increased 4% QoQ and have surged ~67% YoY.
Given the moderation in demand across various segments and a challenging outlook for exports, majority of our coverage companies (19 of 25) saw earnings downgrades. While the two-wheeler segment is expected to continue outperforming in FY25, this has already been factored into the recent rally in two-wheeler stocks.
Hence, Maruti Suzuki and M&M are our top picks among Auto OEMs, while Motherson Sumi and Endurance Technologies are our preferred picks in the auto ancillaries segment.
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