On the Road to Recovery: Indian Auto OEMs Prepare for Q1FY24

Indian automotive Original Equipment Manufacturers (OEMs) are expected to see improved margins in Q1FY24, driven by operating leverage benefits. Revenue growth is projected to range from higher single digits to around 20% YoY, supported by price hikes, increased volume from a strong order book, new product launches, and growing demand for personal mobility. These factors are expected to boost EBITDA margins for automobile companies, which are anticipated to improve for the fifth consecutive quarter, thanks to softening commodity prices, improved operating leverage, and better realizations.

However, sequential performance may be disappointing as demand for auto OEMs across all verticals remains subdued. Slow growth from rural India and slower sequential volume growth pose challenges for the industry. Additionally, the future scenario for raw materials and components for Indian automobile companies is uncertain, partly due to the ongoing war in Ukraine, which could lead to further increases in costs. Nevertheless, if the conflict ends soon, raw material and component prices may start to decrease.

In addition to these market dynamics, the Indian government is taking steps to promote the localization of the automotive industry, which could help reduce dependence on imported raw materials and components.

Company-wise Q1FY24 result preview:

Bajaj Auto: Revenue is expected to show YoY growth of 25.6% to reach Rs. 10,246 crores, with a significant YoY growth in EBITDA of 51.4% to Rs. 1,947 crores.

Hero MotoCorp: Revenue is anticipated to grow by 5.9% YoY to Rs. 8,948 crores, with EBITDA growth of 22.1% YoY to Rs. 1,124 crores.

Eicher Motor: Revenue is expected to grow by 18.6% YoY to Rs. 4,030 crores, with EBITDA growth of 18.7% YoY to Rs. 986 crores.

TVS Motor: Revenue is projected to grow by 17.6% YoY to Rs. 7,445 crores, with EBIT growth of 30.3% YoY to Rs. 532 crores.

Maruti Suzuki: Revenue expected to show YoY growth of 19.1% to reach Rs. 31,575 crores, with EBITDA growth of 68.3% YoY to Rs. 3,224 crores.

Tata Motors: Commercial vehicle revenue is expected to grow by 2.3% YoY to Rs. 16,650 crores, with EBIT growth of 106.1% YoY to Rs.815 crores. Passenger vehicle revenue is expected to grow by 8.6% YoY to Rs. 12,550 crores, with EBIT growth of 168.9% YoY to Rs.195 crores.

M&M: Automotive revenue is expected to show YoY growth of 22.1% to reach Rs. 15,554 crores, with automotive EBIT growth of 48.4% YoY to Rs. 995 crores. Farm equipment revenue is anticipated to grow by 0.5% YoY to Rs. 8,472 crores, with farm equipment EBIT decline of -20.1% YoY to Rs. 915 crores.

In conclusion, the Q1FY24 preview indicates a mix of opportunities and challenges for the Indian automobile sector. Improved margins and revenue growth driven by various factors signal a positive trend, but the sector needs to navigate uncertainties related to raw material prices and export markets. The government’s localization drive could prove beneficial in reducing dependence on imported components.

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