Moneycontrol Be a Pro
Get App
Last Updated : Oct 10, 2019 11:00 AM IST | Source: Moneycontrol.com

Auto Q2 preview: Brace for one of the worst quarters in a decade

Along with the numbers, investors will focus on management commentaries, demand outlook for the second half of the FY20 and BSVI transition.

Representative image
Representative image
 
 
live
  • bselive
  • nselive
Volume
Todays L/H
More

Considering the prolonged slowdown in consumer demand and weak macroeconomic environment, a decent Q2 show by the automobile firms seem a lofty expectation.

Brokerages have come out with depressing estimates, with some expecting it to be one of the worst quarters in a decade.

"Q2FY20 is expected to be one of the worst quarters for automobiles in a decade with pressure across segments. This can be attributed to the aggression of OEMs (original equipment manufacturers) on cutting record inventory via production cuts as retail demand failed to improve post elections due to weak consumer sentiment," said brokerage Motilal Oswal Financial Services.

Close

According to the brokerage, the inventory correction and production cuts will dent the financial performance of auto companies.

Along with the numbers, investors will focus on management commentaries, demand outlook for the second half of the FY20 and BSVI transition, it added.

Motilal Oswal has trimmed the estimates of volumes across segments (except tractors), margins and tax rates.

Besides, the brokerage has lowered its FY20/21 earnings per share (EPS) estimates for many companies under its coverage, with the highest FY21 EPS cut for Tata Motors (nearly 25 percent), Maruti Suzuki India (nearly 15 percent) and TVS Motor (about 15 percent).

"However, Escorts (up 20 percent), Amara Raja (up 9 percent), Exide (up 7 percent), Bharat Forge and Ceat (up 5 percent each) have seen upgrade considering the benefit from the corporate tax cut and favorable RM prices," Motilal Oswal said.

Prabhudas Lilladher expects year-on-year (YoY) revenue, EBITDA and PAT to decline 26 percent, 37 percent and 44 percent, respectively.

OEM EBITDA margins (excluding JLR) may decline for the fifth consecutive quarter by about 200bp YoY and about 20bps quarter-on-quarter (QoQ) to 11.3 percent, the brokerage said.

However, the brokerage added that the impact of negative operating leverage and product mix may partially be offset by the ease in commodity inflation, cost control initiatives and positive forex.

IDBI Capital has similar expectations from the automobile companies for Q2 numbers.

"Slowdown in the auto segment in Q2FY20 would certainly impact the overall performance of auto ancillary companies from our coverage universe. We expect all OEM’s under our coverage to report YoY decline in revenue," said the brokerage.

The brokerage expects Ashok Leyland to report a 46 percent YoY decline in revenue, while Maruti Suzuki may report a YoY decline of 26 percent. Revenue of Hero MotoCorp and TVS Motors may fall by 19 percent and 14 percent YoY, respectively.

Kotak Securities expects revenue, EBITDA and PBT for companies under its coverage may decline by 12 percent, 23 percent and 37 percent YoY.

"EBITDA margin will likely decline by 150 bps YoY due to an increase in discounts following weak retail sales and negative operating leverage," Kotak Securities said.

However, the brokerage expects auto component companies under its coverage to report a relatively better quarter with 2 percent YoY revenue growth due to exposure to steady aftermarket demand.

"We expect net profit to increase by 6 percent YoY in Q2FY20 mainly due to lower tax rate assumptions. But EBITDA will likely decline by 4 percent YoY in Q2FY20," said the brokerage.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.
First Published on Oct 10, 2019 10:58 am
Loading...
Sections
Follow us on
Available On
Trusted By 1cr Families
Medlife Health Comes Home