Moneycontrol Pro Panorama | Autos on the road to recovery

The Q3FY23 results signal that the worst is behind auto original equipment manufacturers. (Representative image)

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The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

The December quarter (Q3 FY23) results signal that the worst is behind auto original equipment manufacturers (OEMs). Tailwinds from pricing power and softening input costs are clearly working in their favour.

Passenger car leader Maruti Suzuki India (Maruti) led the pack, turning in a robust 306 basis points (bps) year-on-year (yoy) expansion in operating margin. Two-wheeler maker TVS Motor Company (TVS) too rode out of the quarter with resilient margins.  Key gains are trickling in from softening metal and crude prices that dented profit margins across manufacturing sectors for nearly six to eight quarters.

Another positive is pricing power and premiumisation of product portfolio has led to improvement in average selling price (ASP). Both Maruti and TVS clocked a 15 percent yoy rise in ASP in Q3.

So, are they set for trailblazing performance in the quarters ahead? Are their woes of domestic and export demand, cost pressures and supply-chain bottlenecks in the rearview mirror? Our research team offers insights on these two companies here and here.

Two other large auto firms Bajaj Auto and Tata Motors, material to the performance of auto sectoral indices, are due today. Management commentary from these firms will set the stage for long-term growth expectations of analysts and investors. These two companies will throw insights on the extent of slowdown seen global markets, both developed and emerging, and the impact it might have for exports of auto and auto components.

Latest data on Economic Indicators such as personal mobility, E-way bills, two-wheeler and car registrations, etc are flashing green. However, for the auto stock enthusiasts, note that the challenges are not merely from demand expansion and supply chain normalisation.

The road ahead for these large OEM incumbents looks bumpy as they have to work on parallel tracks of traditional and electric vehicles, while managing a smooth transition. Future valuations therefore will mirror these aspects, too.

An aside: Today’s edition has an interesting article for the savvy investor – ‘Why passive investing makes less sense in the current environment’, by Mohamed El-Erian (free to read for MCPro subscribers)

Our Budget Snapshots today highlights that subsidies eat up around a fifth of central government revenues. However, poverty levels are reportedly around 21.9 per cent of the population. The need to cut down subsidies in FY24, therefore, is quite obvious. After all, it eats into funds earmarked for development.

Investing insights from our research team

Why this old private sector bank can re-rate further

Colgate-Palmolive India: Performance continues to remain sub par

Saregama: Why a tepid quarter doesn’t upset our thesis

Dodla Dairy: Healthy earnings profile from FY24 to drive rerating

Syngene: Timeline for follow-through in Zoetis contract key catalyst to watch

Tamilnad Mercantile Bank’s Q3FY23 profit rises but business growth sluggish

What else are we reading?

Budget 2023: Keep the focus on capital expenditure growth in 2023-24 too

Budget 2023: Why the budget should become a non-event

Budget 2023: All about electoral compulsions balancing growth impulses with fiscal prudence

Budget 2023: Indian economy needs a time-out for meditation

Gland Pharma’s streak of weak results should worry pharma investors

Budget 2023: The key to increasing the capex multiplier lies within outliers

GuruSpeak: How a banker used his skills to design intraday strategies

Budget 2023: Income from agriculture must be taxed

Wheat prices must fall for procurement to succeed

Today's young India will grow old. We must prepare for huge fiscal challenges

Economic collapse nears, but Pakistan’s elites can’t see beyond bailouts

Technical Picks: Tata Motors, Axis Bank, Bajaj Auto, Bajaj Finance and Zinc (These are published every trading day before markets open and can be read on the app).

Vatsala Kamat
Moneycontrol Pro