Auto earnings preview: Ancillaries to outperform OEMs in Q3; Apollo Tyres to steer, says ICICI Direct

The auto ancillary house is seen outperforming the Original Equipment Manufacturers (OEM) led by higher margin profile within the third quarter of the monetary yr 2023, believes brokerage home ICICI Direct Research.

According to the brokerage, the ancillary pack’s gross sales are anticipated to fall by 2 % quarter-on-quarter (QoQ) with almost 120 foundation factors growth in Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA) margins, and consequent revenue after taxes (PAT) de-growing 2 % QoQ.

The weak topline efficiency has been primarily attributable to a QoQ quantity decline within the home market and weak export sentiment.

However, Apollo Tyres is anticipated to submit a powerful efficiency in Q3FY23, principally reflecting a QoQ improve within the margin profile in home sector whereas sustaining a excessive double-digit margin profile within the European enterprise.

On the opposite aspect, the brokerage predicts a virtually 10 % QoQ fall within the whole business volumes for the auto or OEM sector in Q3FY23, primarily on account of the subpar efficiency within the 2-wheeler and passenger automobile house.

“Considering the magnitude of raw material price decline (metals, plastics down nearly 20%, 50%, respectively, from Q1FY23), and quarterly time lag in its impact on profit and loss amid management commentary guiding raw material benefits to accrue from H2FY23, we expect gross margins to improve in range of 100-250 basis points QoQ for our coverage in Q3,” mentioned the brokerage.

The brokerage in its report mentioned that Ashok Leyland is anticipated to steer the OEM or auto pack and report a strong efficiency in Q3FY23 amid 5 % sequential rise in volumes for the quarter at 47,562 models.

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Q3FY23 estimates of auto and auto ancillary cos

As per the brokerage report, Balkrishna Industries is anticipated to document a weak efficiency in Q3FY23 attributable to a QoQ discount in volumes and costly uncooked materials stock on books.

Similarly, Uno Minda is anticipated to report a muted efficiency in Q3FY23 primarily monitoring muted QoQ wholesale dispatches within the passenger automobile and 2-wheeler section amid calendar yr change.

Bharat Forge is anticipated to report a gentle efficiency on a QoQ foundation monitoring a marginal decline in exports amid macro instability and regular development in home gross sales throughout segments particularly car and industrial amongst others, based on the brokerage.

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What is EBITDA

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