Auto stocks lead the rally on expectations of strong quarter numbers

Most OEMs are expected to report a sequential EBITDA margin expansion led by improving product mix and operating leverage

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Amid record highs for the Nifty and Sensex, the Nifty Auto index outshone most sectoral indices, surging over 2 percent as the market is expecting a strong fourth quarter performance .

In March, the retail sales increased 3.14 percent on-year at 21.27 lakh units with a growth of 5 percent and 17 percent in the two-wheeler and three-wheeler segments, respectively. While commercial vehicle (CV) sales were up on a monthly basis, passenger vehicle (PV) sales dipped over 6 percent on-year.

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However, experts suggest that a drop in PVs isn’t a cause of concern as dealers are having ample bookings and a decent lineup for the festive season. “Whatever loss we’re seeing in March will be certainly covered in April as most festivals are falling in the month unlike the previous year,” Federation of Automobile Dealers Associations (FADA) president Manish Raj said. The PV market is expected to grow at single digits in FY25.

Brokerages’ views

“Most OEMs are expected to report a sequential EBITDA margin expansion led by improving product mix and operating leverage,” Elara Securities said in a recent report.

Shares of Maruti Suzuki, Eicher Motors, and Mahindra and Mahindra (M&M) were up between 3 and 5 percent.

“Revenue growth for Maruti shall be supported by robust volume growth and increase in realisations. EBITDA margin shall expand on better net pricing and scale,” Nuvama Institutional Equities said in a note. Analysts at Anand Rathi believe that economic activity and continuing replacement demand would add to the momentum ahead. “We maintain buy with a target price of Rs 14,350, assigning it a price earnings of 26 times on its FY26E EPS,” brokerage firm Prabhudas Lilladher said.

Market experts suggest that M&M is expected to benefit from its production ramp up, which shall result in fulfillment of orders at a better pace, new launches in the EV segment, as well as refreshes of existing models.

Nuvama expects Eicher Motors’ revenue growth will be bolstered by improved volume and realisation. The expansion of EBITDA margin is anticipated due to enhanced net pricing and product mix. Robust growth in profit after tax (PAT) is likely, driven by a higher share of profits from the commercial vehicle subsidiary (VECV).

For two-wheelers, factors such as the rising rural demand, marriage season, and government spending before elections would be the key growth triggers. While the Bajaj Auto stock was flat, Hero MotoCorp and TVS Motors shares were trading higher by 2 and 3 percent, respectively.

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