Auto Q4 result review: Impressive show driven by stable demand, easing costs

The automobile sector’s performance in Q4FY23 was robust led by strong volume growth across segments. However, two-wheeler volumes were modest due to a fall in exports.

The total revenue of automobile companies witnessed a growth of around 22% YoY during the quarter driven by healthy volume growth and price hikes. Adjusted net profit for the quarter increased around 44% YoY.

On the operational level, earnings before interest, taxes, depreciation and amortization (EBITDA) increased by around 37% on the back of moderating commodity prices, operating leverage and foreign exchange benefits. Gross margin improved sequentially for the third consecutive quarter, analysts said. 

Also Read: Banks Q4 result review: Strong earnings beat led by healthy loan growth, robust margins

Meanwhile, the management of most automobile companies indicated a stable raw material trend in the near term. For slowing exports, they see initial signs of recovery in some of the markets, while most of the OEMs expect the broad-based recovery to only happen in H2FY24.

A look at Q4 numbers

Maruti Suzuki India, the country’s largest carmaker, posted a consolidated net profit of ₹2,670.8 crore for the January-March quarter, up 42.4% from ₹1,875.8 crore, YoY. Its total revenue from operations increased 19.85% YoY to ₹32,059.6 crore, driven by 5.3% growth in volumes.

Auto major Tata Motors surpassed estimates in consolidated net profit for the quarter at ₹5,407.79 crore, against a net loss of ₹1,032.84 crore, YoY. Sequentially, the Q4FY23 PAT saw a growth of nearly 83%. The company’s top-line also saw a strong upside of over 35% YoY at ₹1,05,932.35 crore.

According to Tata Motors, volumes continued to improve on strong India demand and better supplies at JLR. Pricing actions and a richer mix led to improved ASPs and higher revenue growth. Easing inflation, better mix, pricing actions, and favorable operating leverage resulted in strong improvements in margins and profits.”

Mahindra & Mahindra (M&M) reported a standalone net profit of ₹1,549 crore during Q4FY23, registering a growth of 22.1% YoY. Its automotive segment saw its standalone revenue rising by 35% to ₹16,400 crore. The company’s volumes in FY23 rose 50% to 698,000 units.

Among two-wheeler manufacturers, Hero MotoCorp, the world’s largest two-wheeler maker, posted a growth of 36.97% in standalone net profit to ₹858.93 crore, while revenue rose 12% to ₹8,307 crore. A combination of pricing, savings and mix boosted the auto major’s margin expansion and profitable growth in the quarter. 

Two- and three-wheeler maker Bajaj Auto reported a net profit of ₹1,433 crore in Q4FY23, as against a profit of ₹1,469 crore, YoY, registering a single-digit drop of 2.5%, impacted by lower sales.

Domestic brokerage house Motilal Oswal Financial Services said that Q4FY23 saw upgrades for FY24E largely to factor in the benefits of falling raw material costs, thereby aiding margins and commentaries related to sequential improvement in exports demand.

Among automobile manufacturers, tere were upgrades for FY24E EPS for Bajaj Auto (+7%), Hero MotoCrop (+5%), Tata Motors (+13%) and Escorts (+7.5%), as per the brokerage house.

Road ahead

Analysts expect commercial vehicle demand to remain stable while passenger vehicles (PV) are likely to see some moderation post-record FY23 volumes. Stable urban demand and rural recovery is expected to drive recovery in the two-wheeler segment. Moreover, expectations of normal monsoon will pump demand sentiments for tractors.

Motilal Oswal expects sustained demand recovery, improving chip supplies, and softening commodity prices to drive auto companies’ performance going forward. 

“We prefer Commercial Vehicles (CV) aided by healthy demand and a stable competitive environment and believe CV cycle should sustain its healthy growth momentum going forward. We prefer companies with higher visibility in terms of a demand recovery, a strong competitive positioning, margin drivers, and balance sheet strength,” it said.

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Meanwhile, a report by PrimeInvestor.in, a smallcase manager, said that the auto sector growth was expected to be more even across all the categories in FY24, albeit in the mid-single digit. 

A strong rural recovery could even aid faster growth for small cars and 2 & 3-wheelers and could move the overall growth needle too high single digits for these categories. The lending cycle in the rural economy has also seen a revival with a strong comeback by small finance banks, NBFCs, and micro-finance institutions,” the report said. 

Overall, it expects the sector to be poised for a third straight year of growth in FY24.

Updated: 02 Jun 2023, 03:40 PM IST