Results preview: 2W, PV auto firms to see muted sequential growth in Q3

Industry witnessed volume decline in the quarter owing to weak demand after the festive season, says one note

Two-wheeler (2W) and passenger vehicle (PV) manufacturers are expected to see muted sequential growth in earnings during the third quarter (Q3) of Financial Year 2022-23 due to the usual post-festive slump amid companies' efforts to empty their old stock.

Meanwhile, the commercial vehicle (CV) and tractor maker Ashok Leyland is expected to post sizable profits in Q3 amid stable demand and lower commodity costs.

On an aggregate level, the net profit of listed auto firms will increase from Rs 6,665 crore in Q2 to about Rs 7,395 crore in Q3, posting an 11 per cent quarter-on-quarter growth, according to Bloomberg’s earnings estimate.

However, the net profit of these firms will increase by 63.2 per cent in the October-December period when compared to the corresponding period a year ago, as per Bloomberg's estimates.

"Despite strong retails across segments, wholesales remained subdued due to destocking activities in personal mobility segments of 2Ws/PVs," said a research note by ICICI Securities.

"CVs and tractors performed well, in line with retails. Price hike momentum continued with a lag to pass on the cost inflation along with discounts remaining under control in general," it added.

For CV and tractor players, profitability would improve 200 bps quarter-on-quarter led by the dual impact of better scale and lower input commodity costs, said the note.

A research note by Prabhudas Lilladher said that in the third quarter of FY23, the auto industry witnessed overall volume decline (year-on-year) owing to weak demand situation post festive season and inventory correction across dealerships. "However, the decline was steeper for 2Ws and PVs (-14 per cent and -9 per cent) while CVs declined by 3 per cent," it said.

Ashok Leyland, which manufactures CVs, is expected to see a sequential growth of 58.4 per cent to Rs 316 crore, as per Bloomberg estimates.

Mahindra and Mahindra's net profit is expected to fall by 30.7 per cent year-on-year and 24.4 per cent quarter-on-quarter, as per the Bloomberg estimates. Meanwhile, India's largest carmaker Maruti Suzuki India is expected to see its net profit increase by 83.7 per cent year-on-year but decrease by 9.9 per cent quarter-on-quarter, the estimates noted.

"Maruti is expected to do well, given strong distribution reach and sustained demand in New Brezza and Grand Vitara," said the research note by Prabhudas Lilladher.

According to Bloomberg estimates, Tata Motors is expected to post a net profit of Rs 350 crore in Q3 after posting a net loss of Rs 1,576 crore in the corresponding period a year ago. However, Prabhudas Lilladher estimates that Tata Motors will post a net loss of Rs 549 crore in Q3 this year.

Two-wheeler (2W) segment remains under pressure, especially entry-level, due to consumer affordability issues whereas demand for premium bikes remains stable, the note by Prabhudas Lilladher added.

CV segment continues to witness stable growth post-festive as fleet utilization levels are healthy led by increased economic and infrastructural activities, it mentioned.