Will easing chip shortage perk up auto firms' Q1 commentary?

Bajaj Auto’s June quarter financial results give a precursor to how the automobile industry may fare this earnings’ season. 

The two-wheeler maker’s profit fell 20% quarter-on-quarter to 1173 crore rupees, but rose 11% over last year.

Its revenue, remained unchanged sequentially and climbed 8% YoY. Ebitda margin improved by 100 basis points over the previous year, but contracted 90 bps QoQ.

A similar picture may be painted by Maruti Suzuki and Tata Motors when the two announce their Q1 results later today. 

Analysts say auto earnings should not be compared with the year-ago quarter, as last year was marred by pandemic-induced lockdowns owing to the Delta wave of Covid-19.

Rather, they suggest investors closely read managements’ commentaries for demand outlook.

According to HDFC Securities, investors should watch out demand outlook; track comments on supply constraints; the timeline for benefit of softening input costs; and impact of possible US recession.

Analysts expect upcoming quarters to be better for auto makers.

Nishit Master, Portfolio Manager, Axis Securities, semi-conductor, chip shortage woes easing. xpect auto companies to report steady earnings. Great monsoon, lower commodity prices to drive rural demand. Expect broad-based margin improvement going forward. 

Analysts recommend staying selective and ‘buy on dips’ strategy.

Anil Rego, Founder and Fund Manager, Right Horizons PMS says demand seems to be bouncing back and epect auto sector to surprise positively. Buy on dips, he says. 

As regards today, domestic corporate earnings, and the US Federal Reserve’s monetary policy outcome will sway the markets.