OEMs Forecast Growth in Revenue and Margins
Original Equipment Manufacturers (OEMs) are expecting significant growth in key financial metrics for the upcoming fiscal quarter, as reported by Axis Securities. Revenue, EBITDA, and PAT are projected to increase by 5.5%, 8.9%, and 10.6% year-on-year (YoY), respectively, with a 47 basis point improvement in EBITDA margins.
Sector-Specific Growth
The two-wheeler sector is set to see double-digit volume growth, with TVS, Hero, and Bajaj expecting EBITDA margin increases of 97, 57, and 52 basis points YoY, respectively. However, Royal Enfield anticipates a slight dip of 2 basis points. In passenger vehicles, Maruti Suzuki is projected to have a 13 basis point increase in EBITDA margins, thanks to a richer product mix and favorable forex conditions.
Conversely, Escorts Kubota expects a 17 basis point decline in EBITDA margins due to negative operating leverage in its ECE and tractor segments. Ashok Leyland’s margins are expected to remain flat as it manages negative operating leverage and higher appraisal costs with cost-control measures.
Auto Ancillary Sector Outlook
The auto ancillary sector is also expected to grow, with revenue, EBITDA, and PAT increasing by approximately 7%, 8.5%, and 10.5% YoY in Q2 FY25. Endurance Technologies is set to report a 12% YoY revenue growth, while Automotive Axles Ltd anticipates a 10% decline due to reduced MHCV truck sales. Minda Corp projects a 7% revenue increase, and Sansera Engineering expects a 12% rise driven by strong performance in the two-wheeler and aerospace sectors.
Market Conditions
The outlook for Q2 FY25 is positive, with input costs benefiting from a 5% sequential drop in average steel HRC prices and declines in AL, copper, and lead prices. Despite the growth, the sector remains cautiously optimistic due to moderation from last year’s high base. The two-wheeler segment is expected to outperform others, supported by favorable monsoon conditions and a recovery in exports.
Doubts Revealed
OEMs -: OEMs stands for Original Equipment Manufacturers. These are companies that produce parts and equipment that may be marketed by another manufacturer. In this context, it refers to companies like TVS, Hero, and Bajaj that make vehicles.
Revenue -: Revenue is the total amount of money a company makes from its business activities, like selling products or services, before any expenses are taken out.
EBITDA -: EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It’s a way to measure a company’s overall financial performance and profitability.
PAT -: PAT stands for Profit After Tax. It is the net profit a company makes after all taxes have been deducted from its revenue.
YoY -: YoY stands for Year-over-Year. It is a way to compare financial results from one year to the same period in the previous year.
Two-wheeler sector -: The two-wheeler sector refers to companies that manufacture vehicles like motorcycles and scooters, which have two wheels.
Passenger vehicles -: Passenger vehicles are cars and other vehicles designed primarily for transporting people rather than goods.
Tractors -: Tractors are powerful vehicles used mainly in agriculture to pull heavy loads and machinery.
Auto ancillary companies -: Auto ancillary companies are businesses that supply parts and components used in the manufacturing of vehicles. They support the main vehicle manufacturers.
Endurance Technologies -: Endurance Technologies is an Indian company that makes parts for vehicles, like brakes and suspension systems.
Sansera Engineering -: Sansera Engineering is an Indian company that manufactures precision components for the automotive and aerospace industries.
Input costs -: Input costs are the expenses incurred to produce goods or services, including raw materials, labor, and overheads.
High base -: A high base refers to a previous period where the financial results were exceptionally good, making it harder to show growth in the current period.