Auto Sector Q2FY24 Review: Maruti, TVS Motor among Axis Securities' stock picks after earnings; check full list
Escorts, all other companies under our coverage were largely in line with or beat our estimates," stated the brokerage. Meanwhile, for the auto ancillaries space, the brokerage informed that the companies under its coverage reported revenue, EBITDA, and PAT growth of 12 percent, 18 percent, and 18 percent YoY, respectively, driven by higher ASPs, sales volumes, and operating leverage. “All companies under our coverage reported in-line EBITDA or beat on EBITDA, except a miss for Endurance Technologies and CIE Automotive," added Axis.
Going ahead, the brokerage expects EBITDA margins to remain stable or even improve going forward. This will be led by a richer product mix, higher realisation, and positive operating leverage. However, the raw material tailwind could gradually wane as price benefits have already accrued in Q1/Q2FY24 for some companies.
Axis continues to have a positive outlook on the sector as demand drivers remain intact. However, due to the recent rally in stocks, valuations are not very attractive. Against this backdrop, it recommends the “Buy on Dips" strategy for quality stocks.
It expects 2W sales volumes to sustain in FY24, which will be led by new vehicle launches (especially in the premium category), an elongated replacement demand buoyed by the Indian growth story, and an expected revival in exports in H2FY24. Moreover, it expects the premiumisation trend to continue in FY24/25. "PV sales will be led by the strong UV order book.
However, we expect the growth rate to moderate in FY24 after a strong growth of 27 percent YoY in FY23. A longish CV cycle is expected by various OEMs on account of increased spending on infrastructure by the government. Tractor volumes may see marginal low single-digit
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