Auto and auto ancillary - Q2FY21 Result Preview - ICICI Securities

The auto industry recorded a credible recovery in Q2FY21, with manufacturing & distribution activities sustaining an upswing in each successive month during the period. Rural and semi-urban India continued to lead the charge amid healthy sentiment and cash flows courtesy lower Covid incidence, normal monsoon progress, strong Kharif sowing and ongoing policy support for farm incomes and rural infrastructure. The revival was most visible in discretionary pockets i.e. 2-W, tractors and PVs, with CVs (particularly buses) and 3-W still lagging the overall industry. A strong showing in August and September, in particular, was partly due to an element of inventory build-up ahead of the upcoming festive period.

Better operating leverage underpins strong sequential uptick

Our coverage universe is expected to see ~6% YoY topline fall to | 1.18 lakh crore, with margins seen falling ~210 bps YoY to 10.5%, profitability slumping ~67% YoY to | 2,021 crore. Industry volumes (ex-CV) are expected to have risen ~7% YoY in quarter, with dip in universe revenues largely due to Tata Motors & the ancillary pack. QoQ improvement, however, is expected to be substantial across all parameters. Ex-Tata Motors, our coverage universe is seen posting 4% YoY revenue increase with EBITDA margin of 12.3%, PAT of | 4,913 crore. OEM pack is expected to outperform ancillaries courtesy greater economies of scale, better pricing power. Despite continued strength in replacement channel, relative increase in OEM production in quarter is seen crimping on incremental margin performance of tyre, battery makers. We expect OEM (ex-Tata Motors) topline growth at 6% YoY with margins at 12%. For ancillaries, topline de-growth is expected at 7% YoY with margins at 14.4%. YoY PAT comparison across companies would be impacted by abnormally low effective tax rates in base quarter due to transition to new tax rate regime.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_AutoAncillary_Q2FY21.pdf

Source : Equity Bulls

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