Q2 results 2024 preview: Two-wheelers, tractors to drive auto sector earnings growth. Check top 5 auto stocks to buy

The earnings growth of the automobile sector during the second quarter of FY25 is anticipated to be significantly driven by rural-focused segments, particularly two-wheelers and tractors, which have demonstrated a positive sales trajectory.

Indian automotive Original Equipment Manufacturers (OEMs) are projected to achieve approximately 9% year-on-year (YoY) volume growth in the July-September quarter of FY25, primarily propelled by a robust performance in the two-wheeler segment.

Dispatches for two-wheelers are expected to grow by 12% YoY, with domestic volumes increasing by 11% and exports rising by 13% YoY. In contrast, volumes for Passenger Vehicles (PV) are estimated to remain flat YoY, while Commercial Vehicle (CV) volumes are likely to decline by 10% YoY. Tractor volumes are projected to increase by 7% YoY in Q2FY25.

The richer product mix and favorable raw material costs are expected to support growth in operating profit margins, or Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margins, despite higher discounts in the PV and CV segments.

According to Motilal Oswal Financial Services, revenue and EBITDA for their OEM coverage universe (excluding Jaguar Land Rover) are expected to grow by approximately 2% and 4% YoY during the quarter, respectively, while Profit After Tax (PAT) is likely to remain flat. The EBITDA margin is anticipated to improve by 30 basis points YoY, reaching 13.0%, largely driven by moderate commodity costs and a favorable product mix.

Commodity costs have turned favorable in Q2FY25, with steel, aluminum, copper, and lead prices declining by 5-6% quarter-on-quarter (QoQ). However, the full benefits may not be realized in Q2 due to a lag effect from Q1, during which the commodity basket experienced a sequential increase.

Here are Q2 earnings review of top auto companies:

Maruti Suzuki: Maruti Suzuki India, the largest passenger car manufacturer in India, is estimated to see a 1% YoY decline in Q2FY25 revenue due to reduced volumes. The EBITDA margin is expected to contract as a result of higher discounts and lower scale, according to Nuvama Institutional Equities. The company’s net profit is projected to decrease by 2%, falling to ₹3,633.2 crore from ₹3,716.5 crore YoY.

Tata Motors: Tata Motors’ consolidated revenue is likely to remain flat YoY due to subdued volume performance across divisions, while the EBITDA margin is expected to expand by 120 basis points YoY, driven by improvements in the Jaguar Land Rover (JLR), India Commercial Vehicle (CV), and India Passenger Vehicle (PV) divisions.

Mahindra & Mahindra (M&M): M&M is anticipated to report a 10% YoY revenue growth in the September quarter, supported by improved volume and realization. EBITDA is expected to increase by 21%, with the EBITDA margin likely expanding due to better margins in the automotive and farm segments. Net profit is projected to rise by 4%. Key aspects to monitor include the production ramp-up plan for Utility Vehicles (UVs) and the outlook for tractor demand.

Hero MotoCorp: Hero MotoCorp’s net profit for the quarter ending September is expected to increase by 9%, with revenue growth projected at 7% YoY, led by volume growth and improved realization. EBITDA growth is anticipated at 10% YoY, with margin improvement attributed to better net pricing.

Bajaj Auto: Bajaj Auto’s Q2 net profit is expected to rise by 23% YoY, supported by a 25% increase in revenue driven by volume growth and enhanced realization. EBITDA is projected to grow by 28% YoY, with EBITDA margins expected to expand due to better net pricing. Key factors to watch in Bajaj Auto Q2 results include the demand outlook in both domestic and overseas markets, as well as CNG and e-mobility initiatives, according to Nuvama Equities’ estimates.

Auto Stocks to Buy

Sagar Shetty, Research Analyst at StoxBox has recommended five auto stocks to buy ahead of Q2 earnings. These five stock recommendations includes two auto OEMs and three auto ancillaries:

Here are the top auto stocks to buy ahead of Q2 results:

Maruti Suzuki | Target Price: ₹14,623

With the company’s focus on CNG/Hybrids and solid SUV lineup, Maruti Suzuki is well-positioned to benefit from the changing consumer preference for hybrid and SUV models. Driven by capacity expansion and a solid product pipeline (eminent entry into EV), we expect the company to outperform the industry. Additionally, its consolidation with SMG and the upcoming festive cheer bodes well for the company, Shetty said.

He has a target price of ₹14,623 apiece for Maruti Suzuki shares.

Ashok Leyland | Target Price: 261

As the infra projects tendered by the government commence, we expect Ashok Leyland to benefit from the development owing to its strong market presence and diverse product spectrum. The company’s strategic investment in its subsidiary, Switch Mobility, and the expansion of its defense sector portfolio are promising. Additionally, the average fleet age, peaking at 10-11 years, indicates a strong potential for replacement demand, Shetty said. He has a Ashok Leyland share price target of ₹261.

Exide Industries | Target Price: ₹582

According to Shetty, Exide Industries is well-positioned to benefit from the investment cycle and the government’s focus on infra-spending owing to its leadership position in the segment. The company has signed a non-binding MoU with Hyundai Motors and Kia for strategic cooperation in the Indian EV market, further enhancing its market position. StoxBox has a target price of ₹582 for Exide Industries shares.

Shriram Pistons and Rings Ltd | Target Price: ₹2,385

Shriram Pistons and Rings’ growth outpaces the industry due to rising content per vehicle, commanding a substantial market share. The company is also expanding into the EV sector by fortifying its core product capabilities, said the analyst. He has a target price of ₹2,385 apiece for Shriram Pistons and Rings shares.

Fiem Industries | Target Price: ₹1,909

Fiem Industries, a significant player in automotive lighting, holds a dominant market share in supplying two-wheeler and four-wheeler OEMs. It is leveraging its first-mover advantage in the Electric Vehicle (EV) segment, steadily enhancing its EV capabilities and expanding its customer base, now at 28 EV OEMs, Shetty said.

He has a Fiem Industries share price target of ₹1,909 apiece.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.