Bajaj Auto starts the third quarter today. What can investors expect from the results of cos two-wheelers?
Bajaj Auto Ltd will announce its results for the December quarter (Q3FY22) today. Last quarter, the company’s volumes were down nearly 10% year-over-year. This was mainly due to a 12% decline in two-wheeler (2W) sales, partially offset by an 18% growth in total three-wheeler (3W) sales.
Even so, strong exports and rising prices should support marginal year-over-year revenue growth in the third quarter. Motilal Oswal Financial Services expects Bajaj Auto’s third-quarter revenue to grow 1% year-on-year. However, lower sales volume and higher raw material costs kept expectations low for Ebitda margin. Ebitda is earnings before interest, taxes, depreciation and amortization; a key measure of profitability. Motilal Oswal estimates that Bajaj Auto’s Ebitda margin will contract by 510 basis points (bps) year-on-year to 14.3%. A basis point is one hundredth of a percentage point.
According to BNP Paribas, the 2W industry volume forecast for FY22 and 23 (for both domestic and export markets) and the timing forecast for the relaunch of the domestic 2W and 3W market are among the factors to watch. in the commentary of the management of Bajaj Auto.
Other major listed two-wheeler companies are expected to show similar trends, with minimal year-over-year revenue decline or increase accompanied by a decline in Ebitda margin. Overall, subdued festive demand, a slow recovery in the rural economy and weak consumer confidence are expected to weigh on third-quarter earnings for two-wheeler companies on a year-over-year basis. Sequentially, however, price increases could help margins recover. In the third quarter, factors that worked in favor of two-wheeler manufacturers included growth in export markets and rising average selling prices. However, this was offset by weak domestic demand and rising raw material costs. Prices for major commodities such as aluminum, lead and copper hit highs in the quarter, but steel and precious metals prices fell sequentially.
For TVS Motor Co. Ltd, Kotak Institutional Equities analysts expect Q3FY22 revenue to be similar to last year, helped by price increases. Note that TVS sales volume fell 11% in Q3FY22, where a 12% decline in 2W volume was partially offset by a 17% growth in 3W sales volumes. Like Bajaj Auto, TVS’ performance in the export market partially offset the effect of weak domestic demand, to that extent.
Hero MotoCorp Ltd is expected to be the worst performer among two-wheeler companies. “We expect 3Q22 to decline 22% year-on-year in revenue, driven by a 30% year-on-year decline in volumes and an 11% year-on-year increase in average selling prices,” Kotak analysts said. . the estimated EBITDA margin is expected to contract by 340 basis points to 11.1% from 14.5% in 3Q21.
Kotak expects Eicher Motors Ltd (stand-alone) revenue to grow 2.6% year-on-year, while Ebitda is expected to fall 6.6%. In Q3FY22, the company saw a 15% decline in volume.
In a January 18 report, BNP Paribas said: “We see EIM (Eicher Motors) and TVSL (TVS Motor) disappointing on the margin due to the impact of raw material costs, deinventorization and lower ladder. With commodity prices falling, it should be interesting to hear the companies’ outlook on the margin.” As 2W companies announce third quarter results, investors would do well to heed management’s comments on the impact of the third wave of covid, rural demand and raw material costs.
Over the past year, shares of Bajaj Auto and Hero MotoCorp have significantly underperformed those of TVS Motor.
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