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We expect Q1FY24E to be a robust quarter for our auto coverage universe led by YoY revenue/EBITDA/PAT growth of ~15%/~30%/~50%, respectively. More than 15% volume growth in both 2Ws, 4Ws (each) and reversion in raw material costs would be the key triggers for the impressive sectoral earnings growth, we believe. For 2W OEMs, improvement in export volume, better operating leverage and improved mix would likely drive robust earnings growth, both YoY and QoQ. CV-centric players may deliver weaker revenue and lower EBITDAM QoQ due to seasonality and pre-buying in the previous quarter (Q4FY23). Performance of export-centric ancillary players is likely to improve QoQ, though may still remain subdued YoY due to higher base, and thus, can deliver better EBITDAM QoQ aided by better operating leverage. Domestic automotive tyre businesses may continue to report strong earnings driven by improved margins, despite lower sales volume QoQ. Ancillary players, dependent on domestic e2Ws and domestic CV volume, may also deliver weaker earnings QoQ, we believe. Our top picks include: M&M, TVS Motor in OEMS, and Mahindra CIE, Sansera Engg. in ancillaries.

* PVs and 2Ws to deliver impressive earnings growth YoY: Driven by ~15% YoY volume growth across PVs/2Ws, we expect revenue/EBITDA growth of ~20%/~40%, respectively, though on QoQ basis 2Ws would still grow ~10% vs PVs remaining flat. CV players, driven by seasonality and pre-buying in previous quarter, are likely to deliver ~45% cut in earnings QoQ as lower scale would impact operating leverage. With discounts under control along with steady raw material prices, we expect EBITDA margin for CV players to fall to ~8% vs ~11% in Q4FY23 led by lower scale.

* Key factors to watch out: 1) Outlook on volumes across segments in FY24; 2) new launch pipeline across segments; 3) outlook on export revival, be it 2Ws or ancillaries; 4) inventory levels, supply-chain situation and outlook on discounting ahead; 5) working capital management and debt reduction trends; 6) outlook on input commodity costs; 6) competitive intensity building up in UVs, premium bikes and e-2Ws.

* Our view: We expect robust Q1FY24E, especially for 2W segment and allied players as against a relatively weak quarter for CVs and allied ancillary companies (QoQ basis). We expect automotive tyre players to report strong earnings driven by high gross margin, despite demand remaining subdued.

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