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Decline in volumes QoQ, high input costs to weigh

The auto industry broadly encountered healthy demand conditions in Q1FY22 barring May, where state-specific lockdowns amid Covid resurgence played spoilsport. Total industry volumes are expected to have declined ~33% sequentially, with the CV space bearing the brunt of the drop-off and tractor space having outperformed given supportive macroeconomics. Topline performance is expected to be slightly better than industry volume trends given broad-based price hikes but margins are seen declining across the board amid no respite in commodity cost inflation (metals, rubber, plastics). We expect our coverage universe (exTata Motors) to report top line de-growth of 21.6% QoQ along with ~210 bps QoQ EBITDA margin decline and PAT de-growth of 31.4% QoQ.

Sharp volume decline across OEMs, segments

As YoY comparison is redundant (base quarter severely impacted by Covid), we examine volume trends on a QoQ basis. Among 2-W, Bajaj Auto performed the best, with volume decline limited to 14.2% (8.99 lakh units) courtesy solid exports delivery. Hero MotoCorp reported 34.7% decline to 10.24 lakh units while Royal Enfield volumes at Eicher Motors fell 39.6% to 1.24 lakh units. PV market leader Maruti Suzuki recorded 28% degrowth to 3.5 lakh units while Tata Motors’ standalone volumes fell 40.1% to 1.14 lakh units (JLR volumes expected at 88,324 units, down 35.3%). M&M’s total volumes (automotive, tractors) were down 7.6% to 1.87 lakh units while pure play CV maker Ashok Leyland posted 59.2% de-growth to 17,987 units. Escorts’ tractor sales de-grew 20.4% to 25,935 units. Ex-Tata Motors, OEM coverage universe is seen posting 25.8% QoQ decline in net sales accompanied by ~250 bps sequential drop in margins to ~9.5%.

Ancillary pack to outperform on relative basis

With the OEM channel experiencing volume weakness in the quarter, we expect ancillaries with high exposure to replacement channel (tyre, battery players) to have fared relatively better. Further, reliance on exports markets is thought to have offered comparative insulation to the likes of Balkrishna Industries while global presence is seen leading to relatively steady performance at Motherson Sumi. Minda Industries is expected to outperform base user industries (2-W, 4-W) given its focus on kit value growth. The ancillary pack is seen posting 11.8% sequential revenue decline accompanied by ~150 bps QoQ margin dip to 12.3%.

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