Axis Securities has recently spotlighted TVS Motor Company and Hero MotoCorp as its top picks in the auto sector, reflecting their strong market positions and growth potential. Among auto ancillaries, CIE Automotive, Minda Corporation, and Sansera Engineering are noted for their robust performance and promising prospects.

Q1 FY25 Review - Auto Sector

For Q1 FY25, the companies under Axis Securities’ coverage demonstrated notable year-on-year (YoY) growth across key financial metrics, surpassing expectations. Revenue increased by 11%, EBITDA grew by 30%, and PAT rose by 28%. This exceptional performance was driven by several factors, including higher average selling prices (ASPs), increased sales volumes, a shift towards premium products, effective cost optimisation measures, and the benefits of operating leverage.

However, on a quarter-on-quarter (QoQ) basis, the companies experienced a decline in Revenue, EBITDA, and PAT by 4.5%, 4.2%, and 2.2%, respectively. This decline was less severe than anticipated, attributed to seasonal factors impacting the auto industry. Despite the QoQ dip, the YoY surge in EBITDA was notably supported by cost optimisation strategies and stable commodity prices. Companies such as Hero MotoCorp, Bajaj Auto, Eicher Ltd, TVS Motors, Maruti, and Ashok Leyland benefitted from these factors.

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EBITDA margins expanded by 207 basis points YoY and 2 basis points QoQ. This expansion was largely due to higher ASPs resulting from premiumisation, effective cost control, and stable raw material costs.

Auto Ancillaries

In the auto ancillaries sector, the companies covered by Axis Securities also posted strong YoY growth, with Revenue up by 11%, EBITDA increasing by 10%, and PAT rising by 12%. This performance exceeded expectations, driven by trends such as premiumisation in two-wheelers (2Ws) and passenger vehicles (PVs), along with stable raw material prices and effective cost control measures.

Sansera Engineering, Endurance Technologies, UNO Minda, and Minda Corp reported significant YoY growth in EBITDA, while CIE Automotive and Steel Strips Wheels experienced flat EBITDA performance. Automotive Axles saw a 17% YoY decline due to decreased volumes in the commercial vehicle (CV) trucking segment.

Q1 FY25 Auto Sales and Outlook

In Q1 FY25, domestic sales of two-wheelers (2Ws) and passenger vehicles (PVs) grew by 20% and 3% YoY, respectively, while commercial vehicles (CVs) saw a 3% increase. Tractor volumes remained flat.

Looking ahead to FY25, the demand for two-wheelers is expected to grow in early double digits, nearing pre-COVID levels due to continued rural recovery and premiumisation trends. Passenger vehicles are anticipated to see moderate growth YoY, with a shift towards SUVs and increased export volumes. While commercial vehicle growth may be subdued in the short term, the long-term outlook remains positive, supported by favorable macroeconomic conditions and infrastructure development. Tractor growth is projected to be flat to low single digits, aided by favorable monsoon conditions and government support.

This detailed analysis from Axis Securities provides a comprehensive overview of the auto sector's performance in Q1 FY25, highlights key players, and offers insights into future growth prospects.

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