The automobile sector is gearing up to bet on economic recovery and revival in demand with the sector's capex likely to cross $3 billion.
The automotive market capex is set to cross $3 billion, or ₹27,000 crore, in FY23, posting a growth of 24%, the Economic Times (ET) reported, quoting a report by Axis Capital.
The forecast capital investment of auto companies in FY23 will surpass the pre-Covid capex peak of ₹26,800 crore in FY20, the report added.
"Auto sector’s cumulative capital allocation was north of ₹50,000 crore in FY19 and FY20 and it dropped by 27% for FY21 and FY22 to ₹37,841 crore as demand tapered off due to Covid. The auto sector capex upgrade is mainly led by higher allocations of Mahindra & Mahindra and Tata Motors, which together increased budgets by around ₹4,000 crore from the previous fiscal," the ET report added further.
The June quarter earnings of the automobile players may see margin pressure due to the rise in raw material prices.
Brokerage firm Nirmal Bang expects Q1FY23 earnings of auto and auto ancillary companies in our coverage universe to grow significantly over a lower base of Q1FY22.
On a sequential basis, the brokerage firm expects the earnings to be a mixed bag, with two-wheeler (2W) companies likely to post strong volume while chip shortage issues and seasonal weakness will impact passenger vehicle (PV) and commercial vehicle (CV) segments, respectively.
Volume in Q1FY23, as per Nirmal Bang, is expected to post a broad-based recovery across segments on a low base of 1QFY22.
"Going ahead, we will see recovery in rural sentiments amid improving income levels, which should support 2W volume while PV demand will remain robust amid new product launches. The CV segment is expected to continue its growth trajectory on the back of replacement demand. Furthermore, easing of supply chain issues and softening of commodity prices should also bode well for the industry," said Normal Bang.
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