As most domestic OEMs express optimism about the festival season demand, and as they further anticipate the trend to continue, brokerage Elara Securities (India) Pvt Ltd believes it to boost auto ancillary companies' revenues in H2FY23.
The brokerage said that better profitability in H2FY23 should result from lower raw material costs, progressive price increases in the replacement market, and price adjustments from OEM.
"However, headwinds remain in the form of slowing exports and moderating growth in the domestic replacement segment on high base," added the brokerage.
The suspension and braking components segment saw the largest revenue growth of 32% YoY, helped by higher exposure to the CV segment, followed by multiproduct segment and forgings, according to the brokerage's analysis of 55 listed auto ancillary firms' Q2FY23 results.
On the other side, the lighting led the pack in terms of EBITDA growth of 32% YoY, followed by suspension & braking and multiproduct segments.
According to the report, top five firms based on YoY revenue growth are Jamna Auto, up 62% YoY, Minda Corp, up 57% YoY, Automotive Axles, up 54% YoY, Suprajit Engineering, up 45% YoY and Lumax Industries, up 37% YoY.
Top five firms based on YoY EBITDA growth are Automotive Axles, up 128% YoY, ZF Commercial Vehicle Systems, up 72% YoY, Lumax Industries, up 62% YoY, Minda Corp, up 60% YoY and SAMIL, up 49% YoY.
The brokerge house's top picks are Apollo Tyres, Uno Minda, SAMIL, and Minda Corp.
Elara Securities expects that domestic OEM volume growth in the 2W, PV, and tractor segments will pick up speed in FY23, but it will continue to be the highest at over 30% for MHCV. Exports and replacement segment growth are anticipated to slow in FY23 compared to FY22.
"The BSE Auto Index one-year forward P/E is trading at a around 54% premium to the Nifty, close to the highest level in the past 10 years; hence, investors should be cautious," added Elara.
Global Economy Outlook
Globally exposed auto ancs have commented on a better forecast for margins in H2FY23 as a result of some OEMs providing compensation for higher energy prices.
Given the coming challenges of a recession, international OEMs are worried about demand trends in Europe and the US.