A sustained volume recovery and stable margins weighed by commodity cost inflation are likely to be the highlights of automobile sector in the fourth quarter of fiscal 2021.
The Nifty Auto index gave 7 percent returns in Q4FY21, largely in line with the broader index as commodity cost inflation and moderating growth trends across two-wheelers have tempered stock price returns, after strong outperformance in the first half of FY21.
The automobile sector volume recovery continued in Q4FY21 with the strong momentum seen in retail sales in tractors, passenger vehicles (PV) and commercial vehicles (CV) sequentially. However, two-wheeler retail sales were marginally lower versus the last quarter.
Meanwhile, recovery in EBITDA margins likely to sustain as price hikes, operating leverage, and cost-cutting measures offset the impact of commodity cost inflation.
The commodity prices over the past six months are up sharply – aluminum (+26%), copper (+32%), crude (+55%), steel (+55%).
Bajaj Auto has highlighted that the impact on margins will be 300-400 bps, while most OEMs have also underlined similar views, with margin impact varying between 200-400 bps due to commodity price rise.
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