Automobiles Sector Check - Prefer Commercial Vehicle OEMs Over Passenger Vehicles: Systematix


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Systematix Research Report

We expect original equipment manufacturers to benefit from falling commodity prices, as their gross margins expand 250-350 basis points in H2 FY23E on 20-25% decline in key commodity prices (steel, aluminum and copper).

But, increasing competitive intensity in the passenger vehicle segment should cause marketing expenses and discounts to inch up 100-150 basis points, after a sharp cut in last two years.

Operating leverage benefits too could be limited due to sharp inflation in employee costs and other expenses, thereby limiting Ebitda margin expansion over the forecast period.

On the contrary, we see positive benefits on net pricing of commercial vehicles, backed by broad-based volume growth, post the sharp downturn.

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