Auto sector recovery to sustain across segments: Motilal Oswal Financial Services

MOFSL expects the recovery to sustain across segments, though the pace of growth will be different across segments of Auto OEM and Auto components. For 2Ws, demand recovery is underway on a low base.

Autocar Pro News Desk By Autocar Pro News Desk calendar 26 May 2023 Views icon4440 Views Share - Share to Facebook Share to Twitter Share to LinkedIn Share to Whatsapp
Auto sector recovery to sustain across segments: Motilal Oswal Financial Services

According to Motilal Oswal Financial Services (MOFSL), the auto sector has underperformed over the last five years due to incessant headwinds that had a severe impact on volumes and margins. However, a revival in volumes and margins over the last few quarters has driven the sector’s outperformance.

MOFSL expects the recovery to sustain across segments, though the pace of growth will be different across segments of Auto OEM and Auto components. For 2Ws, demand recovery is underway on a low base.

MOFSL expects a 9% CAGR in volumes over FY23-25. However, increasing electrification and the consequent changing competitive landscape are the key structural risks for the incumbents. PV growth is expected to normalise to a compound annual growth rate (CAGR) of 6.5%, after witnessing a 21% CAGR over FY21-23. With reasonable industry growth, MOFSL prefers OEMs with strong product lifecycles and mix improvement. CVs are in the early peak cycle phase but should see sustained reasonable growth over the next two years with margin expansion expected to be the key driver of earnings. A scrappage scheme, if implemented in spirit, can elongate the cycle.

With Tractors volumes at peak, a weak monsoon can mount the risk to FY24 volumes. However, structural changes in agriculture and high reservoir levels lower the risk of volume declines.

 

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