M&M Q2 Results Preview: M&M will release its financial results for the second quarter of fiscal year 24 today. The passenger vehicle (PV) and commercial vehicle (CV) manufacturer is expected to see decent revenue growth in Q2FY24 on the back of strong volumes, but margins may remain under pressure sequentially due to an unfavorable mix.
In terms of demand, the July-September quarter of FY24 was a mixed bag for the automobile industry, with year-on-year (YoY) growth for PVs and CVs leading the way. SUV dispatches remained strong, fueled by order book execution and an improved supply chain situation.
However, in the overall auto sector, demand for lower-end PVs has slowed. Analysts said that despite a drop in discounts, MHCV appeared to be better positioned than the other segments due to healthy demand across most of the underlying industries. – M&M Q2 Results Preview
M&M’s total volume growth remained strong in Q2FY24, driven by improved supply chain and order book execution. Tractor volumes, on the other hand, showed signs of weakness. The company’s total volume increased by 11% year on year during the quarter, reaching 302,139 units.
According to the average estimates of five brokerages, M&M’s revenue in the quarter ended September 2023 will increase 19% to 25,000 crore from 21,010 crore in the same quarter last fiscal year.
The company’s net profit for the quarter is expected to increase 27% year on year to 2,944.2 crore from 2,315.9 crore. Net revenue is expected to rise 7.1% year on year to 82,384.6 crore from 76,897.4 crore.
At the operational level, earnings before interest, tax, depreciation, and amortization (EBITDA) are projected to increase by 30% to ₹3,246.6 crore from ₹2,497.3 crore, YoY. Additionally, better net pricing, higher auto volumes, and lower input costs may help the EBITDA margin expand by 100 basis points (bps) to 12.9% from 11.9%, YoY.
Nonetheless, a sequential decline in margins is anticipated, with a lower segmental mix leading the way.
According to Kotak Institutional Equities’ estimates, Q2FY24 will see a 19% YoY increase in revenues, with the automotive segment accounting for over 20% of the increase in revenues. The tractor segment is expected to see flat revenues, primarily as a result of a 4% YoY decline in segment volumes.
The brokerage firm predicts a 60 bps quarterly decline in overall EBITDA margin, driven primarily by a poorer segmental mix and partially offset by tailwinds related to raw materials.
“We are incorporating an automobile EBIT margin of 8% in 2QFY24 as opposed to 7.5% in 1QFY24, driven by benefits from operating leverage.” Furthermore, we are factoring in a 10 basis point quarterly decline in tractor segment EBIT margins to 17.5% as a result of negative operating leverage and a higher mix of farm implements, which are partially offset by tailwinds from RM, according to Kotak Institutional Equities.
Analysts noted that one important area to keep an eye on going forward would be the company’s forecast for tractor demand.
