July 13, 2022 (MLN): With earnings season right around the corner, the local auto makers are likely to witness suppress earnings in 4QFY22 as the impact of super tax will
more than offset the impact of multiple price hikes announced by the auto makers coupled with healthy volumes.
JS Global, in its latest report highlighted that the improvement in the auto sector’s performance amid healthy volumes, improved margins and support from other income being eroded away by the imposition of super tax announced by the government. As a result, the earning of major auto players such as INDU, PSMC, and HCAR are anticipated to decline.
Furthermore, demand for the sector is anticipated to shrink by 25% in FY23 as cost led price hikes, higher interest rates and measures taken by the regulatory authorities, takes its toll on automobile demand.
The above is evident from the fact that most auto companies like INDU, PSMC, KIA have closed advance bookings citing unbearable production costs as the main reason. Although margins are anticipated to show improvement during the quarter owing to multiple price hikes, moving forward, in the coming quarters the same are anticipated to face additional pressure once volumes start deteriorating.
As per the estimates revealed in the report, PSMC is likely to report earnings of Rs2.51/share, albeit higher than loss per share (LPS) of Rs5.59 posted during the previous quarter, taking 1HCY22 LPS to Rs3.08, given the imposition of Super Tax (10% on CY21 earnings and 4% on 1HCY22 earnings) in 2QCY22. Net sales of the company are poised to grow by 40% owing to higher sales volume amid aggressive pre buying and the recent launch of swift coupled with higher car prices.
While INDU is expected to post an earning per share (EPS) of Rs44.60 for Jun-2022 quarter as compared to Rs65.11 during previous quarter, taking cumulative EPS for FY22 to Rs239.16 up by 47% YoY. This includes the Super Tax impact in 4QFY22 where the company may charge an additional 10% tax on its FY22 profit before tax, the report said.
Furthermore, HCAR is expected to post an EPS of Rs 2.37 for Jun-2022 quarter as compared to Rs1.38 during previous quarter. Net sales of the company are expected to contract by 3% QoQ owing to lower sales volume as demand for the recently launched Civic starts to normalize. Gross margins on the other hand are expected to improve owing to the multiple price hikes announced by the company during the quarter similar to its peers.
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