The September-quarter is expected to be one of the worst quarters for the auto space in a decade with pressure across segments, said Motilal Oswal Securities Ltd (MOSL) in an earnings preview report.

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In the Nifty50 universe as well, the profit is expected to fall 6 percent YoY dragged by automobiles and metals. Auto Universe’s profit after tax (PAT) is expected to decline 37 percent YoY in 2QFY20 off a weak base – a sixth consecutive quarter of double-digit PAT decline, the report quoted.

While most stocks are expected to report a decline in growth, Motilal Oswal expects Tata Motors' loss to more than double this quarter. According to the report, excluding Tata Motors, Auto Universe’s PAT is expected to be down 24 percent YoY.

Loss of Tata Motors is expected to further fall 164 percent to Rs 1,480 crore versus Rs 559 crore YoY. The brokerage cut consolidated PAT estimate for FY21 by 25.1 percent and expects a loss for FY20 amid severe weakness in India as well as slower recovery in JLR (on China volumes and cost savings).

In Q2, it will look out for current demand trends for JLR, the outlook for key markets, update on cost-cutting initiatives at JLR, demand trend in domestic markets and new product launch.

Apart from Tata Motors, Eicher Motors, Hero MotoCorp, M&M and Maruti Suzuki are expected to report a fall in growth in Q2, however, the brokerage estimates around 6 percent rise in profit for Bajaj Auto.

Eicher Motors' profit is expected to fall around 21 percent to Rs 450 crore from Rs 566 crore YoY. Meanwhile, Maruti Suzuki's PAT is estimated to decline over 59 percent to Rs 850 crore from Rs 2,100 crore in Q2FY18. Profit of Hero MotoCorp and M&M is likely to fall around 12 percent each, the report noted.

The decline in the sector can be attributed to original equipment manufacturers' (OEMs) aggression on cutting record inventory via production cuts as retail demand failed to improve post elections due to weak consumer sentiment.

According to the brokerage, the EBITDA margin for the auto sector is likely to contract for the fifth consecutive quarter by 380 bps YoY to 9.5 percent due to higher variable marketing expenses and operating deleverage.

With the first half of FY20 being disastrous for auto demand, a recovery in the upcoming festive season becomes very critical – otherwise, the industry might stare at another wash out in the second half of FY20, it noted.

Initial signs during Navratras are positive for both two-wheelers and passenger vehicles but there is no respite for commercial vehicles. MOSL expects a sequential recovery in volumes in H2FY20, but still a YoY decline due to Bharat Stage-VI transition.

For FY21, the brokerage estimates a good recovery despite BS-VI cost inflation due to the magnitude to demand deferment, normal monsoon and the benefit of measures taken by the government to improve economic activity.

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