High lending rates, fuel prices, higher input costs and labour trouble impact profitability.
Lacklustre demand in the second quarter, the onset of the festive season not withstanding, is expected to put pressure on the profitability of automotive companies, especially the car and sports utility vehicle manufacturers.
The industry buckled under a variety of pressures, including expensive lending rates impacting retail offtake, higher fuel prices, consistently higher input costs and labour trouble effecting output in certain cases.
Companies like Bajaj Auto and Mahindra & Mahindra (M&M) are expected to report healthy growth in their profits, driven by volume growth and better realisations. Others like Tata Motors and Maruti Suzuki may suffer due to a drop in sales.
“We expect a weak quarter for auto companies driven by the pressure of raw material cost. We expect Bajaj Auto, Hero Motocorp and M&M to report positive year-on-year earnings growth, while Ashok Leyland, Maruti Suzuki and Tata Motors are likely to report a decline in earnings,” Hitesh Goel from Kotak Institutional Equities said in a report.
Maruti Suzuki, India’s biggest car maker, is likely to post a 25-30 per cent drop in net profit for the quarter ended September 30, on the back of crippled supplies of its products amid a workers’ strike at its plant in Manesar, Haryana.
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Maruti Suzuki, which will announce its results on October 29, is expected to post a net profit of Rs 415-430 crore, according to financial analysts tracking the company, with a topline fall of 15-17 per cent.
Tata Motors, India’s biggest vehicle maker by revenue, could report a fall in profits or flat growth in the second quarter. While volumes at Jaguar Land Rover (JLR) remained upbeat, sales of passenger vehicles in the domestic market took a hit.
The Mumbai-based automaker is expected to report a profit after tax in the range of Rs 1,950-2,030 crore for the reporting quarter on a consolidated basis, against Rs 2,209 crore in the same quarter a year ago.
“Stand-alone margins of Tata Motors are expected to decline due to losses in small car business. JLR margins would largely be flat quarter on quarter, as favourable currency counters weaker mix,” stated S Arun from Bank of America Merrill Lynch in a report.
SUV market leader M&M, whose all-diesel line-up benefited from the spurt in petrol prices, is expected to report industry-beating profits during the second quarter. The Mumbai-based company saw volume growth of 30 per cent in the second quarter last year at 178,848 units.
Similarly, Bajaj Auto, the country’s second-biggest two-wheeler manufacturer, posted double-digit volume growth during the reporting quarter. Analysts expect the Pune-based company’s profit to improve by 10-11 per cent on the back of better realisations on premium products and increase in prices.
Volumes of truck maker Ashok Leyland had come under pressure because of a larger slowdown in economic activities in the country. The Chennai-based company’s absence in the light truck segment impacted volumes growth, an area where rivals Tata Motors has established a strong presence.
Hero Motocorp (formerly Hero Honda), the country’s biggest two-wheeler maker, is likely to post 12-15 per cent growth in profit. The Delhi-based company too reported high double-digit growth for the period a year ago.
According to experts, the two-wheeler sector largely managed to avoid the broader demand weakening, as a majority of two-wheelers in the country are purchased on cash payment due to their lower ticket size. The two-wheeler sector is understood to be the last sector being affected by a slowdown phenomenon.