 "Slowing volumes to drag automobile sector in Q4")
Over the last three months, the BSE Auto index has fallen 15 per cent, while the Sensex has fallen six per cent. This is not surprising, as volumes across segments have collapsed after the festive season ended in November 2012. The first three months of the year have seen volumes of most automakers fall four per cent, in contrast to the flat growth estimated by the industry body. Consequently, most automakers are likely to report muted revenue growth in Q4 and FY14 is unlikely to be any different.
However, some automakers are likely to buck the trend. Ambit Capital expects Maruti Suzuki and Bajaj Auto to record marginal revenue growth of 10 per cent and three per cent, respectively, in Q4 on higher export realisation and better product mix, respectively. It expects Ashok Leyland and Hero MotoCorp to record year-on-year (y-o-y) decline in revenues due to a slowdown in volumes. Similarly, Jaguar Land Rover will bail out its parent Tata Motors, which has seen domestic volumes dip 71 per cent in Q4. However, there's something to cheer about. Currency movements could benefit some players. During Q4, the yen has depreciated 21 per cent against the rupee, which would help the margins of Hero MotoCorp and Maruti Suzuki as they have high import component. According to Antique Stock Broking: "For Hero, JPY-denominated fixed royalty expense, which stood at Rs 200 crore in Q3, is likely to taper down to Rs 185 crore in Q4. Excluding royalty, Hero's indirect imports (JPY denominated) are 9.5 per cent of sales." Tata Motors would also see marginal benefits from currency as the US dollar has appreciated against the British pound, as 55 per cent of JLR's revenues are dollar-denominated.
Operating margins of automakers are also expected to marginally improve sequentially in Q4. However, compared to the corresponding period last year, margins would be down on lower volumes and higher discounting. Ashok Leyland is expected to see margins improve as Q4 volumes saw a sharp rise. Bajaj Auto and Mahindra and Mahindra (M&M) are expected to see decline in margins as volumes of two-wheelers and tractors have declined. Edelweiss Securities expects all players to report modest improvement in margins. Analysts remain cautious on the sector as volumes are unlikely to pick up for a variety of reasons. While sentiment remains weak for passenger cars, high penetration levels in two-wheelers would restrict any major volume uptick. Analysts believe the narrowing gap between prices of diesel and petrol would benefit Maruti Suzuki. Bajaj Auto and M&M are other top picks of most analysts.
However, some automakers are likely to buck the trend. Ambit Capital expects Maruti Suzuki and Bajaj Auto to record marginal revenue growth of 10 per cent and three per cent, respectively, in Q4 on higher export realisation and better product mix, respectively. It expects Ashok Leyland and Hero MotoCorp to record year-on-year (y-o-y) decline in revenues due to a slowdown in volumes. Similarly, Jaguar Land Rover will bail out its parent Tata Motors, which has seen domestic volumes dip 71 per cent in Q4. However, there's something to cheer about. Currency movements could benefit some players. During Q4, the yen has depreciated 21 per cent against the rupee, which would help the margins of Hero MotoCorp and Maruti Suzuki as they have high import component. According to Antique Stock Broking: "For Hero, JPY-denominated fixed royalty expense, which stood at Rs 200 crore in Q3, is likely to taper down to Rs 185 crore in Q4. Excluding royalty, Hero's indirect imports (JPY denominated) are 9.5 per cent of sales." Tata Motors would also see marginal benefits from currency as the US dollar has appreciated against the British pound, as 55 per cent of JLR's revenues are dollar-denominated.
Operating margins of automakers are also expected to marginally improve sequentially in Q4. However, compared to the corresponding period last year, margins would be down on lower volumes and higher discounting. Ashok Leyland is expected to see margins improve as Q4 volumes saw a sharp rise. Bajaj Auto and Mahindra and Mahindra (M&M) are expected to see decline in margins as volumes of two-wheelers and tractors have declined. Edelweiss Securities expects all players to report modest improvement in margins. Analysts remain cautious on the sector as volumes are unlikely to pick up for a variety of reasons. While sentiment remains weak for passenger cars, high penetration levels in two-wheelers would restrict any major volume uptick. Analysts believe the narrowing gap between prices of diesel and petrol would benefit Maruti Suzuki. Bajaj Auto and M&M are other top picks of most analysts.