A pickup in sales of cars, trucks and two-wheel- ers in the quarter ended 31 March may not be enough to help auto makers post im- proved earnings for the fiscal year gone by, a Mint poll of an- alysts shows. “Year-on-year numbers are not going to be good,” says Pi- yush Parag, an analyst at Relig- are Securities Ltd. At best, market leaders by revenues, Hero Honda Motors Ltd and Maruti Suzuki India Ltd, will buck the trend and post growth, he adds. Nine brokerage firms polled by Mint—Emkay Global Finan- cial Services Ltd, Motilal Oswal Securities Ltd, India Infoline Ltd, KR Choksey Shares and Securities Pvt. Ltd, Prabhudas Lilladher Pvt. Ltd, Centrum Broking Pvt. Ltd, IDFC-SSKI Securities Ltd, Angel Broking Ltd and Religare Securities Ltd—attribute the weak results to the severe slowdown in sales in the third quarter and high commodity prices that peaked in September last year. For auto makers, the last fis- cal year has been a roller- coaster ride. The first half of the fiscal saw a sharp increase in commodity prices. In some cases, they nearly doubled. The average price of steel, for instance, touched $1,130 (Rs56,161) per tonne in the second quarter last fiscal, Mo- tilal Oswal points out in a re- port. In the last quarter, they climbed down to $391 per tonne. Raw materials generally account for 20% of total reve- nues at an auto maker with steel making up a little over half of that. Then, the third quarter of the fiscal saw a sharp slow- down in sales. November sales of commercial vehicles were the lowest since 1997. Maruti sold 17,512 less cars in Novem- ber as compared with the year before. That trend reversed in the last quarter with sales reviving somewhat. Car makers ended the year with a marginal 0.13% increase in sales. Two-wheeler sales were up 2.6% while truck sales fell 21.69%. Despite that, Emkay Global expects overall profitability of auto makers to decline by 33% and net sales to fall 7% when compared with the fourth quarter of last fiscal. Analysts say while sales of cars and two-wheelers picked up in the last quarter, the out- look for commercial vehicles remains uncertain as most of the sales in the last quarter were made by fleet operators looking to take advantage of the accelerated depreciation norms. There are, however, signs that the market believes the worst is over for auto compa- nies. The 14-share BSE Auto Index has shot up by 11.9% this month. In the same period the benchmark index, Sensex, has risen 13.5%. Still, analysts say it is worth- while adopting a wait and watch policy. Jatin Chawla of IIFL Capital writes in a report that “this buoyancy (in sales) may not sustain beyond the June quarter…” He points to tightfisted banks and the im- pact of a revision in salaries of government workers late last year waning after May. In the past two quarters car makers such as Maruti Suzuki and Hyundai Motor India Pvt. Ltd have targeted government employees who have received salary arrears. Maruti’s profit is expected to decline by 16%. Analysts surveyed expect Tata Motors Ltd, the country’s largest auto firm by revenue, to report a 79.6% decline in earn- ings compared with fiscal 2008. Tata Motors’ smaller rival in commercial vehicles Ashok Leyland Ltd is likely to see its profit more than halve to Rs211 crore compared with Rs477 crore. “Unlike for passenger cars where the availability of fi- nancing options have im- proved, for commercial vehi- cles it is still an issue,” said Anup Maheshwari, an auto an- alyst at KR Choksey. There is, however, a silver lining. A report by brokerage Prabhudas Lilladher shows that auto makers should re- cord an increase in the average realization per vehicle, or the money earned for each vehicle sold. For instance, Tata Motors is estimated to have earned an average Rs502,082 per vehicle last fiscal, an increase of Rs12,184, or 2.5%, over the previous year. This, coupled with lower commodity pric- es—companies are likely to see the full benefit of the reduction accrue only in the first quarter of this fiscal—and an uptick in demand would mean in- creased profitability from the first quarter of this fiscal. Among two-wheeler makers, New Delhi-based Hero Honda is expected to clock an 18% in- crease in sales last fiscal and analysts expect profits to rise 28.7%. The company reports its results on Tuesday. Bajaj Auto Ltd is expected to report a 5.3% decline in profit. The company aims to regain shares in the market for the more profitable 150cc bikes and has six launches planned this year. Rural markets will continue to hold the key to growth in the quarters ahead and those auto makers with strong distribu- tion in smaller cities and towns (such as Maruti and Hero Hon- da) will continue to see earn- ings expansion, analysts said. In the last fiscal year, for ex- ample, rural sales at Maruti rose to 8% of its total sales vol- ume from 3.5% in fiscal 2008.
A pickup in sales of cars, trucks and two-wheel ers in the quarter ended 31 March may not be enough to help auto makers post improved earnings for the fiscal year gone by, a Mint poll of analysts shows.
“Year-on-year numbers are not going to be good,” says Piyush Parag, an analyst at Religare Securities Ltd. At best, market leaders by revenues, Hero Honda Motors Ltd and Maruti Suzuki India Ltd, will buck the trend and post growth, he adds.
Nine brokerage firms polled by Mint—Emkay Global Financial Services Ltd, Motilal Oswal Securities Ltd, India Infoline Ltd, KR Choksey Shares and Securities Pvt. Ltd, Prabhudas Lilladher Pvt. Ltd, Centrum Broking Pvt. Ltd, IDFC-SSKI Securities Ltd, Angel Broking Ltd and Religare Securities Ltd—attribute the weak results to the severe slowdown in sales in the third quarter and high commodity prices that peaked in September last year.
For auto makers, the last fiscal year has been a rollercoaster ride. The first half of the fiscal saw a sharp increase in commodity prices. In some cases, they nearly doubled.
The average price of steel, for instance, touched $1,130 (Rs56,161) per tonne in the second quarter last fiscal, Motilal Oswal points out in a report. In the last quarter, they climbed down to $391 per tonne. Raw materials generally account for 20% of total revenues at an auto maker with steel making up a little over half of that.
Then, the third quarter of the fiscal saw a sharp slowdown in sales. November sales of commercial vehicles were the lowest since 1997. Maruti sold 17,512 less cars in Novem ber as compared with the year before.
That trend reversed in the last quarter with sales reviving somewhat. Car makers ended the year with a marginal 0.13% increase in sales. Two-wheeler sales were up 2.6% while truck sales fell 21.69%.
Despite that, Emkay Global expects overall profitability of auto makers to decline by 33% and net sales to fall 7% when compared with the fourth quarter of last fiscal.
Analysts say while sales of cars and two-wheelers picked up in the last quarter, the outlook for commercial vehicles remains uncertain as most of the sales in the last quarter were made by fleet operators looking to take advantage of the accelerated depreciation norms.
There are, however, signs that the market believes the worst is over for auto companies. The 14-share BSE Auto Index has shot up by 11.9% this month. In the same period the benchmark index, Sensex, has risen 13.5%.
Still, analysts say it is worth while adopting a wait and watch policy. Jatin Chawla of IIFL Capital writes in a report that “this buoyancy (in sales) may not sustain beyond the June quarter…” He points to tightfisted banks and the impact of a revision in salaries of government workers late last year waning after May.
In the past two quarters car makers such as Maruti Suzuki and Hyundai Motor India Pvt.
Ltd have targeted government employees who have received salary arrears. Maruti’s profit is expected to decline by 16%.
Analysts surveyed expect Tata Motors Ltd, the country’s largest auto firm by revenue, to report a 79.6% decline in earnings compared with fiscal 2008.
Tata Motors’ smaller rival in commercial vehicles Ashok Leyland Ltd is likely to see its profit more than halve to Rs211 crore compared with Rs477 crore.
“Unlike for passenger cars where the availability of financing options have improved, for commercial vehicles it is still an issue,” said Anup Maheshwari, an auto analyst at KR Choksey.
There is, however, a silver lining. A report by brokerage Prabhudas Lilladher shows that auto makers should record an increase in the average realization per vehicle, or the money earned for each vehicle sold.
For instance, Tata Motors is estimated to have earned an average Rs502,082 per vehicle last fiscal, an increase of Rs12,184, or 2.5%, over the previous year. This, coupled with lower commodity prices—companies are likely to see the full benefit of the reduction accrue only in the first quarter of this fiscal—and an uptick in demand would mean in creased profitability from the first quarter of this fiscal.
Among two-wheeler makers, New Delhi-based Hero Honda is expected to clock an 18% increase in sales last fiscal and analysts expect profits to rise 28.7%. The company reports its results on Tuesday.
Bajaj Auto Ltd is expected to report a 5.3% decline in profit.
The company aims to regain shares in the market for the more profitable 150cc bikes and has six launches planned this year.
Rural markets will continue to hold the key to growth in the quarters ahead and those auto makers with strong distribution in smaller cities and towns (such as Maruti and Hero Honda) will continue to see earnings expansion, analysts said.
In the last fiscal year, for example, rural sales at Maruti rose to 8% of its total sales volume from 3.5% in fiscal 2008.
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