Auto sector expected to report mixed bag of earnings in Q1
Passenger vehicles and two-wheelers saw a small growth in volumes due to new launches and wedding season rush, but commercial vehicles continued to struggle with BS-IV implementation and slow economic growth
The first quarter of the financial year 2018 will likely throw a mixed bag of results with passenger vehicles and two-wheelers marking a slight growth in volumes whereas commercial vehicles continuing their struggle.
While factors such as new model launches and wedding season rush boosted the demand, fear of rise in prices post implementation of goods and services tax (GST) and BS-IV implementation dented the numbers.
Car market leader Maruti Suzuki is likely to lead the auto pack yet again on the back of a 13 percent growth in volumes during the quarter ended June 30, selling 394,571 units.
New models such as Ignis, Brezza, Dzire and Baleno have generated consumer interest in Maruti surpassing supplies. However, analysts believe that higher raw material prices and steeper than usual discounts will eat into Maruti’s margins.
A report from KR Choksey stated: “We expect Maruti to post nominal topline growth of 6 percent. Improved mix of Baleno and Brezza is likely to drive realisations up by about 5 percent. We expect the EBITDA margin to decline by 123 bps on the back of higher discounts and increase in operational cost due to rise in input cost. PAT margins to remain stable but decrease by 111 bps.”
Tata Motors will be tested yet again, thanks to the fall in volumes of margin-rich subsidiary Jaguar Land Rover (JLR) and slump in demand for trucks and buses. This is even as its passenger vehicle business unit showed signs of a ‘much-awaited’ turnaround.
Volumes for JLR were nearly flat with a growth of just 1.8 percent during the reporting quarter at 136,758 units as compared to the same quarter last year. Commercial vehicles volumes in the domestic market dipped 17 percent, majorly because of preponed buying due to the Supreme Court-imposed order on BS-III class of vehicles. Exports crashed 30 percent during the same quarter.
In comparison, two-wheelers had a slightly better quarter despite the after-effects of BS-IV switchover. Wedding season in the North and launches of new models helped push volumes.
Sales of market leader Hero Motocorp (HMCL) rose 6 percent to 1.84 million units during the quarter. While its motorcycle volumes went up by 7 percent, scooter volumes remained flat.
“HMCL reported an increase in volumes in the June quarter after a fall in the previous two quarters. Expecting realisations to be higher by 1 percent, revenue would grow by 7 percent. Benefits of its cost reduction programme should help margins but owing to the higher price raw material inventory, EBITDA margin is expected to be at 16.1 percent, lower by 50 bps,” said a report by Prabhudas Liladhar.