Apr 17, 2012, 11.42 AM IST
Fourth quarter revenues of auto companies could grow 30% year-on-year on an average, much of it driven by a surge in passenger car sales. On the whole, FY11 was not great year for passenger car makers, though two-wheeler firms and commercial vehicle makers did much better.
Fourth quarter revenues of auto companies could grow 30% year-on-year on an average, much of it driven by a surge in passenger car sales. On the whole, FY12 was not great year for passenger car makers, though two-wheeler firms and commercial vehicle makers (led by LCVs) did much better.
Expensive loans, rising petrol prices and labour problems at Maruti Suzuki kept car sales in check between April and December last year.
But demand for cars jumped in the January-March quarter as customers preponed their purchases to pre-empt the excise duty hike which finally came through in the Budget. Maruti Suzuki , in particular, surprised positively, with a sales growth of 5%, 6.5% and 3% in Jan, Feb and March respectively. Its full year sales (April-March) fell 11% to 11,33,695 units. Tata Motors also saw good demand for some of its passenger cars led by the Nano.
Commercial vehicles too saw good growth led by continued momentum for light commercial vehicles.
Two-wheeler sales, however, seemed to hit the brakes in the fourth quarter, due to slowing demand and high base effect in the year ago quarter. TVS Motor , for instance, could see its net sales rise 3-8% year-on-year and decline 0.2-4% sequentially, in the fourth quarter. Bajaj Auto 's net sales are seen up 12-15% year-on-year, while declining 5-7% quarter-on-quarter.
Among top auto makers, Tata Motors' revenue is expected to accelerate 40-42% year-on-year, helped by strong growth at its luxury Jaguar and Land Rover unit, and pickup in domestic sales of Tata vehicles.
Maruti Suzuki, which was hit by a labour strike at its Manesar plant earlier, is expected to see sales rebound 16-22% from a year ago, helped by strong demand for its Swift hatchback and new compact DZire, even as small cars like Alto, A-Star and Wagon R continued to see declining volumes.
Standard Chartered analysts, Amit Kasat and Aniket Mhatre, however, say Maruti's average realizations will only rise 13% from a year ago and 1% sequentially due to higher discounts given on petrol vehicles.
India's largest utility vehicle maker Mahindra & Mahindra is expected to report revenue growth around 20-25%, backed by strong growth of utility vehicles, although tractor sales have slowed off-late. Its profit is likely to decline 5% from a year ago and operating margin is seen down 50 bps due to adverse product mix, according to the Standard Chartered analysts.
Despite good sales growth and stable raw material costs, higher discounts offered particularly by passenger car and commercial vehicle companies will put pressure on margins. Adverse currency movements due to the appreciation of US Dollar and Yen to the Rupee will also hurt margins, warns Ambit Capital.
Tata Motors, however, will be an exception, with strongest ever revenue growth and margin expansion in the fourth quarter, powered by robust growth at Jaguar Land Rover.
The road ahead
"We believe budget has raised red flags, which can delay cyclical recovery in demand for four-wheelers," said Chirag Shah of Emkay Global Financial Services.
Finance Minister Pranab Mukherjee announced excise duty hike in the budget, which was passed on to customers by auto makers. This price hike analysts say could hurt sales in the near-term.
Maruti Suzuki too has warned that the first half of the fiscal will be tough for passenger car makers, as factors that led to the slowdown -- high fuel costs and expensive loans -- still persist. In fact petrol prices are likely to be raised once again, and that is a concern for car makers.
Meanwhile, with a sharp rise in petrol prices, demand for diesel vehicles has shot up over last few quarters. Maruti Suzuki, for instance, says diesel cars sales rose to 24% last year from 18% a year ago. In the industry, demand car sales increased to 47% of total from 36%.
Analysts and company executives expect the demand for diesel cars will continue to rise going ahead if the gap between petrol and diesel prices stays.
Two-wheeler sales too are expected to see sluggish demand. Yaresh Kothari of Angel Broking expects two-wheeler sales will grow around 10% year-on-year in fiscal 2013.
Among key stocks, Bajaj Auto and Maruti Suzuki are preferred by Standard Chartered.
Angel Broking advises investors "buy" Bajaj Auto, Hero MotoCorp and Maruti Suzuki, and "accumulate" Ashok Leyland , Mahindra & Mahindra, Tata Motors and TVS.
Ambit has a "buy" on Ashok Leyland, Bajaj Auto and Tata Motors. But it advises a "sell" on Maruti Suzuki and Hero MotoCorp .
As of Monday's close, the CNX Auto Index has risen over 26% since December-end. The broader NSE Nifty index is up 13% over the same period.
Action in Maruti Suzuki India
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