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Auto cos rev up for earnings: Maruti Suzuki to star; Tata, Hero to suffer

Commercial vehicle makers bore the brunt of the Supreme Court ban on sale of Bharat Stage-III vehicles from April 1 even as car companies went relatively unscathed.

April 17, 2017 / 05:00 PM IST
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With the effects of demonetisation wearing off, the embattled auto sector was looking forward to some growth opportunities in the first two months of the March quarter. But in March, commercial vehicle makers bore the brunt of the Supreme Court ban on sale of Bharat Stage-III vehicles from April 1 even as car companies went relatively unscathed.

Maruti Suzuki, the country’s largest car manufacturer, will once again become the stand-out company during the January-March quarter thanks to encouraging numbers for the Vitara Brezza, Baleno and Ignis.

The Delhi-headquartered company is expected to post revenues of Rs 18,500 crore and a profit after tax of Rs 1,800 crore for the quarter ended March 31, 2017.

“We expect the company to post healthy topline growth resulting out of 15.5 percent year-on-year volume growth driven by Baleno and Vitara Brezza.," stated a note from KR Choksey. "We expect the realization tom improve by 4.82 percent quarter-on-quarter led by a change in product mix. We expect the EBITDA margin to improve by 39bps quarter-on-quarter by lower discounts but decline by 51bps as spend on SG&A employee cost and royalty expenses are expected to go higher”,

Similarly Eicher Motors, the owner of Royal Enfield, is expected to be a cut above the rest in the recently concluded quarter. The Delhi-based company, which was insulated by the after-effects of demonetisation as it was still delivering previously booked vehicles, should be able to expand its EBITDA margin by 240 bps.

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“Net realization is expected to improve by 1.8 percent YoY (+0.6 QoQ), supported by price hikes”, said a note by Motilal Oswal.

Tata Motors, the country’s largest automotive company, will be the hardest hit among four-wheeler manufacturers during the quarter. The Mumbai-based company is believed to be saddled with unsold BS-III commercial vehicle stocks worth around Rs 2500 crore at end of last month.

“Standalone businesses combined are expected to incur losses (of Rs 5 billion) on account of higher commodity costs and increased discounting in the M&HCV segment”, said a report from ICICI Securities.

Bajaj Auto, the country’s most valued two-wheeler company, is also expected to also post a disappointing set of numbers. According to Motilal Oswal, the Pune-headquartered company will likely report a 11 percent drop in net profit for the quarter driven down by drop in domestic demand and export volumes.

“We expect realization to grow by 1.4 percent YoY (+5% QoQ) led by improvement in mix of premium segment motorcycles though partly offset by decline in the three-wheelers segment, as a result net revenues are expected to decline by 8 percent YoY. EBITDA margin should contract 100bp YoY (-10bp QoQ) to 20.5 percent – due to higher commodity prices and staff cost. We expect PAT to decline ~11 percent YoY (-9% QoQ) to INR8.4b”, said the Motilal Oswal note.

Delhi-headquartered Hero Motocorp will be the worst hit among two-wheeler manufacturers during the quarter. The market leader, Hero bore the brunt of demonetisation and BS-3 sale ban. At 3 lakh units, it had the maximum inventory of BS-3 stock among all the listed and unlisted two-wheeler companies.

“We expect the company to post 4 percent decline y-o-y on facing the heat of demonetisation and bearing the maximum brunt of the BS-3 ban," said a report by K R Choksey. "Improvement in cash circulation resulted into 10.1 percent QoQ volume growth but was unable to surpass fourth quarter FY16 volumes and fell by 5.8 percent YoY. Volume growth was also triggered by deep discounting on BS-3 vehicles impacting the realization by 2 percent.”

“Among OEMs, Maruti and Eicher would have the best results on strong demand and no impact from emissions transition," said a report by Credit Suisse. "We expect TVS, Mahindra and Hero to be the most impacted from the emissions transition and hence expect double-digit decline in their profits. Bajaj and Ashok Leyland too would have a small impact from this. We expect commodity pressures to be most severe on CVs.”
first published: Apr 17, 2017 05:00 pm

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