Auto earnings vroom to March quarter rebound despite speedbumps from chip carnage, input inflation

Net sales and net profit of top nine auto companies rose seven and 32 percent year on year respectively in the March quarter despite a rise in commodity prices, shortage of chips, and muted demand in a few segments.

Tata Motors, Hero MotoCorp, and Mahindra & Mahindra reported 100-200 basis point fall in margins while a few automakers like Maruti Suzuki India, TVS Motors, and Ashok Leyland reported marginally higher margins. Overall the quarter saw margin go up a bit.

Analysts expect sector margin pressure to continue with chip shortage unlikely to go away soon and geopolitical tensions to increase inflationary pressure.

Maruti Suzuki India posted a 57.7 percent jump in quarterly profit despite a surge in raw material costs and global semiconductor shortage as the firm hiked prices and lowered promotion sales costs.

Mahindra & Mahindra reported a 427 per cent jump in standalone profit after tax at Rs 1,292 crore. Revenue stood at Rs 17,124 crore, a 28 percent increase. Sales of vehicles jumped 43 percent while tractor sales advanced 23 percent.

Hero MotoCorp reported 28 percent decline in net profit while revenue fell 15 percent as sales of two-wheelers slid 24 percent. The firm said it will deliver growth from the first quarter of FY23 but analysts feel that may take longer as the firm recently announced delaying new product launches.

Bajaj Auto registered a 10 percent rise in net profit while revenue fell seven percent. The firm said it continues to face severe supply chain challenges.

Vinit Bolinjkar, head of research at Ventura Securities, expects improvement in chip supply to reduce production pressure on the auto sector, while a few price hikes eased input cost pressure on operating profits, leading to a rise in operating profit margins. Besides, aggressive launches in medium to subpremium segments have improved the average realisation and profitability of auto original equipment makers.

"The auto sector witnessed a healthy rebound in the March quarter aided by volume recovery. With higher volumes, operating leverage
kicked in for auto companies which helped margins. The increase in raw material prices was also partially offset by price hikes. We remain constructive on the auto space as the demand scenario remains healthy," said Ajit Mishra, vice president of research at Religare Broking

For tractors, analysts say the performance was muted during the quarter and from April they are showing strong numbers led by better price realisations for crops. Timely arrival of monsoon coupled with normal rains forecast augurs well for tractor demand, analysts added.