Automotive manufacturers were under pressure in the first quarter on account of a year-on-year increase in raw material costs, sectoral analysts believe, resulting in margins thinning further.
According to the report by Yaresh Kothari of Angel Broking, in the three months to June, key raw materials such as steel, aluminum, plastic and rubber witnessed average increases of around 6%, 18%, 1% and 38%, respectively, over the previous year. However the report said average price hike of 2% by auto makers during the quarter and ongoing cost reduction initiatives will dilute the impact of input cost inflation to a certain extent.
The companies tracked by Angel Broking such as Maruti Suzuki, Ashok Leyland, Bajaj Auto, Hero Honda, M&M, Tata and TVS are expected to report around 9% higher net profit over the previous year; however, it is expected to decline by around 13% quarter-on-quarter. The net profit of Maruti and Ashok Leyland is likely to fall 3.7% and 17% respectively while Bajaj, Hero Honda, M&M and Tata are likely to see a growth of 24%, 12%, 13% and 12% year-on-year, respectively.
A report by Motilal Oswal predicted muted growth to persist for the rest of the year as well. It said the exchange rate fluctuation led to concerns over export revenue realisation and cost of imported inputs and the effectiveness of hedging practices followed by companies. Sequentially the rupee depreciated against the euro by 4.1% and against the pound by 0.8%. It appreciated against the dollar by 1.2% and yen by 0.7% in the quarter.
Market experts said financing plays an important role for the industry and interest rates exhibit a negative correlation with auto volume growth. Monetary tightening by the RBI pushed up interest rates while the government hiked fuel price by R7.5 per litre for petrol and R3.40 for diesel that negatively affected the sentiments of buyers and freight operators profitability, resulting in slowing down the sales growth.
Due to this, the auto index underperformed the Sensex during the first quarter, registering a decline of 5.3% versus losses of 3.1% posted by the Sensex. Tata Motors? share price declined by 20%. Maruti?s fell by 8% on account of the strike at its Manesar plant.
The passenger vehicle segment witnessed a slowdown in volume growth, resulting in the industry registering a sluggish 10.6% growth in volumes in the quarter. Market leader Maruti recorded sluggish volume growth in domestic market, due to which it reported a 0.6% decline in sales.
