The higher growth in demand for passenger vehicles and two-wheelers over the past few months have led auto analysts believe that the auto companies are in all probability set for a sharp revival with robust earnings in the quarters to come.
?The core business performance of the auto companies has changed for the better; visibility has been restored with substantial year-on-year growth in the last two quarters. Consequently, the second quarter?s performance is likely to be robust on a year-on-year basis and companies are expected to post a robust sequential growth in their revenues due to better volumes,? an analyst with Angel Broking said.
This comes on the backdrop of robust numbers by all auto majors in the country. While sales of Maruti Suzuki India, country?s largest passenger car manufacturer, went up by 22.5% in the July to September quarter, Tata Motors, which is country?s largest commercial vehicle manufacturer and third largest passenger car manufacturer, registered a year-on-year growth of 18.5% in the second quarter ended September 30. Likewise, Hero Honda, world?s largest two-wheeler manufacturer also saw a jump of 21.7% in the second quarter sales in the current financial year vis-?-vis the corresponding quarter in the last financial year.
An analyst with Nomura says, despite low monsoon, the growth in tractors, two-wheelers and passengers in the last few months have proved things other way around. ?We believe the numbers during the months will allay concerns of weak volume because of lower-than-normal rainfall in India. We see significant upside to our volume growth estimate in the months to come,? the analyst added.
Likewise, Hero Honda clocked a 34.1% growth in net sales in the first quarter at Rs 3,822 crore (Rs 2,851 crore) on the back of 25% growth in volumes for the company, and better average realisations (Rs 34,000 per bike, compared to Rs 31,000 last year). Company?s net profit went up by 34.6% at Rs 402 crore (Rs 299crore) mainly on account of lower tax provision owing to the benefits arising from commencement of the Haridwar plant.
On the other hand, the ancillaries are set to gain their lost market over the last one year due to a strong revival of the sector, favorable interest rates and commodity prices, improved volumes and better operating leverage, said the analyst with Nomura.
Explaining in details on the possibility of strong revival, the Angel Broking analyst said that finance has started returning to the auto sector and to a large extent in private ventures due to a large ticket size and lower defaults. Banks and financial institutions have reduced their interest rates by almost 350-400 basis points in the last six months. Commercial vehicle disbursements are also improving, albeit at a slower pace.
Financiers are optimistic that truck demand will recover by fourth quarter as freight volumes in the economy start improving fast. The prices of commodities such as steel, aluminium, rubber which were on the higher side during last fiscal, are set to move downwards and to remain low in the medium term, which would in turn help manufacturers improve their margins.
According to them, after being under tremendous pressure during last one year due to global meltdown, the commercial vehicles are set to regain their lost ground and this is evident from the fact that the last two quarters have seen a sequential recovery in the sales of Tata Motors and Ashok Leyland.
The passenger vehicle segment, in particular, reported a good recovery in the last two quarters, largely aided by an increase in export volumes and a gradual recovery in domestic market front. Given its low penetration, the PV segment has the potential to record double-digit growth over the next five years. The significant export plans of various manufacturers will further boost the sustaining growth levels in the years to come.
The analysts are of the view that going ahead, new launches, rising income levels and easy availability of finance will play a crucial role in reviving the fortune of auto sector and their continued revenue and earnings growth.
