Slowdown-hit auto firms headed for another disappointing quarter
M&M reported a 21 per cent decline in total sales at 43,343 units in September.
Kotak Institutional Equities said the revenue/Ebitda (earnings before interest, tax, depreciation and amortization)/PBT (profit before tax) for companies under its coverage are likely to decline by 12 per cent, 23 per cent and 37 per cent on a year-on-year basis.
Kotak analysts expect Ebitda margins for their auto universe to decline by 150 basis points on a year-on-year basis due to an increase in discounts following weak retail sales and negative operating leverage.
Prabhudas Lilladher expects a weak quarter for auto companies. “We expect the impact of negative operating leverage and product mix to be offset partially by easing commodity inflation, cost control initiatives and positive forex,” brokerage Prabhudas Lilladher said in a note.
For its auto OEMs (original equipment manufacturer) universe (ex-JLR), the brokerage expects YoY revenue/Ebitda/PAT to decline 26 per cent, 37 per cent and 44 per cent, respectively, with margins contracting by around 200 basis points on a year-on-year basis.
The auto sector has been reeling under pressure due to weak demand for more than a year now. The financial performance of the auto companies is likely to be under pressure owing to volume contraction over the past 12 months. During the September quarter of 2019, it fell by by16-33 per cent across categories.
The downtrend in the auto industry continued in September despite higher discounts, led by weak retail sales and inventory correction by OEMs.
Maruti Suzuki India, the country’s largest carmaker, reported a 26.7 per cent drop in sales at 112,500 units in the domestic market in September. Two-wheeler manufacturer Bajaj Auto reported a 31 per cent drop in domestic sales to 2,15,501 units. M&M reported a 21 per cent decline in total sales at 43,343 units in September.
The discount level for passenger cars reached a record high and accounted for 15-25 per cent of ex-showroom prices during the quarter. This will weigh on margins.
Edelweiss said year-on-year PAT growth in September quarter would benefit for most companies under its coverage, (with the exception of Tata Motors) due to the tax relief.
Companies, including Ashok Leyland, Bajaj Auto, Hero MotoCorp, Minda, Suprajit and Motherson Sumi (India business) are expected to benefit further from lower tax rates (lower than 25.17 per cent ) due to tax reversal from a higher payout in the previous quarter.
Edelweiss expects Maruti Suzuki to post a 58 per cent year-on-year decline in adjusted net profit for September quarter. It said the sharp 30 per cent year on year drop in volume for the quarter would drive a revenue decline of around 25 per cent year on year and cause margins to slip by around 190 basis points to 8.5 per cent.
Edelweiss sees Bajaj Auto eke out a minor 2.5 per cent gain in adjusted net profit for the second quarter of financial year 2020. It expects revenues to contract around 8.4 per cent year on year, led by a similar drop in volume.
Kotak Institutional Equities expects M&M’s net profit to decline by around 29.4 per cent in September quarter on the back of a 11.3 per cent drop in sales. It has projected a 9.5 per cent drop in net profit for Hero MotoCorp on the back of a 18.9 per cent decline in revenues. Such revenue decline will be led by a 21 per cent drop in volumes.
All but one component of BSE Auto index have posted a decline for the year to date. Motherson Sumi and Ashok Leyland led the losers’ pack with 40.73 per cent and 37. 25 per cent decline respectively. Tata Motors, Mahindra & Mahindra, Maruti Suzuki and Hero MoroCorp declined 32.34 per cent, 23.57 per cent, 11.32 per cent and 14.51 per cent respectively, while Bajaj Auto bucked the trend and advanced 6.11 per cent in the same period.
Sensex, meanwhile has gained 3.52 per cent since the start of the year.