The Hindu Business Line : Q1 profits of auto parts makers take a beating

New Delhi/Chennai, Aug 7 Auto component industry witnessed a decline in net profits for the April-June quarter of the current fiscal even as their net sales grew at a healthy pace. An analysis of the performance of 10 companies showed that while six reported a decline in net profits the seventh actually slipped into the red.

While companies such as Amtek, Motherson Sumi, Sona Koyo, Sundram Fasteners reported lower profits due to forex losses, others such as Rane Engine Valve, ZF Steering, Hinduja Foundaries saw their earnings shrink due to raw material prices and lack of timely upward adjustment in prices by vehicle manufacturers, for supplies made to them.

Amtek Auto seems to be an exception in this regard as it showed higher net profits due to the gains made in the extraordinary items.

“Our net profits have shown a surge mainly due to increase in our extraordinary income. We had a forex liability of Rs 23 crore and we gained Rs 53 crore on sales of shares — the resulting net gain was of Rs 30 crore,” said Mr Santosh Singhi, Chief Financial Officer, Amtek Auto.

Similarly, Motherson Sumi Systems, which increased net sales by 24 per cent bolstered by more than half of earnings in the overseas market, too recorded lower profits.

“The impact of raw material price increase has not been as significant as settlements are done with the automobile companies subsequently. However, we booked a Rs 25-crore loss on Foreign Currency Convertible Bonds, bringing our profits down,” said Mr G.N. Gauba, Vice-President (Finance), Motherson Sumi.

Rising costs

Besides currency fluctuation, auto parts companies impacted by raw material prices were unable to pass on the entire increase in their input costs to automobile companies.

“Input cost increased 25 per cent compared to last year. Though the rise in input cost is generally compensated, there is a gap between the increase and the actual compensation, which hits the component manufacturers hard, especially the Tier II and III companies,” said Mr V. Sankar, Chief Financial Officer, Hinduja Foundaries.