Our Bureau

New Delhi, Feb. 8

AUTOMOBILE majors faced the brunt of rising raw material costs in the third quarter of the current fiscal as prices of key inputs such as steel, aluminium and plastic shot up.

The third quarter results of 13 major vehicles manufacturers showed a majority of them reporting an increase in raw materials cost (as a percentage of net sales)compared to the third quarter of the previous fiscal.

Tata Motors, Mahindra & Mahindra, Bajaj Auto and Hero Honda figure in the list.

For instance, Bajaj Auto's raw material cost, as a percentage of net sales, rose by 5.6 per cent, while Hero Honda reported a 3.14 per cent jump, Tata Motors 6.5 per cent and Mahindra & Mahindra 2.3 per cent.

"The sharp rise in steel prices has impacted the operating margins of almost all automobile manufacturers. Companies are trying to absorb the additional cost burden through improved productivity and cost cutting initiatives. However, in some cases the increase in price of inputs such as steel may be faster than the required volume growth to increase the level of productivity," points out an analyst at a leading securities firm.

Prompted by the jump in cost of inputs, some of the companies are contemplating a hike in prices.

Eicher Motors and Tata Motors are among those that recently hiked prices of their commercial vehicles.

According to analysts, the pressure on margins for most automobile companies could continue in the coming quarter, with the implementation of new emission norms and an expected firming up of iron ore prices.

(This article was published in the Business Line print edition dated February 9, 2005)
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