Major auto companies may report decline in sales in fourth quarter, say analysts

The auto sector that had just begun to see some uptick in sales in January and February post remonetisation, is likely to see a tougher fourth quarter following the ban on the BS-III vehicles, according to analysts.

While companies such as Maruti Suzuki India (MSIL) and Eicher Motors are expected to report a more than 20 per cent year-on-year (YoY) growth in their net sales during the January-March quarter, others such as Mahindra and Mahindra, Bajaj Auto and Hero MotoCorp may see a decline.

“The fourth quarter was a difficult quarter for auto companies, with several macro and regulatory headwinds curtailing growth. These include the spillover effect of demonetisation, input cost pressure and the Supreme Court ban on the sale of BS-III vehicles,” said HDFC Securities.

The impact of demonetisation was visible on the two-wheelers (-2 per cent YoY) and three-wheelers (-24 per cent YoY) segments, owing to disruption in rural demand.

Commercial vehicle volumes witnessed a growth of 6 per cent, while growth momentum of passenger vehicle was sustained (8 per cent), driven by new launches and long waiting period for models like Vitara Brezza, Baleno (Maruti), Fortuner (Toyota), Kwid (Renault) and Tiago (Tata), it said.

In the two-wheeler space, companies struggled to ramp up volumes. The first two months of the fourth quarter were subdued, followed by a strong pick-up in volumes in March, owing to higher discounts offered by companies to clear their BS-III inventory, said the research firm.

“We expect two-wheeler companies to have a tough quarter, with EBITDA for Hero Motocorp/ Bajaj Auto, declining by 16/17 per cent YoY respectively,” it said adding that the higher commodity prices and discounts provided to clear BS-III inventory will impact EBITDA margins for most manufacturers.

According to Motilal Oswal, Bajaj Auto’s profit (PAT) is expected to decline by 11 per cent because of decline in volumes (both for domestic as well as exports), due to the impact of demonetisation and currency issues in Africa.

On the outlook, the research firms, however, believe that the stage is set for a revival in auto demand in the current fiscal year on the back of increase in government capital spending and focus on rural economy, higher rural income with normal monsoon, higher disposable income with the rollout of the Seventh Pay Commission and falling interest cost and low base effect.

Companies like Maruti Suzuki, M&M and Hero are the top picks as they have extensive distribution network and strong rural franchise, and would be major beneficiaries of demand revival in the next two years, they added.

While Maruti Suzuki will declare its Q4 results on April 27, Tata Motors will declare on May 23, and others are also expected to declare their results in May.

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