Covid-19, BS-IV inventory correction may pull down Q4 earnings in auto sector: Report

Our Bureau New Delhi | Updated on April 09, 2020 Published on April 09, 2020

The automobile sector is expected to report a sharp decline in its upcoming fourth quarter results, with revenues and net profits falling 23-46 per cent year-on-year (YoY), an analytical report said on Thursday.

The decline will be due to the planned BS-IV inventory correction undertaken by the original equipment manufacturers (OEMs), lockdown in March owing to the pandemic and sharp fall in export volumes, it said.

“We expect a significant fall in earnings for Maruti Suzuki India (-40 per cent YoY), Eicher (-35 per cent YoY), Hero MotoCorp (-28 per cent YoY), Bajaj Auto (-32 per cent YoY) and TVS Motor (-52 per cent YoY). Ashok Leyland is projected to report negative earning as per our model,” said Abhishek Jain, analyst at Mumbai-based Dolat Capital Market.

Most auto ancillary companies are also likely to report significant contraction in tandem with the slowdown in demand from the OEMs, he added.

Although the recent fall in the prices of commodities such as aluminium, lead, natural rubber and steel is a positive for margins, negative operating leverage and the cost hike due to supply disruption will wash out all the benefits, he said.

According to the report, Maruti Suzuki India is expected to see its topline fall 15 per cent YoY, led by a 16 per cent decline in volume offset by 1 per cent increase in realisation. Its EBITDA margin is expected to contract by 164 bps YoY to 9 per cent owing to negative operating leverage and unfavourable currency movement.

The company had last year reported a standalone net profit of ₹1,796 crore for the fourth quarter ended March 31, 2019, which was 5 per cent lower than the corresponding period the previous year.

Similarly, in the two-wheeler segment, Hero MotoCorp's revenue is expected to fall 28 per cent YoY led by a 26 per cent decline in volume and 3 per cent fall in realisation. “We expect operating margin to contract 255 bps YoY to 11 per cent, led by negative operating leverage and high discounts,” it said.

For Q4 FY19, the company had reported a net profit of ₹730 crore for Q4 FY19 (decline of 24 per cent YoY), and total income of ₹8,049 crore, down 8 per cent YoY.

Bajaj Auto’s revenue fell 13 per cent YoY, led by a 17 per cent decline in volume, partially offset by a 4 per cent increase in net realisation, it said. “We expect operating margins to remain flat YoY at 16 per cent, led by deterioration in the product mix offset by currency depreciation and lower commodity costs,” it added.

Similarly, TVS Motor's revenue is expected to decline 27 per cent YoY, led by a 30 per cent fall in volume, offset by a 5 per cent increase in realisation. Operating margin expected to remain flat YoY.

In the commercial vehicle segment, Ashok Leyland's top-line is expected to de-grow 63 per cent YoY, led by 57 63 per cent fall in volumes and 6 per cent dip in realisations due to adverse mix (lower share of medium and heavy commercial vehicles) and higher discounts.

Similarly, Eicher Motor's revenue is expected to de-grow by 12 per cent led by a 17 per cent fall in volume, offset by a 6 per cent increase in realisation (led by introduction of new models and price hike because of BS-VI).

Published on April 09, 2020

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