on discounts, input costMumbai, Jan 14 (PTI) Though auto companies are set forbetter revenue growth in the December quarter, primarilyboosted by pick-up in rural demand and low-base effect due tothe note ban impact, higher input costs and year-end offerswould crimp their margins, says a report.
Most auto companies and ancillaries are likely toreport double-digit revenue growth of 14-51 per cent duringthe third quarter, says a weekend report by HDFC Securities.
However, higher commodity prices and festive/year-endoffers/marketing spends will shave off the margins of mostplayers to the tune of 84 bps for the industry sequentially to15.4 per cent, warns the report.
"The auto sector is set for a robust revenue growth inthird quarter led by a recovery in rural demand, healthyfestive retail sales and low base effect owing to note-ban.
However, higher commodity prices and increase indiscount/incentives will restrict margin expansion," says thereport.
Though passenger vehicles volume grew only 7 per centdespite favourable base in the reporting quarter, this will becompensated by better commercial vehicles volume which jumped28 per cent, led by a revival in freight rates, pick-up ininfra spending that ensured higher sales of higher tonnagetrucks and tippers and low base effect.
Against this, two-wheeler volume soared 18 per centdriven by strong rural demand especially from Bihar, UP,Odisha and MP.
The quarter saw average price of key commoditiesincreasing fast with steel prices rising over 6.2 per cent,lead over 7 per cent and aluminium jumping over 12.4 per cent.
The only raw materials that saw a price compression wasnatural rubber which fell marginally by 1.4 per cent.
Commercial vehicles volume witnessed a healthy 30 percent growth in the reporting quarter.
The industry saw a sequential increase in discounts ascompanies pushed inventory ahead of regulatory changes fromJanuary 1 (AC or blower is mandatory for N2 & N3 categoryvehicles).
Most auto ancillary companies are also expected toshow strong numbers led by sturdy industry volume growth, andpass on the impact of higher input costs. Most auto ancillarycompanies are also expected to show strong numbers led bysturdy industry volume growth, and pass on the impact ofhigher input costs.
On the industry outlook, the brokerage said itcontinues to believe that the stage is set for strong demandfor automobiles across segments on the back of an increase ingovernment capex and focus on the rural economy, increasingper capita income and growing urbanisation, and fallinginterest costs and better finance availability.
On the industry outlook, the brokerage said itcontinues to believe that the stage is set for strong demandfor automobiles across segments on the back of an increase ingovernment capex and focus on the rural economy, increasingper capita income and growing urbanisation, and fallinginterest costs and better finance availability.
Ashok Leyland may lead the pack with a strong netprofit growth of over 81 per cent year-on-year led byoperating leverage benefit and higher volumes which rose 41per cent and better tonnage mix, while Tata Motors is set tofor a 54 per cent pre-tax profit on low base.
However, despite record sales led by the consistentsuccess of the Ciaz, Brezza and Baleno, and incremental demandfor the new Dzire, industry leader Maruti Suzuki is expectedto post only a 14 per cent growth in top-line, while itsmargin is likely to contract 127 bps as benefits of strongervolume are expected to be offset by lower gross margins owingto the Gujarat plant ramp up.
In the two-wheeler space, Bajaj Auto's margins mayexpand by 50 bps led by robust three-wheeler sales and may seeits topline jumping 24 per cent, but Hero Motocorp will seemargins declining by 76 bps owing to higher marketing spends.
Tata Motors may report a 10.3 per cent margins, whileMahindraÂ’s will be amongst the lowest at around 3 per cent.
PTI BENNSK.
This is unedited, unformatted feed from the Press Trust of India wire.