Another round of auto price hike looks inevitable
While auto majors have been able to keep up the demand by offering huge dealer-level discounts, another round of price hike is just a matter of time as input costs continue to rise.
By ET Bureau |
MUMBAI: The automobile sector will continue to face challenging times, feel most brokerages, as the pressures of last financial year (FY08) have only intensified. According to analysts tracking automobile stocks, higher oil prices and interest rates remain key threats to volume growth while the sharp rise in input prices would pose a challenge for margins.
While auto majors have been able to keep up the demand by offering huge dealer-level discounts, another round of price hike is just a matter of time as input costs continue to rise. "With soaring inflationary pressures, there will be a limit to which the market will be able to absorb the hike," says Prabhudas Lilladher, in its earnings preview report, adding that "consequently, the bottomline of automobile companies would increasingly be under pressure."
According to ICICI Securities' estimates, the aggregate revenue growth of the sector would be around 13.7% year-on-year (Y-o-Y), while operating margins would decline 150 basis points to 10.30%. "Q1FY09 was characterised by margin pressure from commodity push and increase in staff expenses, which are expected to lead to 150 bps Y-o-Y margin decline to 10.3%," says the report. The brokerage expects a recurring net profit decline of 11% Y-o-Y.
While auto majors have been able to keep up the demand by offering huge dealer-level discounts, another round of price hike is just a matter of time as input costs continue to rise. "With soaring inflationary pressures, there will be a limit to which the market will be able to absorb the hike," says Prabhudas Lilladher, in its earnings preview report, adding that "consequently, the bottomline of automobile companies would increasingly be under pressure."
According to ICICI Securities' estimates, the aggregate revenue growth of the sector would be around 13.7% year-on-year (Y-o-Y), while operating margins would decline 150 basis points to 10.30%. "Q1FY09 was characterised by margin pressure from commodity push and increase in staff expenses, which are expected to lead to 150 bps Y-o-Y margin decline to 10.3%," says the report. The brokerage expects a recurring net profit decline of 11% Y-o-Y.
| | Also read |
| �� | |
| �� | |
| �� | |
| �� |
Auto majors like Bajaj Auto, Hero Honda, Maruti, Tata Motors and Mahindra & Mahindra (M&M) have been considered in this edition of quarterly preview. The brokerages are expecting a fall in the quarterly sales and profits of Tata Motors. The bottomline of Hero Honda is also not expected to be impressive, either.
"Passenger car sales (of Tata Motors) would continue their declining trend with a 12% Y-o-Y fall in volumes," says Motilal Oswal Securities. The brokerage estimates an EBITDA margin decline of 10 basis points quarter on quarter (Q-o-Q), but flat Y-o-Y to 9%. This would result in the adjusted PAT declining 9.3% YoY, the report adds.
Interestingly, in the case of Hero Honda, CLSA says margins will see a sequential decline due to higher promotional spend as the company was a sponsor in the Indian Premier League cricket tournament during the first quarter. However, on an Y-o-Y basis, the company is likely to outperform with 38% PAT growth, driven by 11% Y-o-Y volume growth.
Meanwhile, India Infoline feels that Maruti could surprise negatively as it has been the least capable of passing on price hikes, largely on account of competition from Hyundai and GM.
Download
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
ADVERTISEMENT
