Rising loan rates, input costs may dent Q4 numbers

Five leading auto companies — Bajaj Auto, Hero Honda, Maruti Suzuki, Mahindra & Mahindra and Tata Motors — are forecast to report the slowest growth in net sales and net profit in the March 11 quarter on a year-onyear basis. This would be in sharp contrast to the blistering growth reported for these two parameters by the players during the first three quarters of the financial year ended March 11.

For instance, these five firms are together estimated to grow their net profit by just 9.3% YoY in the March 11 quarter while net sales would rise 23% YoY, according to estimates from five leading broking houses and ETIG. This anticipated growth for the sector appears lacklustre with the 62.8% YoY growth in net profit and the 25.5% improvement in sales reported in the December 10 quarter while growth in the first quarter of FY11 was even stronger.

Analysts highlight the impact from rising auto-finance interest rates and input costs that have not shown any signs of easing , and the impact could be visible on the forthcoming quarterly results of the auto sector. Auto companies had raised prices across different segments during the fourth quarter, but that is not expected to prevent a fall in operating margins for the broader auto sector.

However, among these players, the performance of Tata Motors (consolidated basis) and Bajaj Auto are expected to be broadly better than their peers in the March 11 quarter. Tata Motors is expected to benefit from strong demand conditions in emerging markets, like China and Russia for its marquee brands Jaguar Land Rover (JLR). And for Bajaj Auto, its focus on higher margin models like Discover and Pulsar should help it deal better vis-àvis its peers with regard to higher input costs.

Investors, however, appear to be cautious to this sector, with the ET Automobiles index that has lagged the broader market since the start of this calendar year. This sectoral index has declined nearly 10% during this period compared to a 6.3% fall in the broader market. Tata Motors at . 1,219 per share trades at a consolidated P/E of nearly 8.7 times while Bajaj Auto trades at 16 times.