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Auto firms’ sales drop may ease in Q3, margins set to stay muted

Revenue of automakers, excluding Tata Motors, is expected to decline in low single digits.

, ET Bureau|
Last Updated: Jan 22, 2020, 08.45 PM IST
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Mumbai: A sales uptick during the festive season will narrow the year-on-year decline in the revenues of automotive companies in the quarter ending December compared to the preceding quarters, but margins will remain under pressure due to high discounting.

Revenue of automakers, excluding Tata Motors, is expected to decline in low single digits compared to last year, data collated from multiple research reports showed. This will be a significant improvement over the preceding quarter, when aggregate revenue of automakers registered a double-digit drop.

Tata Motors is expected to show growth in revenue after six straight quarters of decline due to better financial performance from its subsidiary Jaguar Land Rover, which accounts for over three-quarters of the carmaker’s consolidated revenue. The company is the country’s largest carmaker by revenue.

Net profit of automakers is expected to decline between 3% and 8%, again excluding Tata Motors.

“Whatever benefit came from softening of commodity prices will get offset by higher discounting,” Bharat Gianani, auto analyst at Sharekhan, told ET.

Bajaj Auto and Maruti Suzuki are expected to post a growth in profit. Bajaj Auto has a higher share of exports compared to its peers and a favourable exchange rate should aid profit growth, while Maruti Suzuki had better operating leverage and product-mix, according to a report from Reliance Securities.

Another outperformer will be Exide, Gianani said, while Ashok Leyland, Apollo Tyres and Hero MotoCorp will be the laggards.

Revenue of commercial vehicle makers, the worst-hit segment, as well as two-wheeler makers, is expected to decline between 36% and 77%, ICICI Securities forecast. Passenger vehicle makers' revenue change was predicted between a decline of 14% and growth of 1%.

Analysts are also expecting a healthy pick-up in the earnings per share of the auto companies. According to Bloomberg consensus data, the average earnings per share (EPS) of the 15 participants of the Nifty Auto index is expected to grow by 51.9% over the next 12 months.

Tata Motors’ EPS is expected to grow 559% over this period on account of low base due to poor financial performance during preceding quarters and expected recovery in performance of the JLR unit.

The expected returns over the next 12 months from nine of the 15 participants of the benchmark index, however, remain negative. The aggregate expected 12-month return from Nifty Auto companies is 2.9%, Bloomberg data showed.
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