Auto firms to see double-digit profit growth

Volume growth, price increase likely to boost margins in the June quarter

Automobile majors like Maruti Suzuki, M&M, Bajaj Auto, Eicher and TVS Motor are expected to report a strong double-digit profit growth for the first quarter ended June on the back of strong volume growth (partly helped by last year’s low base) as well as improved margins. Most firms had seen a profit decline or a low single-digit profit growth in Q1 of FY18 owing to the impact of higher commodity prices, compensation to dealers for transition to goods and services tax and low sales volumes.

The country’s top carmaker, Maruti Suzuki, is expected to report a 47 per cent growth in profit to ~22.95 billion in the first quarter of FY19. This is against a 4.4 per cent growth seen in the corresponding period of previous year. The company saw a volume growth of 24 per cent during Q1 of FY19 to 490,479 units. Its corresponding volume growth in last year was 13 per cent. Motilal Oswal expects the company’s revenue to grow by 28 per cent to ~225 billion.

Utility vehicle and tractor major Mahindra & Mahindra is projected to report a 59 per cent growth in profit in Q1 to ~12.23 billion. The home-grown automaker had seen a 20 per cent dip in profit during Q1 last year. Its Q1 FY19 volume growth in passenger and commercial vehicles was 20 per cent, while tractor volume expanded 19 per cent. Motilal Oswal expects a strong profit growth of 59 per cent and a revenue growth of 18 per cent in Q1 to ~130.7 billion.

Gautam Duggad, head of research at Motilal Oswal, said the volume growth across the board has been good. “Despite higher commodity prices, the volume-led improved operating leverage and price increase could help our auto universe (excluding JLR), expand Ebidta margins by 200 basis points year-on-year. Volume growth is the primary reason,” he said.

Two-wheeler major and top three-wheeler player Bajaj Auto is projected to report a 33 per cent profit growth in Q1 vis-àvis last year to ~12.57 billion, while revenue is expected to grow 43 per cent to ~77.88 billion. It had reported a profit decline of over 19 per cent in Q1 of last year mainly due to a decline of 10 per cent in vehicle sales. It has seen a volume jump of 38 per cent in the April-June period this year.

Royal Enfield maker Eicher is expected to report a 35 per cent growth in profit and a 26 per cent expansion in revenue. The country’s second-biggest commercial vehicle maker Ashok Leyland could see a profit increase of 176 per cent to ~3.31 billion. TVS Motor is expected to see a 33 per cent growth in profit.

Tata Motors is the only company inMotilal Oswal’s universe of 16 listed auto firms that is likely to report a decline in profits in Q1. The research report expects Tata Motors to see a 12 per cent dip in profit to ~8.52 billion. The 16 companies could see an average profit growth of over 33 per cent to a total of ~95.48 billion. Revenue growth for these companies is seen at 22 per cent to ~1.64 trillion.

The first quarter is usually a slow quarter for the auto industry and demand picks up from the second quarter (JulySeptember) when dispatches are stronger due to festive season demand as well as the demand from rural markets after kharif harvest. A normal monsoon and announcement of a higher farm support price also augurs well for automobile sales, especially two-wheelers and tractors.