A speedometer sits on a KTM 1290 Super Duke R. Photographer: Lisi Niesner/Bloomberg

Q3 Review: Indian Automakers Struggle To Rev Up Growth Engines

Festival season and year-end discounts couldn’t help Indian automakers in the previous quarter, causing the inventory to pile up.

Earnings failed to meet estimates and margins contracted in the quarter ended December, according to exchange filings. Festive sales remained tepid because higher fuel prices and an increased upfront insurance costs hurt demand. The slowdown continued into the new year.

That resulted in most brokerages cutting their full-year earnings forecast for the sector.

Here’s how the sector performed during the three months ended December:

Two-Wheeler Manufacturers

Dealers were saddled with more than two months of inventory due to weak demand in rural areas, lower festive sales and higher competition.

Also, sales failed to revive after the Kerala floods despite the situation returning to normal in the state that witnessed the worst crisis in a century.

Margins for most two-wheeler makers stood at multi-year lows during the December quarter, according to Bloomberg data. Earnings before interest, tax, depreciation and amortisation margin for Eicher Motors Ltd.’s Royal Enfield business dropped below 30 percent—the lowest in at least four quarters.

Increased competition in the entry-level segment and pricing impacted profitability of two-wheeler makers, Hero MotoCorp Ltd. had said in an investor conference organised by Deutsche Bank.

Passenger Car Makers

Maruti Suzuki India Ltd.’s margin in the October-December period contracted to nearly 10 percent—the lowest since the third quarter of financial year 2012-13.

India’s largest carmaker offered an average discount of Rs 24,300 during the period. That too when raw material costs were up 1.5 percent from a year earlier.

Tata Motors Ltd. reported the biggest loss by an Indian company as its luxury brand Jaguar Land Rover continues to struggle. JLR, too, reported a loss in the last three months of 2018 after it was forced to take a £3-billion write-down on the value of its investments as China demand fell. JLR’s margin in the December quarter fell to 7.3 percent from 10.8 percent a year ago.

Sales of the U.K.’s largest carmaker—that contributes nearly 72 percent to Tata Motors’ revenue—fell for the large part of 2018 due to a decline in demand for diesel vehicles, slowing business in key market China and uncertainties over Brexit. Hence, JLR lowered its EBIT margin guidance to 3-6 percent for FY20-22 from 4-7 percent earlier.

Commercial Vehicle Makers

Sales of commercial vehicle makers fell in the October-December period after two straight quarters of growth.

Weak consumer sentiment and funding issues by non-bank lenders led to the slowdown, according to Tata Motors and Mahindra & Mahindra Ltd. Tata Motors’ standalone business reported a 1.5 percent growth in realisations per unit. Ashok Leyland Ltd. reported a 6 percent decline in realisations.

While Ashok Leyland expects its fourth quarter to remain flat year-on-year, it maintained its domestic commercial vehicle sales growth forecast at 10-15 percent for the ongoing financial year.

M&M expects margin pressure to continue and growth to remain flat for the tractor segment in the fourth quarter.