Festive Demand Likely To Boost Automakers’ Earnings

Passenger vehicle volumes rose as dealers restocked anticipating demand in the festival season. That’s expected to boost automakers’ earnings in the quarter ended September.

Volumes had slowed down in the previous three months as dealerships cut inventory ahead of the transition to the Goods and Services Tax. They stocked up in July and August as the festival season began earlier than usual in September this year. Sales of large trucks also rose as transporters expanded fleet due to strict curbs on overloading.

Rising commodity costs may hurt margins, Joseph George, auto analyst at brokerage IIFL Institutional Equities, said in his earnings preview. Nomura, in its report, said the impact will come with a lag in the third quarter ending December.

Passenger Vehicles

• Maruti Suzuki Ltd., the country’s largest passenger vehicle maker, is expected to see its margins rise as it cut discounts and sold more cars, according to Credit Suisse.
• Nomura believes that companies like Maruti Suzuki & Mahindra and Mahindra Ltd. can surprise the street positively.

Two-Wheelers

• Credit Suisse expects Bajaj Auto Ltd. and Hero MotoCorp Ltd. to benefit from festive demand.
• India’s largest two-wheeler maker Hero MotoCorp’s margin will expand on stronger sales growth.
• Rival Bajaj Auto’s margin is expected to improve as its sales rose after five straight quarters of decline.

Commercial Vehicles and Tractors

• The country’s largest truckmaker Tata Motors Ltd.’s margins are expected to expand by 500 basis points on the back of an 80 percent jump in volumes over the previous quarter, IIFL said.
• Volume growth will boost operating performance of Ashok Leyland. The average selling prices are expected to rise 2 percent on better product mix and higher sales, IIFL said.
• Tractor maker Escorts Ltd. is expected to post a 20 percent growth in revenue on the back of early festive demand and a strong monsoon, according to Motilal Oswal.

(Earnings expectations have been compiled from reports by IIFL, Credit Suisse, Nomura and Motilal Oswal)