Auto cos ride high, two-wheelers slip

Auto cos ride high, two-wheelers slip
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First Published: Fri, Apr 20 2007. 12 26 AM IST
Updated: Fri, Apr 20 2007. 12 26 AM IST
The country’s listed four-wheeler makers, led by India’s largest auto maker Tata Motors Ltd, are likely to report double-digit profit growth in the quarter ended March.
But earnings of two-wheeler manufacturers are likely to slip as volume growth tapered off and companies spent more on advertising and marketing to boost market shares.
Net profit at Tata Motors is likely to rise by 34.5% to Rs587 crore in its fourth quarter in fiscal 2007, from a year ago, according to an average of five analysts polled. In the three months ended December 2006, its profit was Rs436 crore.
Tata Motors’ realizations were depressed last year since “they had to cut Indica’s price without getting the benefit of the excise cut”, said Huzaifa A. Suratwala, research analyst at Emkay Shares & Stock Brokers Ltd. The average estimate for net sales is Rs8,340 crore, up 21% from last year.
Rival Maruti Udyog Ltd (MUL) is likely to report its profit rose 19.61% to Rs431.6 crore as it sold more compact cars such as the Zen Estilo. In the quarter to December 2006, MUL’s profit was Rs361 crore.
“Profits were boosted by strong volumes and a shift in the product mix towards newer cars such as the Zen Estilo and Swift diesel,” said S. Ramnath, vice-president at SSKI Securities. Net sales at India’s largest passenger car maker are likely to grow 31% to Rs4,282 crore.
The average estimate on net profit for Ashok Leyland Ltd, the country’s No. 2 truck and bus maker, is Rs163.5 crore, up 21% from a year ago. For Mahindra & Mahindra Ltd, the largest tractor maker, the forecast for profit growth is 24.43% at Rs236.5 crore.
Profit margins for all firms, though, are seen to dip due to rising expenses on raw materials such as aluminium, steel and rubber, and increased borrowing costs. Prices of cold-rolled steel, used extensively in autos, rose by Rs1,500 to Rs40,000 per tonne, according to estimates provided by Bhushan Steel & Strips Ltd.
“Interest and depreciation costs are also expected to be higher as most of the companies are in an expansion phase,” writes Suratwala in a recent note. MUL is investing Rs9,000 crore between 2005 and 2009 for a new factory and engine assembly unit. Tata Motors is investing Rs10,000 crore over the next four years in various expansion projects.
Despite a rise in interest rates by almost 300 basis points over the past four months, passenger vehicle volumes are expected to grow at double-digit rates, boosted by rising incomes and an improved road network.
But the rise in raw material prices coupled with a slowing down in sales growth is hurting the two-wheeler industry. Profits of the country’s two largest two-wheeler makers, Hero Honda Motors Ltd and Bajaj Auto Ltd, are expected to decline from a year ago.
Hero Honda’s net profit is likely to decline by 24.7% while Bajaj’s profit after tax may slip by 13.7%.
New launches resulting in higher advertising costs, aggressive promotional offers and discounts, and increased outlay on advertising will continue to squeeze margins, say Amit Kasat and Rohan Korde, analysts at Motilal Oswal Securities. Net sales for Hero Honda may rise 10.6% to Rs2,595 crore, and for Bajaj, 2.37% to Rs2,217 crore.
This year, growth rates were less than last year’s as demand for two-wheelers slowed down to rising interest costs and a larger base.
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First Published: Fri, Apr 20 2007. 12 26 AM IST