Rina Chandran, Reuters
Mumbai: Automakers are expected to report muted quarterly sales growth, with profits pressured by firmer interest rates, volatile raw material prices and fierce competition.
Analysts say profit margins will remain under pressure from higher depreciation costs on the back of aggressive capital spending and higher promotion costs for new launches.
Nearly all commercial vehicles in India and more than 80% of passenger vehicles are bought with loans.
“The initial signs of a slowdown are already evident,” said brokerage Prabhudas Lilladher in a note.
“We expect margins to be lower across the board due to rising input costs, with sales of commercial vehicles and two-wheelers hit by rising interest rates and pricing competition.”
However, cheaper fuel and rising incomes in the fast-growing economy will help sustain demand for passenger vehicles.
“While challenges from higher interest rates and volatile input costs remain, the strong demand pull due to fundamental factors is expected to sustain volume growth momentum,” brokerage Motilal Oswal said in a research note.
Some analysts expect commercial vehicle sales growth to halve in the next two or three years from average annual growth of 30% in the last three years.
Lending rates have risen by 300 to 350 basis points from a year earlier as the central bank has stepped up its pace of policy tightening to check inflation.
Tata Motors Ltd, the top bus and truck maker, is expected to report net profit rose 20% to Rs5.51 billion ($131 million) in the quarter ended in March, helped by sales of higher-margin trucks, according to a Reuters poll of 11 brokerages.
However, TVS Motor Co. Ltd, the third-biggest motorcycle maker, is likely to report a 53% drop in net profit to Rs138 million on intense competition from its bigger rivals.
Sales of passenger vehicles in India grew 21% to 1.4 million units in the fiscal year to March, while commercial vehicles grew 33% and two-wheelers 11.5%, industry data showed.
Annual passenger vehicle sales are expected to hit 2 million units by 2010, if not sooner, on the back of rising incomes and a slew of new models from local and global vehicle firms.
Many vehicle makers raised prices marginally in January and again in March after the government imposed an additional 1% tax to raise money for higher education.
Top car maker Maruti Udyog Ltd, which is expected to post a 17% profit rise on Tuesday, has launched a diesel variant of the Swift hatchback and will unveil a new sedan in the April-June quarter.
Maruti, a unit of Suzuki Motor, has nearly half the market for cars, but its share is under threat from Hyundai Motor and Tata Motors, as well as new entrants.
Mahindra & Mahindra Ltd will make 50,000 units of the no-frills Logan sedan with venture partner Renault, and has a separate alliance with Renault and Nissan Motor Co for a $905-million project to make 400,000 vehicles.
Fiat has a new variant of its Palio car, while General Motors has just rolled out the mini Spark.
Bajaj Auto, which has inaugurated a new plant in the northern Uttarakhand state with a capacity of up to 3 million units, is launching a new motorbike platform in July-September and plans to exit the less lucrative 100 cc bike segment.
The auto sector share index fell nearly 12% in the January-March quarter, trailing a 5.2% decline for the main BSE index. Much of the losses were suffered during a global market sell-off in late February.