Firms in BSE auto index likely to post robust Q4 results
A revival in rural demand and a low-base effect due to demonetisation are expected to boost Q4 results of firms such as Hero MotoCorp, Bajaj Auto and Mahindra
Mumbai: Automobile companies are set to report strong revenue and operating profit growth in the March quarter because of a revival in rural demand and a low-base effect following the negative impact of demonetisation that lasted well into the fourth quarter of the previous financial year.
Most auto makers are also expected to report expansion in margins from a year earlier as they raised prices, according to estimates of four brokerages—HDFC Securities, Emkay Securities, Nirmal Bang Institutional Equities, IIFL institutional equities.
Sales of two-wheelers have increased 25% in the quarter ended 31 March, driven by higher demand for commuter motorcycles. Sales of commercial vehicles rose 29% because of increased spending on infrastructure development by the government and easier availability of finance options for small and light commercial vehicles.
Input prices continued to rise during the quarter—prices of steel sheets, used to make vehicles, increased by 12.5%.
Operating margins of vehicle makers, except Tata Motors Ltd, are expected to widen for the third straight quarter, according to analyst estimates. Among two-wheeler makers, Bajaj Auto and Hero MotoCorp may report operating margin expanded in the fourth quarter.
The revival in sales of commercial vehicle, motorcycle and tractor sales during the quarter will boost earnings of companies including Mahindra and Mahindra, Ashok Leyland, Hero MotoCorp and Bajaj Auto.
With strong volume growth and operating leverage benefits coming in the fourth quarter, companies are expected to report improvement in margins correspondingly, according to Gaurant Dadwal and Vivek Sarin, analysts at Nirmal Bang Institutional Equities.
“Ashok Leyland’s topline is expected to increase by 33% driven by 23% jump in volumes and 10% increase in average selling price. Ebitda (operating) margin to expand by 120 bps sequentially led by operating leverage benefit and favourable mix,” HDFC Securities analysts said in a research note. Most brokerages expect substantial improvement in the standalone earnings of Tata Motors, driven by the recovery in commercial and passenger vehicle sales during the quarter.
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