Depleting profit hit wage bill in two-wheeler firms: study

Depleting profit hit wage bill in two-wheeler firms: study

New Delhi: Faced with high interest rates and low sales growth, the Indian two-wheeler auto segment has resorted to steep cut in the growth of wage bill to sustain itself as revenue inflows continue to take a dip south, says a survey released on 10 December.

The Assocham Eco Pulse Study on ‘Automobiles Sector’ reflects the average growth in the wage cost of the two-wheeler companies including Bajaj Auto Limited, Hero Honda and TVS has declined from 12% in first quarter to 2.7% in the Q2 of this fiscal. The segment is striving hard to prevent sales from declining as it has already reported 7% fall in Q2. Profit has declined by 16% and is estimated to slip further in next two quarters.

With things looking grim at the moment, the sector has preferred to move slowly on hiring and salary hikes to reduce the pressure on the bottom line.

“It is high time the Reserve Bank of India and the government took a fresh look at the prevailing high interest rate regime because the employment oriented auto industry is getting hit because of the low demand growth," Venugopal N. Dhoot, president, Assocham.

All the major two-wheeler makers have reported decline in sales; only Hero Honda has reported a meager rise of 5%. TVS Motor saw the steepest fall in two-wheeler sales growth of 23% for the quarter ended September. The company also recorded a sharp decline of 51% in net profit with Rs11.92 crore in Q2 this year over Rs24.83 crore for the same quarter previous year. The growth rate in the salary cost of the company fell from 8% in Q1 to 4% in Q2.

Bajaj Auto Ltd has posted a net profit of Rs336.42 crore for the quarter ended September against Rs317.59 crore in the year-ago quarter. The company posted a decline of 3% in its net sales during this period. Its motorbike sales during November dropped to 209,876 units against 214,321 in the same month last year. The company saw a drastic fall in its salary cost growth, which declined from 16% in Q1 to 1% in Q2 this fiscal.

Hero Honda saw its net profit decline 4% to Rs189.84 crore in Q2-07 as compared to Rs237.74 crore in Q2-06. In Q1 the company’s employee cost growth rate was recorded at 11%, which declined to a meager 2% in Q2.

Passenger vehicles

In this segment, sales have risen 17% in Q2, while the bottom line was up just 2%. The survey was based on the results declared by car makers Maruti Suzuki Ltd, Tata Motors and Mahindra & Mahindra (M&M). The growth in employee expenses of this segment has remained intact with 25% rise. Rising prices of complementary goods such as aluminum, commodity prices and crude oil prices in past few months is being well reflected in the low profit growth.

Maruti Suzuki has been able to maintain its past performance while rising EMIs have affected the sales of Tata Motors and M&M. Maruti had posted a 33% rise in sales in the current year’s Q2, at Rs4,529.7 crore as compared to Rs3,400.6 crore for the same quarter in the previous year.

Tata Motors could manage only a 6% rise in sales and 7% increase in net profit. The sales of the company increased in Q2-07 with Rs8,205.23 crore as compared to Rs7,724.71 crore in Q2-06. The net profit stands at Rs583.08 crore in Q2 of FY07 as compared to Rs541.97 crore in Q2 of FY06 at 7%.

M&M recorded a sharp decline of 26% in net sales to Rs285.9 crore in Q2-07, against Rs386.5 crore in the same quarter in FY06. The firm has showed a 40% rise in staff cost at Rs230.25 crore in Q2-07 against Rs164.16 crore for the year-ago quarter.

The expensive financing has affected the heavy motors segment, which fulfills the need for logistics and transport vehicles. Ashok Leyland has posted a rise of just 4% in sales in Q2 while reporting a loss of 15.75% over similar period of last year.

However, Eicher Motors, which has just entered into a joint venture with Volvo Motors, has maintained its top and bottom line growth at 17.6% and 17.7% in Q2 of FY2008. The wage bill in the segment has remained unaffected by the low sales growth, as it has risen by 31%.

Average Growth Rate of Automobile Segments in Q2