Auto parts firms on course to robust Q3 profits

Auto parts firms on course to robust Q3 profits

Mumbai: Top Indian auto parts makers are likely to report a healthy increase in October-December net profits riding surging sales to the booming domestic market and cuts that offset a rise in input costs, analysts said.

Firms such as Exide Industries, Bharat Forge and Motherson Sumi Systems could see profits jumps ranging anywhere between 17% and 70%, a Reuters poll of 21 brokerages showed.

“Growth of the Indian auto component industry is directly linked to growth of the auto sector and has more than 65% of its domestic sales to original equipment manufacturers," said Vaishali Jajoo, analyst at Angel Broking.

“Increasing volumes and better operating leverage will help the sector grow both sequentially and on year," she said.

India is one of the world’s fastest growing markets for cars as a rapidly expanding economy boosts incomes and consumer spending.

Passenger vehicles segment grew 31.83% in April-December 2010 year on year, commercial vehicles (CV) at 34.08% and two-wheelers rose 28.2%.

Bharat Forge, the world’s second biggest forgings maker, is seen posting a 72.6% jump in October-December net profit while sales leap 71.3%, the poll showed. The firm will report quarterly results on 22 January.

“Bharat Forge has turned around overseas. The subsidiaries’ performance have improved. The restructuring should help them have better margins. Of standalone numbers, over 70% of the topline is from sales to CV, which would also benefit them," Jajoo said.

“Margins will improve because of product mix, both because of their non-auto business and because within the auto segment, they have a higher value mix," said an analyst from a domestic brokerage who declined to be named.

Analysts also said Bharat Forge has a pass-on clause for a majority of their contracts with auto makers which ensure that they tide over a increase in raw material costs.

Exide, India’s top auto and industrial battery maker, should see quarterly profit jump 32.6% with sales rising 30.3%. It is scheduled to report results on 18 January.

“Exide is likely to get protected at least for 45-50% of their lead supplies, because they own smelters which would help them," said Deepak Jain, analyst at brokerage Sharekhan.

Exide, over three-year, had acquired smelting and refining units in Pune and Bangalore for lead, which constitutes about 70% of the material cost of a battery.

“The demand has improved for batteries, automobile sales have gone up. There are more investments happening in IT infrastructure as well, which in a way helps batteries," Jain said.

Motherson Sumi, the market leader in wiring harness, is seen growing net profit by 17%, and like Bharat Forge, it also has pass-on clauses with OEMs, analysts said.

“The firm usually passes on the cost hike with a one month lag effect. The pass-on impact will be seen in the next quarter," said Amol Bhutada, analyst at Elara Capital.

Sales, seen rising 16.7% for Motherson, will be driven by the booming passenger cars market, which account for a majority of its domestic sales, Bhutada said.