Home >Industry >Manufacturing >Auto industry ends FY21 with a bang after weak beginning

India’s automakers, component suppliers and tyre manufacturers engineered a robust turnaround in finances in FY21, after starting the year with unprecedented losses due to the strict national lockdown.

Manufacturers Maruti Suzuki India Ltd, Tata Motors Ltd, Bajaj Auto Ltd, Hero MotoCorp Ltd, Escorts Ltd and others reported double-digit growth in revenues as sales of cars, commercial vehicles and tractors picked up substantially. Two-wheelers also reported growth in sales from a year ago, but they slowed down on a sequential basis.

Most of these companies also reported double-digit growth in profit due to higher revenue and stringent cost-cutting measures. But a jump in input costs due to increasing commodity prices affected the operating performance.

Robust recovery
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Robust recovery

On the back of robust demand for its vehicles, Maruti’s revenue from operations grew 32% in March and Tata Motors’ by 105.9%. Leading two-wheeler makers Hero MotoCorp and Bajaj also reported 39% and 26.11% growth in revenue, respectively. Tractor maker Escorts reported a whopping 60.7% growth in revenue as tractor sales reached close to FY19 levels on the back of a strong recovery in the rural economy.

In terms of profits, Hero reported a 39.3% growth due to recovery in sales and cost-cutting measures, while Bajaj’s profit improved by just 1.6%. The country’s largest automaker by revenue, Tata Motors’ standalone net profit also improved to 1190.28 crore, compared to a loss in the year-earlier period. Profits also received a boost from an impairment reversal due to recovery in operation of the passenger vehicles unit.

Despite a strong growth in revenue, Maruti witnessed a 9.7% decline in net profit due to high input costs which offset the gain from increased vehicle sales.

“From the festive season in October, demand for vehicles picked up and it continued in the fourth quarter as well as the middle class was not much impacted by the first wave. Also, the shift to personal mobility and recovery in economic activity positively impacted sales. The last quarter could have been even better had there been no shortage of semiconductor-based parts. Most companies except two-wheelers were expecting the demand momentum to continue in FY22," said an analyst with a foreign brokerage.

A low base in FY20 also aided the recovery in financials of the auto industry, when vehicle sales reported a double-digit decline due the economic slowdown and transition to Bharat Stage VI emission norms.

The lockdown in China impacted production of vehicles. March sales were also hit due to the nationwide lockdown imposed in India in the second half of March last year.

Taking a cue from original equipment manufacturers (OEMs), component manufacturers have also reported a stellar turnaround in their financials in the fourth quarter as vehicle production, especially passenger vehicles, picked up.

Bosch Ltd, one of the largest manufacturers of auto components, reported a 43% jump in revenue while its net profit grew by 81% to 483 crore.

Tyre manufacturers like Apollo Tyres Ltd, JK Tyre Ltd and CEAT Ltd also ended the year on a high, after reporting substantial growth in net profit and revenue. Tyre makers’ financials were helped by the rebound in vehicle production in Europe and US.

According to analysts at ICICI Securities, momentum in wholesale dispatches moderated in Q4 on supply chain issues and a delayed marriage season as growth slowed after the festive season.

“As states opened up further to reach normalcy, component shortages (e.g. semiconductors) have led to OEMs focusing on raising channel inventory (e.g. two-wheelers at 4-6 weeks) to manage potential production issues. On the consumer side, two-wheeler dispatches fared worse (-8% decline q-o-q) than PVs (-1% decline q-o-q) due to delay in wedding season (relevant for north India)," added the analysts.

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