Festive sales to trim YoY auto revenue fall

MUMBAI: The festive sales uptick will narrow the on-year decline in revenues of automotive companies in the quarter ending December, in comparison with preceding quarters, though margins will remain under pressure due to high discounting.

Revenue of automakers, excluding Tata Motors, is expected to fall in the low single digits, data collated from multiple research reports showed. This will be a significant improvement over July-September, when aggregate revenue of automakers registered a double-digit on-year drop.

Tata Motors is expected to show growth in revenue after six straight quarters of decline due to a better financial performance from its subsidiary Jaguar-Land Rover, which accounts for over three-quarters of Tata Motor’s consolidated revenue.

The company is the country’s largest carmaker by revenue. Net profit of automakers is expected to slip 3-8%, excluding Tata Motors.

“Whatever benefit came from softe ning of commodity prices will get offset by higher discounting,” Bharat Gianani, auto analyst, Sharekhan, told ET. Bajaj Auto and Maruti Suzuki are expected to post a growth in profit.

Bajaj Auto has a higher share of exports than its peers, and a favourable exchange rate should aid profit growth, while Maruti Suzuki has better operating leverage and product mix, according to a report from Reliance Securities.

Another outperformer will be Exide, Gianani said, while Ashok Leyland, Apollo Tyres and Hero MotoCorp will be the laggards.

Revenue of commercial vehicle makers, the worst-hit segment, as well as two-wheeler makers is expected to decline between 36% and 77%, ICICI Securities forecast. Passenger vehicle makers’ revenues were predicted to decline 14% and growth 1%.

Analysts are also expecting a healthy pick-up in the earnings per share (EPS) of auto companies. According to Bloomberg consensus data, average EPS of the 15 participants of the Nifty Auto index is expected to grow 51.9% over the next 12 months.

Tata Motors’ EPS is expected to grow 559% over this period on account of low base due to poor financial performance during the preceding quarters, and an expected recovery in performance of the Jaguar unit.

Expected returns over the next 12 months from nine of the 15 participants of the benchmark index, however, remain negative. The aggregate expected 12-month return from Nifty Auto companies is 2.9%, Bloomberg data showed.