Steel price rise impacts margins of auto industry

Indian auto industry reported 9.4 per cent YoY growth in H1 FY18 period, with vehicle sales aggregating 1.27 crore. The lead was taken by growth in sales of two-wheeler segment (10.1%), passenger vehicles (9.1%) and commercial vehicles (5.9%).

Though the revenue posted was a record high, the margins for the period were impacted significantly due to rise in steel prices, thereby affecting the bottomline growth.

Steel prices have increased by around Rs 6000 per tonne over the last few months. Recently, flat steel producers have increased the steel prices by almost Rs 3000 per tonne, effective from August 2017. Considering the global market, China, the largest market maker, has raised the prices by 4.4 per cent as against increase of 0.1 per cent last year.

The table below shows YoY details for H1FY18:

To tackle the issue of rising steel prices, the government is now in consultation with steel makers to maintain steel price levels. Concluding this, we expect auto industry to outperform in H2FY18 in its margins as the base prices for all models are set to increase.