Auto Sector Results Preview: Q3FY13

The Dec 2013 quarter has been rather bleak for the automobile industry. In fact, the sector has been badly hit right from the beginning of FY13 by subdued macroeconomic trends. While the industry was expecting this downward trend to reverse over the festive season, this failed to happen as sales remained lacklustre. However, it is noteworthy that though the overall sales have been extremely subdued, those of a few companies have been rather impressive.

Although the BSE Auto Index has fared better than the Sensex during the quarter, rising by 9.73% as compared to the 3.54% appreciation seen in the Sensex, the story is expected to be different for the Q3FY13 corporate results. This movement in the sector index was supported by the growth in Bajaj Auto (BAL), Mahindra & Mahindra (M&M), Maruti Suzuki (MSIL) and Tata Motors (TML), which wield significant weight on the index and have shown healthy appreciation. Apart from these firms, though, other auto makers have shown a disappointing performance.

The sales volume growth for MSIL has been quite drastic. The quarter would prove to be favourable for MSIL, aided by the Manesar facility lockdown that happened in the previous quarter. Order inflows continued although its production facility was shut. A built-up order book coupled with production returning to normal led to 85.46% growth in sales volume in October 2012. Over the quarter, the sales volumes grew by 25.85% on a yearly basis.

TML was strongly hit by a drop in domestic demand during the quarter. Its overall sales have been lower by 10.24%, dragged down by the slowing in sales of commercial vehicles. Passenger vehicles failed to help this situation. However, Jaguar-Land Rover (JLR) sales have been robust so far, growing by 13.02% from Oct-Nov 2012. Since JLR contributes to 65%-70% of TML’s consolidated revenues and more than 90% of its profits, it is likely to save the day for TML once again.

As for M&M, the weakness in its farm equipment and commercial vehicle sales has been offset by the robust growth in utility vehicle and light commercial vehicle sales in the last few quarters. This skewness is expected to continue as the sales trends didn’t change for the quarter. M&M is thus expected to continue posting better-than-average results in this quarter.

On the two-wheelers front, we expect the financials to be subdued for the quarter as the sales volumes have been gloomy. Of the listed entities, only BAL managed to grow in terms of sales volumes for the period. While BAL grew at 4.86%, Hero MotoCorp and TVS Motor saw a decline of 1.02% and 2.11% respectively.

Overall, except for MSIL, TML, BAL and M&M, we expect other companies in the sector to see pressure on the topline because of heavy discounts and weighed down margins due to higher advertising spends. The quarter would see good results for a few exceptions, but gloom for the sector as a whole.