Auto Numbers To Disappoint In Q1FY14

The automobile industry has been facing troubles since quite some time now. Fuel prices, inflation, consumer sentiment, interest rates and industrial output have all been moving in a direction that is disappointing for automobile manufacturers. Sales have been declining and signs of revival are nowhere in sight. The industry continues to perform poorly and expectations for Q1FY14 can be set at a low.

Sales volumes of automobile manufacturers give an indication enough to gauge the performance they would display in their Q1FY14 results.

Maruti Suzuki (MSIL) saw a 10% decline in sales in Q1FY14, as compared to Q1FY13. While it benefitted from robust sales of Ertiga, the base has now grown and sales now show a more realistic picture. The sales of Utility Vehicles dropped by 23% in the quarter as compared to those of Q1FY13. Exports took a massive hit, volumes having declined by 35% YoY.

While the topline of MSIL is expected to be under pressure, profitability is likely to improve due to a reduction in raw material prices.

Tata Motors too witnessed a 10% decline in volumes in the quarter. Its passenger vehicles segment has been a major drag on the company. Volumes in this segment declined by 26% YoY on account of a product portfolio that has gaps and lacks new launches. The performance of commercial vehicles was balanced due to the negative sales of medium and heavy commercial vehicles and the positivity displayed by the sales of light commercial vehicles.

While the standalone performance of Tata Motors has been indicative of a bad quarter, its consolidated performance will be robust. Jaguar Land Rover sales have been very strong, thanks to the success of new models and its entry into new geographies. This is likely to reflect in the topline and bottomline of Tata Motor’s consolidated performance.

Mahindra & Mahindra (M&M), which has consistently been outperforming its peers, showed moderate growth in Q1FY14. It had been showing tremendous amount of strength because of the demand for its utility vehicles. However, due to a higher base, sales have now stabilised. But this lack of growth was compensated by the strength in tractor sales. On account of a good monsoon this year, tractor sales jumped by 25% YoY.

Tractor sales would lead to higher revenues in Q1FY14 and help maintain the momentum M&M has seen in the previous quarters. Moreover, since the segment is higher in profitability than the rest of its business, the bottomline is also expected to show improvement.

The performance of two-wheelers for the quarter was consistent among peers. All the three listed entities, Hero MotoCorp (HMCL), Bajaj Auto (BAL) and TVS Motor (TVS) saw a decline in sales volumes. In Q1FY14, sales volumes of HMCL, BAL and TVS declined by 5.05%, 9.24% and 4.75% respectively. The performance of two-wheelers is likely to be under pressure and will show a downward trend.

Q1FY14 is definitely going to be another bad quarter for the automobile industry. Improvement is expected to start showing only once there is a reversal in macroeconomic trends. While interest rates have reduced slightly, they are not enough to cause an improvement in consumer sentiment. Fuel prices continue to remain erratic. They did see some easing earlier but the current currency situation poses uncertainty. One positive sign is that the monsoons have been good so far. The sentiment in rural India is expected to improve in the second half of FY14 and this will definitely factor in, in the overall performance of the sector.