Q2FY14 Results Preview: Auto Sector

The second quarter of FY14 will remain quite unpleasant for the auto manufacturer. The majority of companies were under pressure owing to a sluggish economy, increased fuel prices, higher borrowing rates and elevated input costs. All this led to a decline in sales volume for the sector.

In this tough scenario, industry leader Maruti Suzuki ushered in some sign of relief for the sector as its total sales during the quarter improved by 20% YoY. The healthy sales figures of its super compact car DZire (which grew by 74%) brought in some cheer. On a yearly basis, the company witnessed a 15% rise in its domestic sales and the exports grew by 67%.

While the input costs rose during the quarter, the bottomline is likely to improve as the sales volumes were better as compared to those in the previous quarter.

Tata Motors, on the other hand, has suffered in Q2FY14. On a yearly basis, its total sales went down by 31%. The decline in sales of passenger cars and utility vehicles was the major cause for the setback. The company saw a poor performance in the domestic as well foreign markets – the domestic sales declined by 35%, while exports dropped 19 % YoY.

On a standalone basis, Tata Motors will take a hit and its topline as well bottomline figures are expected to be below those of last year. On a consolidated basis, however, these may improve due to better performance of its subsidiary JLR, which has backed the company with an astounding performance.

Mahindra & Mahindra (M&M) saw its sales volumes under pressure during Q2FY14, with the total sales numbers dipping by 16% YoY. On a yearly basis, the domestic sales dropped by 16% and exports slumped by 22%. Following a good monsoon this year, the sales of M&M tractors have increased by 22% in the domestic market, though exports dropped by 33%. The overall tractor sales witnessed a growth of 19% in the quarter. Thus, the tractors business would help the company in terms of revenues, but considering the overall performance, its sales and profit are both likely suffer in Q2FY14.

A mixed bag performance was observed in the two-wheelers segment. Among the three listed players, viz. Hero MotoCorp (HMCL), Bajaj Auto (BAL) and TVS Motor (TVS), HMCL and TVS witnessed an upward trend in their overall sales by 6% and 4% respectively, whereas BAL saw its sales volumes decline by 8% YoY.

The industry was under pressure during the quarter, but some of the leading players like Maruti Suzuki and Hero MotoCorp did prove their potential in a tough situation. The industry is likely to pull up its socks in the near future, as the festive season may jack up its sales volumes. Recently, the RBI and government have also come out with a policy known as ‘Funding for Lending’, which would also enhance the performance of the auto industry.