Auto-makers seen revving up revenues

Indian automakers are on track to report strong quarterly revenue growth.

The Indian car-makers have been literally on a cruise over the last year and they are likely to continue in that fashion,except that their margins may brake under pressure from raw material costs.

Indian automakers are on track to report strong quarterly revenue growth as a robust economy boosts demand for vehicles,but rising commodity prices and costlier borrowing pose a risk to profit margins in coming months.

Greater competition from companies expanding their operations in the world’s fastest growing major economy after China,plus higher costs linked to tougher emission norms and rising prices of raw materials such as steel are worries for the sector.

Story continues below this ad

Companies will walk a tightrope … they will have to raise prices and hope it does not affect demand. They are also squeezing vendors to contain costs,said Arun Kejriwal,director with research firm KRIS.

Maruti Suzuki,which sells every second new car in India,is expected to report profits grew a fifth in the June quarter on revenue that jumped more than 80 percent.

The company,54.2 percent owned by Japan’s Suzuki Motor Co,is facing pressure from competitors such as Hyundai Motors,the second-largest car maker in India. Toyota is aiming to treble its sales in India by 2011.

Input costs and expenses due to changes in emission norms is likely to see about a 90 to 100 basis points decline in margins,quarter-on-quarter for the sector,said Kaushal Maroo,auto analyst with Religare Enterprises.

Story continues below this ad

A steep rise in prices of steel and other metals is seen squeezing margins by about 80 to 200 basis points in the June quarter from the previous two quarters,analysts said.

Vehicle makers have had to raise prices in order to offset increase in raw material costs,and they are hoping this will not affect demand,said Kejriwal.

Sales rise

The Society of Indian Automobile Manufacturers has forecast car sales to rise 12-13 percent to 1.7 million units in the current year ending in March. It also forecast truck sales,a barometer of economic activity,to rise 17-18 percent and motorcycles to climb 9-10 percent.

Sales volumes for the top automakers such as Maruti,Tata Motors,Hero Honda and Mahindra & Mahindra rose 31 percent in April-June from a year earlier.

Story continues below this ad

But rising interest rates could dent consumer spending in the short term. India’s central bank is seen raising key rates by 25 basis points next Tuesday to curb inflation,taking the increase to a 1 percentage point since mid-March.

If truck owners can offset cost of financing with freight rates there may not be too much impact,Kejriwal said.

Tata Motors,India largest truck maker,and rival Ashok Leyland have seen commercial vehicle sales jump 41 percent and 187 percent respectively in the June quarter.

Tata Motors,whose car range runs from the premium Jaguar and Land Rover brands to the Nano,the world’s cheapest car,is expected to benefit from a turnaround of the British unit.

Story continues below this ad

The sector index has gained about 12 percent this year,outperforming the main stock index,which has risen about 3 percent.

Following are forecasts from a poll of analysts.

(figures in billion rupees unless stated)

Net Profit,% Chg/yr,Revenues,Date

Maruti Suzuki7.04 20.5 83.38 July 24

Ashok Leyland1.451,766.0 25.20 July 27

Mahindra5.02 25.2 52.30 July 28

Hero Honda5.97 19.4 43.11 July 29

*Tata Motors 9.8-265.20 TBC

* Tata Motors had reported a 3.29 billion rupees net loss in the year earlier period. ($1=47.3 rupees)