BUSINESS

Slippery quarter for auto industry likely

Lacking speed:Demand momentum in the third quarter was hit by rising fuel costs, among others.Shanker Chakravarty

Lacking speed:Demand momentum in the third quarter was hit by rising fuel costs, among others.Shanker Chakravarty  

The third quarter of the financial year ended December is expected to be a soft quarter for auto companies with revenue and net profit likely to grow by 7% and 6% respectively, Kotak Institutional Equities said.

The EBITDA margin is likely decline by 80 bps (basis points) year-on-year due to an increase in commodity prices and higher discount levels, it said in a report.

Exposure to aftermarket

“Suppliers will have a relatively better quarter with revenue and EBITDA growth of 11% and 6%, respectively due to exposure to the steady and profitable aftermarket. Commercial vehicle and two-wheeler OEMs will particularly report weak results,” it said in the report.

Kotak said though the prices of major commodities such as steel, aluminium, lead and copper have declined over the past few months, the benefit will accrue to companies starting 4QFY19.

It said suppliers will have a relatively better quarter due to exposure to aftermarket. “We expect auto component companies under our coverage to report a relatively better quarter with 11% yoy revenue growth and 6% EBITDA growth in 3Q FY19. This is due to exposure to the steady and profitable aftermarket.”

Also, battery companies will benefit from the recent decline in lead prices, it said.

Motilal Oswal Securities Ltd., in its report, said demand momentum across segments in the third quarter was hurt by increased cost of ownership led by rising fuel costs, increase in insurance cost and higher cost of financing as well as stress at farm level leading to the lowest festive sales in past 4-5 years.

“We expect operating performance for most of the auto OEMs to bottom out in 3Q FY19, as we expect demand to normalise led by factors such as softening in fuel prices, improvement in liquidity and new product launches,” Motilal Oswal Securities said.

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