1 6 Jun 23 - Jul 06, 2014 CAPITAL MARKET

IndiaSector

Automobiles

Battling headwindsHigher interest costs dent bottom line as, except for two wheelers,demand slowdown continues to persist The top line of domestic automakers registered

a de-growth of 2% in Q4 of the fiscal ended

March 2014 (FY14). However, profit after tax

(PAT) slipped further by 14% due to a signifi-

cant drop in the operating profit margin (OPM)

and higher interest income Except for the two-

wheeler segment, demand slowdown, contin-

ued to persist with most automakers reporting

negative growth numbers.

The aggregate sales of 105 major auto

companies fell 2% to Rs 66701 crore over a

year ago. The OPM dropped 180 basis

points (bps) to 9.6% as against 11.4% in

Q4 of FY 2013, leading to a 17% decline in

operating profit (OP) to Rs 6434 crore.

Other income (OI) increased 9% to Rs 1440

crore. Interest cost rose 14% to Rs 1048

crore but depreciation charges were stagnant

at Rs 2596 crore. Thus, profit before tax

(PBT) fell a 24% to Rs 4230 crore. How-

ever, a 58% decrease in tax provision to Rs

517 crore ensured that the slide in PAT was

restricted to 14% to Rs 3713 crore.

Consolidated net sales of global auto

player Tata Motors grew 17% to Rs 65,317

crore despite a weak operating and economic

environment in the standalone business,

which was more than offset by the perfor-

mance of Jaguar Land Rover (JLR). Con-

solidated net profit fell a marginal 1% to Rs

3918 crore even as interest cost jumped 72%

to Rs 1667.55 crore. Consolidated OPM

improved to 15.3% versus 14.1% a year ago

primarily due to reduction in the other ex-

penses. This led to consolidated OP expand-

ing 28% to Rs 9846 crore.

India’s largest car manufacturer Maruti

Suzuki (MSIL) reported Q4 lower-than-

street expectations of FY2014 results, with a

huge 35% decline in PAT to Rs 800 crore and

9% fall in net sales to Rs 12101.39 crore,

Lower volumes, higher sales promotion ex-

pense and stock compensation to dealers due

to reduction in excise duty affected the bot-

tom line in the quarter. The OPM was much

lower at 10.3% versus 15% year ago, which

led to the OP falling 38% to Rs 1248 crore.

Net sales for India’s largest two-wheeler

manufacturer Hero MotoCorp increased 6%

to Rs 6,513 crore and PAT fell 3% to Rs

554.43 crore compared with Q4 of FY 2013.

The OPM slipped a marginal 10 bps to

13.7% due to increase in other expenses and

a similar decrease in raw material costs.

Higher net sales and marginal dip in the

OPM led to a 7% increase in OP to

Rs.1017.15 crores. However, tax expense

rose 68% over a year ago and PAT fell 3% to

Rs 554.43 crore.

Net profit of India’s second largest two-

wheeler maker Bajaj Auto registered mar-

ginal drop to Rs 762.56 crore on 4% in-

crease in sales to Rs 4932 crore. The OPM

witnessed a 200-bps rise to 19.6%, leading

to a 16% growth in OP to Rs 968.4 crore.

Increase in blended net realisation per unit

by 9% per unit led to a drop in raw material

cost as percentage of net sales and aided the

OPM expansion. Higher OPM led to a 9%

growth in OP to Rs1153 crores. However,

due to 15% higher tax provision, PAT re-

mained the same at Rs. 762.56 crore com-

pared to the Q4 of FY 2014

Consolidated sales of M&M grew 2%

to Rs 10214.44 crore supported by robust

farm equipment segment performance but

partially offset by weak performance from

the auto segment. The OPM for the com-

bined entity fell a sharp 10.4% in Q4 of FY

2014 compared with 14.4% a year ago due

to increased employee and other expenses.

OP fell by 26% to Rs 1040 crore. PAT settled

with a marginal growth to Rs 967.65 crore

after Rs 174-crore tax refund.

Outlook

With FY 2014 becoming a forgettable year

for the auto industry, FY 2015 is expected to

turn out better. Post the electoral mandate,

the industry sees improved sentiments re-

sulting in better economic situation. This will

lead to gradual increase in demand. Also, the

current inventory level has eased and is con-

sidered normal. Cost-cutting initiatives may

show results over the next 12-24 months.

Introduction of new models as well as

improvement in buying sentiment would

play a vital role in bringing back growth

market. It remains to be seen whether the

new finance minister in his annual budget

for 2014-15 continues with the excise duty

cuts announced in the interim budget.

Slips throughout

Automobile sector aggregates1403(3) 1303(3) VAR.(%)

Sales 66701 67881 -2OPM(%) 9.6 11.4 OP 6434 7742 -17OI 1440 1323 9PBIDT 7874 9065 -13Interest 1048 916 14PBDT 6826 8149 -16Depreciation 2596 2597 0PBT 4230 5552 -24Tax 517 1235 -58Cash Profit 6309 6914 -9Net Profit 3713 4317 -14Figures in Rs crore Source: Capitaline Database