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Informist, Tuesday, Feb. 25, 2025

 

By Anand JC

 

MUMBAI - Automobile and auto-ancillary companies' earnings for the December quarter missed estimates by a wide margin, as the festival season did not provide enough stimulus to demand. The net profit growth of these 17 companies that are a part of Nifty 200 index contracted 0.1% for the quarter, in sharp contrast to the 8.8% growth registered by the index companies. Yet these companies' 7.4% revenue growth was 192 basis points higher than that of the Nifty 200 companies.

 

Of these 17, the bottom line of as many as 10 companies outperformed the sectoral average estimate of 5.9% growth. The companies that did not meet the sectoral net profit estimate are Apollo Tyres Ltd., Exide Industries Ltd., MRF Ltd., Bajaj Auto Ltd., Bharat Forge Ltd., Tata Motors Ltd., and TVS Motor Co. Ltd.

 

However, the top line growth of only seven companies was higher than the sectoral average estimate of a 9.5% growth. The outperformers on revenue were Balkrishna Industries Ltd., MRF, Sona BLW Precision Forgings Ltd., Eicher Motors Ltd., Mahindra & Mahindra Ltd., Maruti Suzuki India Ltd., and TVS Motor.

 

Only six companies beat consensus estimates of net profit at the company level, while only seven beat analysts' estimates on revenue at the company level.

 

The combined net profit of these 17 companies, excluding one-time gains and losses, for the latest quarter was INR 213.72 billion. After including exceptional items in the net profit, the fall in their profit sharpens to 0.3% year-on-year, primarily due to a one-time gain in the year-ago quarter that one of them had reported.

 

Separating the auto-ancillary companies from the automobile companies sheds some more light on the performance. Out of the 17 companies that are a part of the Nifty 200, 10 are automobile companies and seven are auto-ancillaries.

 

For the December quarter, the combined net profit excluding exceptional items of the 10 automobile companies contracted by a percent from the base quarter. This is lower than analysts' expectation of a 5.2% growth. In contrast, the net profit of seven auto-ancillary companies, shorn of one-time items, grew 6.3% on year for the quarter, and is still lower than expectations of a 10.3% growth.

 

Of the 17 auto companies in Nifty 200, 15 make up the Nifty Auto; Escorts Kubota Ltd. and Sona BLW are not part of the index. This sectoral index has underperformed the Nifty 200 index on two counts - financials and stock market performance. In the last six months, while the Nifty 200 has shed a little below 12%, the Nifty Auto index has fallen just over 16% as of Tuesday. Similarly, the Nifty 200 companies' adjusted net profit growth of 8.8% sharply contrasts the 0.4% contraction in net profit of the 15-constituent Nifty Auto index.

 

Overall, the 62% year-on-year growth in the adjusted net profit of Samvardhana Motherson International, the 42% growth in Balkrishna Industries, and the 31% growth in Ashok Leyland Ltd. could not offset the 23?ll reported by Tata Motors Ltd., the 33% contraction in net profit reported by Apollo Tyres, and the 40% contraction in the bottom line of MRF. While the former three constitute a little less than 10% of the combined bottom line of the 17 companies, the latter three account for 29%.

 

Unlike the net profit, the delta between reported revenue from operations and estimates was narrower. The revenue growth of these 17 companies for the December quarter grew 7.4% on year, lower than consensus estimate of 9.5% growth. Out of these 17 companies, only seven posted double-digit growth in their revenue from operations year-on-year, while top line of the nine others grew in single digits.

 

Pune-based Kalyani group company Bharat Forge emerged as the outlier, as its revenue for the quarter-ended December contracted for the second consecutive quarter, this time by 7.4% year-on-year, and significantly lower than analysts' projection of a flattish top line. A 28% growth in its domestic passenger vehicle business revenue could not offset weakness in the commercial vehicle business and in European markets.

 

AUTOMOBILE COMPANIES

A 23.0% and 8.2% contraction in the net profit of Tata Motors and Bharat Forge, respectively, caused a 1?ll in net profit of the 10 automobile companies, excluding exceptional gains and losses. A weaker-than-expected profitability in its Jaguar Land Rover and commercial vehicle business affected Tata Motors' performance, but this was partly offset by better-than-expected profitability in its passenger vehicle business.

 

Ashok Leyland saw the strongest bottom line growth within the auto pack for the December quarter, as its net profit grew 31.3% on year. Analysts attributed this growth to better-than-expected average selling price of commercial vehicles and lower-than-expected other expenses. M&M was the other outperformer among the 10, with a bottom line growth of 19.1% on year. This growth was on the back of a richer product mix in its automotive division, higher volumes, and a higher average selling price in its tractor division.

 

Revenue from operations of these 10 companies grew 7.6%, lower than analysts' expectation of a 9.3% gain. M&M, Eicher Motors, and Maruti Suzuki outperformed the others when it comes to revenue growth. A 13% year-on-year increase in the volumes sold and a 2% on-year increase in the average selling price of passenger vehicles drove Maruti Suzuki's growth in the December quarter.

 

Based on the wholesale despatches recorded for the December quarter, analysts had pencilled in a particularly weak quarter for automobile companies. Barring tractors, sales were weak across segments, given the weak demand across the country. Take two-wheelers for example. They outperformed the auto industry in the first half of 2024-25 (Apr-Mar), but their despatches slowed down in Oct-Dec.

 

Weaker sales were reflected in the top line growth of some companies as well. Bajaj Auto's revenue from operations grew 5.7% on year, while that of Hero MotoCorp grew 5%. Thanks to robust Royal Enfield motorcycle despatches, Eicher Motors' revenue grew 19% year-on-year, yet it missed the Street's estimates of a 21.2% growth. Brokerages seemed unenthused by its earnings, leading to a downgrade in rating of the stock owing to limited potential for margin expansion.

 

The two-wheeler segment was not the only segment impacted by margin worries. Passenger vehicle despatches picked up steam during the Diwali season as original equipment manufacturers and dealers offered discounts to clear the record-high inventory. The discounts worked, but the strategy limited the margin expansion of companies in the passenger vehicle segment.

 

The EBITDA margin of Maruti Suzuki fell 10 basis points on year to 11.6%. As per a report by Elara Securities (India), the EBITDA margin of Tata Motors fell 243 basis points to 11.5%. Excluding exceptional items, the profit margin of these 17 companies for the December quarter was 7.4%, down from 8.0% in the base quarter but higher than 7.2% in the sequential quarter.

 

Cost of materials, which forms roughly 59% of the total expenses for these companies, grew only 3.7% on year in the latest quarter. A sharp increase in the price of rubber and aluminium was offset by soft prices of cold rolled coil steel, lead, and palladium in the December quarter.

 

M&M said while the increase in input prices may appear benign on the surface, it is so only thanks to steel prices, as prices of other input materials have started creeping up and that this was the experience of other automobile companies as well.

 

The finance costs incurred by these 17 companies for the December quarter contracted 26.3%. This fall was probably driven by a fall in the net debt of these 17 companies, which was INR 1.376 trillion as on Sept. 30, down nearly 14% a year ago. The interest cost constitutes roughly a percentage of the total expenses for these companies. The finance costs of 11 companies contracted, while for the other six it increased.

 

AUTO ANCILLARIES

Analysts had expected the seven auto ancillary companies to report a net profit growth of 10.3% for the December quarter, excluding one-time items. The companies reported a growth of only 6.3%. Samvardhana Motherson International emerged as the outperformer within the auto-ancillary pack as it grew 62% on year buoyed by lower interest costs thanks to a reduction in debt.

 

Closely following it was Balkrishna Industries with a 42.2% net profit growth, driven by higher other income. The company's unrealised foreign exchange gains, part of its other income, was INR 1.10 billion for the December quarter compared to a loss of INR 530 million in the base quarter.

 

Among the seven auto ancillary companies, while revenues of all companies improved on year, only that of Sona BLW, MRF, and Balkrishna Industries grew in double-digits.

 

The total expenses of the seven auto-ancillary companies increased 8.5% year-on-year. Cost of materials consumed, which forms 57% of overall expenses, drove this growth. The 22.2% year-on-year contraction in finance costs failed to offset the 5.4% growth in other expenses and the 15% increase in employee benefit expenses.

 

The gross margin of MRF contracted 340 basis points in the December quarter on year due to a 2%-3% sequential increase in commodity prices, and possibly due to the impact of high-cost inventory, Kotak Institutional Equities said in a note assessing MRF's earnings.

 

"The RM (raw material) Index is set to remain flat QoQ in Q4FY25; even if tyre companies report slightly better performance in Q4FY25, it will be driven by operating leverage," Elara Securities said in a report on Feb. 18.

 

Similar to automobile companies, weakness in Europe weighed on the earnings of auto ancillaries as well. For Balkrishna Industries, while overall volumes across geographies grew 5% on year in the December quarter, those in Europe fell 16%. It is unclear currently the quantum by which the weakness in Europe could affect the other auto-ancillary companies.

 

The following table shows the performance of the 17 companies in the auto sector vis-a-vis the consensus estimate for each company as well as against the consensus estimate for the auto sector and the Nifty 200 index:

 

			Nifty 200 Q3 PAT growth 8.8%	Nifty 200 Q3 PAT growth consensus estimate 10%				Nifty 200 Q3 revenue growth 5.5%	Nifty 200 Q3 revenue growth consenus estimate 4%
Company	PAT beat analysts' estimate	Adjusted PAT growth %	Adjusted PAT growth estimate %	PAT beat sector estimate	PAT beat Nifty 200 estimate		Revenue beat analysts' estimate	Revenue growth %	Revenue growth estimate %	Revenue beat sector estimate	Revenue beat Nifty 200 estimate
Balkrishna Industries	Yes	42.16	24.56	Yes	Yes		Yes	11.44	10.23	Yes	Yes
Bosch	No	10.02	14.15	Yes	Yes		No	6.19	8.13	No	Yes
Exide Industries	No	1.96	12.83	No	No		No	0.21	8.71	No	No
MRF	No	-39.62	-16.91	No	No		Yes	13.81	12	Yes	Yes
Samvardhana Motherson	Yes	61.86	55.83	Yes	Yes		No	7.89	12.6	No	Yes
Sona BLW Precision Forgings	Yes	18.22	8.73	Yes	Yes		Yes	11.01	10.16	Yes	Yes
Bajaj Auto	No	3.27	5.63	No	No		No	5.72	7.11	No	Yes
Bharat Forge	No	-8.17	-0.45	No	No		No	-7.4	0.93	No	No
Eicher Motors	No	17.52	19.57	Yes	Yes		No	19.01	21.2	Yes	Yes
Escorts Kubota	Yes	8.5	8.33	Yes	No		No	8.46	13.65	No	Yes
Hero MotoCorp	Yes	12.06	4.28	Yes	Yes		Yes	5.01	4.1	No	Yes
Mahindra & Mahindra	No	19.06	27.23	Yes	Yes		Yes	20.31	20.04	Yes	Yes
Maruti Suzuki India	No	12.62	15.55	Yes	Yes		No	15.56	16.45	Yes	Yes
Tata Motors	No	-23	-9.99	No	No		No	2.71	5.71	No	No
TVS Motor Company	No	4.24	9.72	No	No		No	10.33	11.08	Yes	Yes

 

 

The following table shows the profit margins of the 17 auto sector companies that are a part of the Nifty 200.

	PAT Margin for Dec-24	PAT Margin for Dec-23	PAT Margin for Sept-24
Nifty 200	11.87%	11.51%	11.37%
Auto sector	7.43%	8.00%	7.19%
Company	PAT Margin for Dec-24	PAT Margin for Dec-23	PAT Margin for Sept-24
Ashok Leyland	8.04%	6.26%	8.78%
Apollo Tyres	4.87%	7.53%	4.62%
Balkrishna Industries	17.29%	13.56%	14.35%
Bosch	10.26%	12.32%	12.20%
Exide Industries	6.37%	6.26%	6.98%
MRF	4.46%	8.40%	6.74%
Samvardhana Motherson International	3.18%	2.11%	3.16%
Sona BLW Precision Forgings	17.42%	16.97%	15.61%
Bajaj Auto	16.47%	16.86%	15.27%
Bharat Forge	16.51%	16.69%	16.08%
Eicher Motors	23.54%	23.83%	25.81%
Escorts Kubota	11.01%	11.01%	14.42%
Hero MotoCorp	11.78%	11.04%	11.50%
Mahindra & Mahindra	9.57%	9.67%	13.28%
Maruti Suzuki India	9.16%	9.40%	8.25%
Tata Motors	4.80%	6.35%	3.30%
TVS Motor Company	6.80%	7.20%	7.18%

 

(Note: Analyst estimates for each index group are derived from estimates for companies part of the index)

 

End

 

Data compiled by Vinod Bhovad

Edited by Ashish Shirke

 

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