Dearer inputs may hit auto cos' margins

Lower than expected volumes growth, owing to weakened demand and high raw material prices, is likely to impact margins of automotive companies in the first quarter of 2011.

Revenue growth, however, is expected to be better on account of an upward price revision by companies during the quarter, according to analysts reports.

Net profit of the sector is expected to grow by around 10-12 per cent over the same period a year ago, while gross revenue is expected to record a growth of 16-18 per cent.

Chennai-based truck and bus maker Ashok Leyland, which recorded a fall of nearly 10 per cent in volumes, may post the biggest fall in net profit among all other vehicle makers. Ashok Leyland, the second biggest commercial vehicle maker, reported a fall of 11 per cent at 19,277 units as against 21,400 units.

Volumes of car market leader Maruti Suzuki remained flat in the same quarter as exports fell and buyers preferred to hold back their purchases due to high fuel prices and costlier lending rates in the domestic market. Maruti Suzuki recorded total volumes of 281,256 units, a fall of 0.6 per cent during the quarter, compared to 283,324 units in the year-ago period.

While the car and commercial vehicle markets suffered due to macro economic fluctuations, the two-wheeler sector largely remained insulated as buyers moved to fuel-efficient motorcycles to beat the price hike.

Most companies raised prices by 1-2 per cent on account of rise in prices of steel, rubber and other metals, however, they have refrained from passing on the entire burden to the customer.

A senior executive from Bajaj Auto said the company was holding on to the price rise because they had increased the prices of their vehicles in April for the domestic market and in May for exports. Bajaj will announce their Q1 results on Thursday.

"Rising inflationary pressure, higher interest rates and slower economic growth have led to slower growth for cars and commercial vehicles in Q1. But the domestic two-wheeler industry seems insulated from the prevailing tough macro conditions", said a report of Standard Chartered equity research.

“Volume growth has been muted across key segments for this quarter, in addition, sustained cost pressures will continue to see a fall in operating margins. Overall we expect the auto space to post a subdued performance at the net income level,” said a Morgan Stanley report.