Covid-19, BS 6 inventory correction to hit auto revenues hard in March quarter

The coronavirus outbreak and inventory correction before transition to BS 6 emission norms are expected to pull down aggregate revenue of some of the auto and auto ancillary companies by 26 per cent in March quarter even as the near-term weakness in demand is likely to continue as Covid-19 persists, a report said on Monday.

File photo used for representational purpose only. (REUTERS)
File photo used for representational purpose only.

Besides, the higher discounts and operating de-leverage are expected to contract aggregate margins by 240 basis point year-on-yea, Emkay Global Financial Services, said in its report on the auto and auto ancillaries.

Also Read : Auto sector needs low cost products, localisation to stabilise biz post Covid-19

Most of the manufacturing activities, including in the auto sector, are suspended since March 25 when the government implemented a 21-day lockdown to contain the spread of coronavirus.

States like Maharashtra, Punjab, Odisha, Telangana and West Bengal have already announced the extension of lockdown till April 30.

"Aggregate revenue (in March quarter) is likely to decline 26 per cent year-on-year, owing to the Covid-19 outbreak and inventory correction before BS 6 transition. Firms that are likely to record a steep fall in revenue are deep cyclicals or companies with global linkages," Emkay Global said.

The March quarter topline of the companies covered under the report are likely to be weak with 28 per cent year-on-year fall, it said adding the decline will be sharp for deep cyclicals and companies with global linkages.

The auto makers included in its analysis are Tata Motors, M&M Ltd, Maruti Suzuki India, Hero MotoCorp, TVS Motors, Ashok Leyland, Bajaj Auto, Eicher Motors, Escorts and Atul Auto.

Apollo Tyres, Amara raja, Exide, Motherson Sumi and Bharat Forge were among the ancillary makers.

The report said it expects the rebound in sales to be sooner in passenger vehicles, premium motorcycles and tractors segment.

"Although near-term weakness is expected to continue as the Covid-19 outbreak drags, a gradual recovery is likely from H2FY21 led by a low base, better rural sentiment and pent-up demand. We believe recovery to be sooner in PVs, premium motorcycles and tractors," Emkay Global said in the report.

First Published Date: 13 Apr 2020, 21:31 PM IST
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