June quarter results of auto companies likely to be 'dismal': Report

Domestic auto companies, which saw a sharp decline in sales volume in the June quarter owing to Covid-19, are likely to report dismal financial performance in the first quarter of this fiscal, a research note said on Monday.

Auto makers such as Bajaj Auto Ltd, Maruti Suzuki and TVS Motor, among others, are set to announce their June quarter earnings ‌in the coming days.

"Q1FY21 is expected to be one of the worst quarters for the Indian auto industry due to a sharp decline in volumes amid Covid-19," Jefferies said in a research note.

Wholesales volumes declined 74-78 per cent year-on-year (y-o-y) for passenger vehicles and two-wheelers, while truck wholesales volume plunged 93 per cent during the first quarter of the current financial year, as per the note.

Tractors were relatively better with an estimated 18-20 per cent y-o-y decline during the quarter, while, two-wheeler export volumes dipped 62 per cent, the note stated.

Given this big decline in volumes amid Covid-19, the June quarter results of auto companies are likely to be "dismal," it said, adding, "we expect aggregate revenues of our covered auto original equipment manufacturers (OEMs) to fall 71 per cent YoY in Q1FY21."

File photo used for representational purpose (Bloomberg)

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File photo used for representational purpose (Bloomberg)

Jefferies has analysed nine companies from across segments -- Ashok Leyland, Bajaj Auto, Hero MotoCorp, Maruti Suzuki, Eicher Motors, M&M Ltd (including MVML), TVS Motor, Motherson Sumi and Bharat Forge (standalone) for Q1 results preview.

The note also expects industry margins to weaken sharply for most companies due to the adverse operating leverage effect of lower top-line.

"We see aggregate EBITDA margin for our covered OEMs falling 11 percentage point (ppt) y-o-y (down 10 ppt Q-o-Q) in June quarter of FY21. We see Ashok Leyland and Maruti Suzuki reporting negative EBITDA margins in the quarter, but expect margins for Bajaj, Eicher (Royal Enfield), Hero MotoCorp, M&M Ltd and TVS Motor to remain positive," it said.

Auto component makers — Bharat Forge and Motherson — are also expected to report negative EBITDA margins in the first quarter of the current financial year, Jefferies said in the note.

"We expect Bajaj, Hero and Mahindra to remain profitable in Q1, but see Maruti, Eicher, Ashok, TVS, Bharat Forge and Motherson Sumi slipping into losses in the quarter," it said.