Besides Maruti, analysts at IDBI Capital also expect Bajaj Auto
(9%) and Eicher Motors (4%) to report volume growth on YoY basis. The brokerage firm said the slowdown in the auto segment in Q3FY20 would also impact the overall performance of auto ancillary companies.
As for the bottom-line, Sharekhan pegs net profit for the major automakers to drop by around 8 per cent while Prabhudas Lilladher expects a much larger 26 per cent dip. On the other hand, analysts at ICICI Securities expect automakers' profit after tax (PAT) to increase 3 per cent year-on-year which it attributes, in part, to transition to lower tax rate (25.2 per cent) for the quarter.
MARGIN EXPANSION LIKELY
According to Prabhudas Lilladher, margins are likely to expand around 60-80 basis points (bps) for major firms, led by benefit of soft raw materials which would be partially offset by higher discounts and weak product mix. DBS expects margins to expand 90bps YoY for major firms on a low base, softening input prices and cost-reduction measures. Tata Motors
(200 bps YoY), Bajaj Auto
(110 bps) and Maruti Suzuki (100 bps) are expected to report strong margin performance. Companies that are likely to register a steep decline in margins are Ashok Leyland (-440bps), Eicher Motors (-320bps), Escorts (-110bps) and Exide (100bps).
THE ROAD AHEAD
Going forward, a general slowdown in the economy, increase in vehicle prices, BSVI transition, liquidity conditions and low buying sentiment among customers would continue to impact four-wheeler and two-wheeler retail sales, IDBI Capital said in a note. Those at BNP Paribas are 'cautiously optimistic' on the sector for the year 2020, but rule out a significant improvement in the year ahead.
"In Q1FY21, pre-buying is expected to happen but auto manufacturers may be forced to resort to discounting in order to clear BS-IV models, given the weak demand conditions. As the BS-VI emission norms are implemented effective April 1 2020, prices of all BS-VI models are estimated to rise.This has the potential to keep demand suppressed for a quarter or two in our view," said Abhijeet Dey, a senior fund manager for Equities at BNP Paribas