Auto sector to report 10% PAT growth in Q4

Few sectors are expected to report double-digit earnings growth in the March quarter. The automobile sector is expected to be among the few which will deliver double-digit earnings growth, even though volume growth has been muted for many companies.

While two-wheelers have seen volumes come under pressure, passenger cars and commercial vehicles fared better. Even as the sector is expected to grow headline revenues in low single digits, net profit growth is expected to be in the region of 10%.

Most automakers are expected to report margin expansion as raw material costs have declined and currency movement has been beneficial for the sector. The yen depreciated by 4% during the quarter against the rupee, which will have a positive impact on players like Maruti and Hero MotoCorp.

Given that the volume growth for two-wheelers decelerated during the quarter, analysts do not expect overall revenue growth to be very strong in the March quarter. Bajaj Auto's volumes are estimated to have declined 14% during the quarter, while Hero MotoCorp's volumes fell 1%.

Eicher, Maruti and Ashok Leyland have reported robust volume growth, which would reflect in the revenue growth of these companies too. Excluding Tata Motors, Kotak Institutional Equities expects the auto sector's revenues to grow four% in the March quarter while net profit growth is expected to be 10%.

Maruti is expected to be report a revenue growth of 11% on the back of seven% rise in volumes during the quarter. Reliance Securities expects operating margin to improve 48 basis points sequentially on the back of favourable currency movement, better product mix and higher localisation.

Among two-wheelers, Hero is expected to report a revenue growth of 1.2% year-on-year, given that volumes declined. Operating margins are expected to improve by nearly 100 bps on lower promotional activity, favourable currency and cost cutting measures.

Bajaj on the other hand is expected to see revenues decline by eight% and operating margins contract by 110 basis points. Bajaj Auto's post-tax profit is expected to decline by 11% YoY. Among two-wheelers, TVS is likely to post 12% revenue growth in Q4 on the back of seven% volume growth.

Mahindra & Mahindra is expected to report a rather weak quarter, thanks to a 15% volume decline. Spark Capital expects M&M's revenues to decline 15%, thanks to an eight% decline in auto volumes and 31% decline in tractors. Operating margins are expected to contract 150 basis points sequentially due to lower capacity utilisation.