India’s top vehicle makers are set to post mostly lower quarterly net profits as high commodity prices and interest rates weighed on margins and slowed sales in Asia’s third-largest economy, a news agency report said.
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But greater economies of scale as production facilities expand and a cut in the excise duty on small cars, motorbikes and buses will offset pressure in the coming quarters, analysts told Reuters. Maruti Suzuki India, Hero Honda Motors and leading utility vehicle maker Mahindra & Mahindra are forecast to report gains, helped by modest sales growth and cost efficiencies, the news agency said.
But other vehicle makers, including top truck maker Tata Motors, are set to post declines as higher costs bite, the report noted. Asian steel makers, passing on their own higher costs, have asked automakers and other users to accept price hikes of 20-40% or more in recent months, while prices for rubber, oil and other raw materials have also risen sharply.
“Factors such as increasing input costs and greater volatility in foreign currency exchange rates, coupled with lack of traction in volumes have been areas of concern,” Amit Kasat, auto analyst at brokerage Motilal Oswal told Reuters.
“(But) the worst phase of the volume decline and stagnation in profitability has been negotiated. The benefits accruing from productivity improvement and cost reduction would continue to partially offset the pressures from rising input prices.”
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By GlobalDataA slowing economy and higher interest rates have reduced motorcycle and truck demand in particular and also slowed the pace of manufacturing, forcing vehicle makers to cut inventory levels and adjust production, Reuters said. But a cut in the excise duty in February on small cars and buses to 12% from 16%, and on bikes and scooters to 16% from 24%, will boost demand.
New model launches, particularly of passenger vehicles, and new legislations on emissions and safety will also encourage demand for trucks and buses in the long-term, analysts told Reuters.
The report said Tata Motors, which recently agreed to buy Ford Motor Co’s Jaguar and Land Rover brands, is forecast to post a 6.5% decline in profit to INR5.4bn on the back of sluggish sales of high-margin medium and heavy trucks.
