Festive sales might bring cheer for Maruti as Tata Motors and Mahindra to remain in the red, predict analysts

• The earnings estimates for the third quarter for FY20 show that the sole earner from the festive season could be Maruti Suzuki.
• Tata Motors and Mahindra & Mahindra may see a quarterly jump in sales and revenue, could fall behind on a year-on-year basis.
• The rise in sales for Maruti Suzuki has come in after the festive season, along with the massive discounts being offered by the company.

The Indian auto industry has carried its baggage to the new year - and that includes slowing sentiment, rising fuel prices and worse - is the inventory of vehicles which are soon going to be banned by the government.

As they battled low sales all of last year, there was a silver line of hope that had its effect on their third quarter earnings.

The earnings estimates from stock brokers for the third quarter for FY20 show that the sole earner from the festive season could be Maruti Suzuki. However, its peers like Tata Motors and Mahindra & Mahindra which may see a quarterly jump in sales and revenue, will fall behind on a year-on-year basis.


“We expect revenues to increase year-on-year on a 2% rise in volumes and 7% increase in realizations. Realizations are expected to rise due to price increases (relating to safety-norms, emission norms and other factors) and benign mix. EBITDA margin is expected to increase due to a low base, reduction in commodity prices and cost-reduction efforts,” said the Emkay report.

In the last quarter of 2019, auto manufacturers took advantage of the festive season to hasten to sell before the transition to BSVI.




But there might be a price to pay for the sales growth - as they happened on the back of massive discounts. The report further said that margins are expected to expand by 90 basis points year-on-year for companies, softening input prices and cost-reduction measures.

However, even the discounts failed to do the trick for the likes of Tata Motors, which reported a 13% decline in its December domestic sales volumes.

Here are the discounts offered by the companies in December.


Source:Nirmal Bang

In spite of the disappointing prospects in the third quarter, the new year might bring in new hope for the sector. The upcoming Union Budget might also provide the much-needed relief. The government has taken cognisance of the sector’s problems with a stimulus package in August 2019.

“After enduring tough times over the past five quarters, auto sales cycle should see a gradual improvement on better rural sentiment, lower interest rates, improvement in macro environment and the likely implementation of a scrappage policy,” said the Emkay report.

SEE ALSO:
Chinese auto giant and SUV leader Great Wall Motors is set for an India debut, which could be a threat to MG Motors