A global investment firm has 'SELL' rating on 70% of Indian car makers because sales may not pick up speed

• With car sales being woefully slow, Indian auto manufacturers are going to see the weakest Q1 results in a decade, say analysts.
• A CLSA report has said that Q1 EBITDA is going to fall by an average of 28% for all auto companies.
• Maruti Suzuki cut production for the fifth consecutive month in June due to lack of demand.

Indian automakers have been witnessing a massive slowdown in sales and that has resulted in stock analysts calling it the first quarter, their toughest quarter in a decade. CLSA, the capital markets research firm, has said that first quarter results for FY 20 is likely to be the weakest in a decade for the auto sector because of depressed volumes and margin pressure.

The report further mentions that for the first quarter, pre-tax profits would fall by 28% year-on-year for the entire industry. While Maruti and Ashok Leyland could see their quarter’s profits decline by 35-43%, Eicher, Mahindra and Motherson Sumi could see a 14-21% decline.

“We remain cautious on the sector and have sell ratings SELLs on 70% of our stock coverage; on a relative basis, we continue to prefer Maruti , Eicher, and Motherson,” said the report.

Car sales in India have been falling for the last past few months. In May 2019, passenger car sales declined by 20.5%.

One of India’s biggest car manufacturers, Maruti Suzuki had reported a decline by 21% in its car sales for May. In June, it fell again by 14%. In fact, the auto manufacturing giant cut production for the fifth consecutive month in June due to lack of demand. Its shares fell too, shedding ₹7,000 crore in market value in early July.