Top car makers foresee insignificant growth this fiscal

Although, Maruti Suzuki India has announced a major increase in production activities for October, mainly to meet the backlog of Maruti Swift; it is expected that a decline of 25% will hit Maruti India’s profits in the second quarter this fiscal due to labour unrest in the past at its Manesar plant. It is expected that other car companies, like Tata Motors might follow Maruti India in booking dismal profits this quarter albeit a temporary hike is seen in car sales in India, thanks to the festive season. But, auto sector’s net profits margins may contract to 7.3% largely due to a decline in profitability at Tata Motors and Maruti India.

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Angel Broking, a stock-broking and wealth management firm has reportedly said that lower volume growth and higher input costs are the main reasons for the expected decline in auto sector earnings. Maruti is expected to report a sharp 25.7% year-on-year decline in profits due to lower volumes. Even, Tata Motors' profitability is expected to be affected due to a higher tax rate on the JLR front. Tata Motors even under performed in BSE Auto Index during Quarter 2 FY 2012 on account of concerns relating to JLR volume growth because of rising economic uncertainty in the US and the European markets. The report said that operating margins of most of the auto firms are expected to decline on a year-on-year basis in second quarter of ongoing fiscal on account of increase in raw material costs. Further, higher discounts and freebies like LCD TVs offered by passenger car firms on car sales in India in an assay to push up sales will also press on margin performance.

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