The auto sector capitalised the fiscal and monetary stimulus effectively

Automobiles

The December quarter usually inherits the festive season, marking it as the peak season for auto sales. However, the December 2009 quarter was an exception as a major chunk of the festive season was celebrated in the September 2009 quarter Nevertheless, auto sales volumes were upbeat in the quarter ended December 2009 partly due to the low base effect and partly due to economic recovery, low interest rates, financial availability, commercial vehicles purchases on fear of withdrawal of government’s stimulus, increased construction activities as well as pre-purchasing prior to implementation of new emission norms in April 2010. Total auto sales volume grew a robust 37% to 35,58,525 vehicles, backed by growth across all the auto segments, in the December 2009 quarter over the December 2008 quarter.

Aggregate financials of 91 automobile companies were exceptional with a spectacular 356% spike in net profit to Rs 3135 crore in the December 2009 quarter on robust operating performance and low base effect in December 2008 quarter. Aggregate sales grew a robust 56% to Rs 39562 crore, driven by sales volume. OPM grew 750 basis points (bps) to 14.5%, lifting OP a whopping 224% to Rs 5723 crore.

Tata Motors reported a net profit of Rs 400.14 crore as against a net loss of Rs 263.26 crore. OPM increased 1,100 bps on volume growth and a marginal vehicle price hike that was effected to combat the rise in commodity prices. The company plans to launch the new models showcased at Dethi Auto Expo 2010, i.e., Magic Iris, Aria and Venture in 2010.

Maruti Suzuki’s net profit tripled (grew by 222%) to Rs 687.53 crore on robust sales volume and favourable commodity prices for significant portion of the quarter. Operating income grew an impressive 62% to Rs 7502.85 crore as domestic sales received support from the government’s stimulus package and financial availability, while exports received a boost from the scrappage scheme in certain European countries and efforts in non-European countries.

Mahindra & Mahindra, the tractor to two- wheeler manufacturer reported an 849% growth in its net profit to Rs 413.70 crore on robust sales in the automotive and farm equipment segments, lower raw material costs and low interest rates.

Hero Honda, tagged as the world’s largest two-wheeler manufacturer, reported an impressive growth of 78% in net profit to Rs 535.77 crore on a 280-bp hike in OPM, decline in depreciation cost as well as effective tax rate. It was the third consecutive quarter that the company has reported over one million sales volume per quarter, i.e., 11,11,372 two-wheelers, up by 30%, in the quarter ended December 2009. The company is planning to increase the capacity at its existing units and may look at setting up a new plant in near future.

Bajaj Auto recorded an impressive growth 189% in its net profit to Rs 475.14 crore robust OPM growth of 740 bps. The company’s focus on more profitable category bigger and sportier bikes had partially offset the rising raw material cost. The company surpassed its records achieved in the quarter ended September 2009 of the highest quarterly motorcycle sales, highest quarterly three-wheeler sales, highest quarterly exports, highest quarterly operating profit, and highest quarterly net profit.

We expect commercial vehicle players to outperform most other segments in the quarter ending March 2010 as purchases could be driven by fear of withdrawal of government stimulus in Union Budget 2010-11 as well as pre-purchase spree prior to upgradation of emission norm in April 2010, leading to increased vehicle prices.

Though the issue of hardening of commodity prices continues, most of the auto players hiked their vehicle prices beginning January 2010 to combat rising raw material cost besides their continued cost control measures. Thus, the near-term outlook is positive.