Suryaa Business Desk: Surya Market & Automobile Bureau, Mumbai: In the first half of the current financial year due to increased discounts, higher inventory and raw material costs... Surya Market & Automobile Bureau, Mumbai: Leading research and brokerage firms expect a gradual recovery in profit margins from the third quarter (Q3), which has been under pressure due to increased discounts, high inventory and raw material costs in the first half of the current fiscal. Seasonal sales momentum of Dussehra, Diwali, etc., demand recovery in rural markets and better product mix (premiumization) will support the operating margins of the automakers. Festive Demand – Volumes Recovery: Domestic sales are picking up strongly in the third quarter after sluggish vehicle registrations and dealer inventory adjustment in the second quarter. Passenger vehicles, two-wheelers and tractor segments are witnessing strong volume growth on a year-on-year basis.
Analysts believe that the increase in sales volume will help companies benefit from operating leverage, reduce the burden of fixed costs and expand margins. Key Factors Contributing to Margin Expansion: Premiumization & SUV thrust: The sales share of high-margin SUVs, hybrids and top-end models in the passenger vehicle segment increased to over 55 per cent. This has significantly increased the average selling price of the vehicle manufacturers. Stabilization of prices of raw materials: Stabilization of prices of key metals like steel and aluminum is giving relief to companies in terms of operating costs. Reduced discounts: Due to strong bookings during the festive season, companies are gradually reducing high promotional discounts.
This will increase the net profit margins. Companies' Performance Outlook: Market expectations suggest that major manufacturers such as Maruti Suzuki, Mahindra & Mahindra, TVS Motor and Bajaj Auto are likely to post double-digit growth in terms of EBITDA in the third quarter. However, although the growth in the commercial vehicles segment is somewhat slow, brokerages predict that it will pick up gradually with the acceleration of infrastructure projects.
