India's auto sector saw a repeat of the Q3 volume trend with 2Ws outperforming 4Ws in Q4FY14.
Q4 is a seasonally strong quarter for automobile volumes, but this time around 4W sales remained lacklustre (both PVs and CVs), despite the excise-linked price cut. 2W players fared better with Hero MotoCorp/TVS Motor registering growth of 4%/11% YoY, while the declines for Bajaj Auto also moderated to -4.6% (FY14: -8.7%). For JLR, Q4 volumes grew at an estimated 8.6% YoY.
"Most manufacturers are expected to take a hit on margins due to compensation given to dealers post the excise-linked price cuts," said Religare Institutional Research.
For MSIL, the negative impact would be partially offset by tailwinds from yen depreciation (flat margins QoQ).
"We expect JLR's margins (-90bps QoQ) to be hit by GBP depreciation. Tata Motors's standalone losses would remain bloated (EBITDA/PAT loss at Rs 3 billion/Rs 8 billion) on continued volume pressure, leading to poor operating leverage. Mahindra & Mahindra's margins are expected to dip 50bps on a lower mix of tractors in total volumes. We haven't included the impact of the MTBL merger, with Mahindra & Mahindra likely to report full-year losses of Mahindra Trucks and Buses in Q4," it added.
Religare expects EBITDA margins to dip the sharpest for Bajaj Auto by 120bps QoQ due to lower operating leverage, expenses related to launch of the new Discover and dealer compensation. Hero MotoCorp is expected to report a dip of 60bps while TVS Moto's margins should improve 50bps QoQ on higher operating leverage, exports and a better product mix, it added.
"With muted volumes and some pressure on margins, auto sector profit growth to remain muted. Currency benefits would likely be reflected in profits of select players," Religare added.
Only TVSL is expected to report a sharp jump in profits YoY (+113%) led by a volume/margin pick up, it opined.
Overall, 2W volumes continue to outperform 4Ws and the latter have failed to recover significantly despite the excise-linked price cut. Nonetheless, we believe the worst in terms of volume growth is behind us given the likely improvement in macro climate, the broking firm said.
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