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Covid-19 to push automakers into a record loss of Rs 10,000 crore in Q1

Mumbai: Listed Indian car firms might post a cumulative loss of Rs 10,000 crore for the June quarter.

As a lot as Rs 7,000 crore of that is expected to be the consolidated loss of Tata Motors, in accordance to brokerage estimates compiled by ETIG. Maruti Suzuki is projected to post its first loss as a listed company, whereas Eicher Motors, TVS Motor and Ashok Leyland too are expected to post losses in the quarter disrupted by the Covid-19 pandemic.

Focus on the agricultural market, which is recovering quicker from the pandemic’s influence than cities, and important treasury earnings are expected to assist Hero MotoCorp, Mahindra & Mahindra and Escorts to keep in the inexperienced.

The forecasts underscore additionally the significance of hinterlands in the earnings efficiency and money reserves of automakers. On Wednesday, Bajaj Auto posted a quarterly revenue, which was lower than half the year earlier than.

Almost no gross sales for 45 days and resultant money burn from fastened price — which is equal to 14-16% of the income for automakers — dented the monetary efficiency in the fiscal first quarter. Truck makers had been the worst hit by the lockdown with an over 90% decline in gross sales in the quarter, adopted by passenger car makers who posted an 80% fall in gross sales and two-wheelers firms that noticed a 70% fall.

Sales of tractors — Mahindra is the largest producer — fell 20%, however the section has seen a fast turnaround in June when gross sales grew from a year earlier.

With the exception of Tata Motors and TVS, relaxation of the 9 listed firms are debt-free or have comparatively low debt — therefore the strain from curiosity burden for the quarter was pretty benign.

These 9 automakers account for practically 80% of the overall business income. The estimated loss of Rs 10,000 crore is excluding any impairment fees or non-cash write-off, in accordance to the median estimate of the main brokerages.

These automakers had posted a median mixed revenue of Rs 4,989 crore in the previous 5 years, knowledge from Capitaline present.

Tata Motors is expected to post a consolidated loss of Rs 6,500-7,000 crore for the previous quarter, with India operations accounting for about Rs 2,000 crore of that.

According to the consensus estimate of analysts tracked by Bloomberg, Maruti Suzuki is expected to post a loss of Rs 411 crore. As for two-wheeler market chief Hero MotoCorp, the estimated revenue of Rs 50-70 crore is the bottom since March 2001.

Maruti’s quantity fell 81% to 76,599 models in the June quarter; this was virtually half of the month-to-month volumes of the company in the pre-Covid interval. The sharp drop in quantity, money burn from the fastened price and unfavorable working leverage might end result in loss even on the working stage.

Other earnings from treasury operations, which contributed practically half of the overall revenue earlier than tax for Maruti Suzuki in the March quarter, might assist decrease the loss.

Ashok Leyland might post a loss of Rs 383 crore, its largest quarterly loss since 1997 — knowledge past that was unavailable. The largest quarterly loss for Ashok Leyland was Rs 167 crore, in the earlier downcycle of 2013.

The mixed income of the 9 automakers might fall 55% to Rs 55,663 crore in the quarter. Maruti Suzuki’s income might fall 79%. For Hero MotoCorp, it could be about 64%.

Arjun Yash Mahajan, the top of institutional enterprise at Reliance Securities, said the auto sector was one of the worst affected by the lockdown. As per his estimates, 70% of the auto universe would post losses in Q1.

“Despite benign raw material cost, the lower operating leverage would severely impact profitability with Ebitda margin contracting by 1,350 bps (13.5 percentage points) YoY to minus-5%,” he said, predicting a Rs10,700.4 crore combined loss by the companies, compared with a net profit of Rs1,490 crore a year earlier.

Reliance Securities expects sales to improve sequentially in the ongoing second quarter, but volumes to decline 30-50% from a year earlier, except for the tractor segment. Mahajan expects volumes to improve year-on-year from the second half of this financial year.

A silver lining is, bourses have turned favourable for auto stocks.

Auto stocks gained 20-72% in the past three months, with their market value rising by Rs 1.4 lakh crore to Rs 5.49 lakh crore. The market capitalisation of Mahindra increased the most (by Rs 30,843 crore), followed by Maruti Suzuki (Rs 28,764 crore) and Hero MotoCorp (Rs 19,565 crore).

Despite the recent gains, auto stocks have lost sheen among investors in the last 18 months due to weak demand for vehicles. Auto stocks’ weight in the Nifty 50 index has now dropped to a decade low at 5.5%.

Bajaj Auto Q1 net profit dips 61% to Rs 395.51 crore

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