Rising fuel prices with receding operating profit margins leading to slower auto sector growth

The current fiscal year commenced with unfavourable economic conditions adversely affecting the production and a sale leading to declining growth rate in the Indian economy and the recent hit of the depreciating economic situation is slammed on the automobile sector.

In the initial two months of the current year, the automobile sector began witnessing comparatively lower domestic sales of passenger segment and commercial segment vehicles leading to non-progressive growth of the whole auto industry.

Since the prices of petrol is on an increasing note since last few months, the demand for the petrol powered vehicles in the domestic market has dipped considerably owing to which the demand for diesel powered vehicles have seen a catapult but the proposed hike in prices of diesel cars will further deteriorate the sales growth in the industry.

It has been reported that the annual sales growth of major automotive companies have declined to lowest in three years. Such as Ashok Leyland witnessed sales growth of 14% in FY 2011-12 in comparison to 53% and 21% in last two FYs.

Moreover, the sale of Eicher Motors, Hero MotorCorp, Bajaj Auto and TVS Motors is following the suit with dipping y-o-y growth.

Another major constraint to sales growth is the rising prices of vehicles owing to the appreciating cost of raw materials that is eating on a major chunk in the operating profits. While M & M, Tata Motors, Hero MotorCorp and Bajaj Auto have recorded lower operating profit margins in FY’12 as compared to FY’11, Ashok Leyland and Maruti Suzuki have clocked the lowest operating profit margins since FY’10.