Auto manufacturers in India face the heat as operating margins fall

Sunday 17 June 2012, 19:21 PM by

After taking its toll on the country’s industrial sectors, the slump in India's economy has started showing bad effects on the local demand in the Indian auto industry. The domestic sales in passenger as well as commercial vehicles segment is crawling in an extreme slow pace, which can be observed from the sales figures recorded in April and May 2012. With this, the consolidated growth in sales throughout the industry is way behind the estimates.

As if the reduction in sales of petrol cars due to increase in petrol price was not enough, the Petroleum Ministry also proposed a hike in taxes applied over diesel run cars. Such a move is likely to slow down the growth of Indian auto industry. Yearly sales of roughly all big players of the domestic auto industry witnessed a three year low in fiscal 2012. For example, Ashok Leyland registered a growth of just 14 per cent during the period, when compared against 53 per cent and 21 per cent, respectively in 2011 and 2010.

Likewise, sales of Eicher Motors expanded by 29 per cent in 2011-2012 when compared to the Year over Year (YoY) growth rate of 50 and 71 per cent for the preceding two years, respectively. The same trend of negative growth was followed by Hero MotoCorp, TVS Motors and Bajaj Auto as they posted higher sales in the previous two years. Likewise, the third largest Utility Vehicle maker of the country, Maruti Suzuki, saw a decline in YoY sales in comparison with the two previous years.

Along with decline in sales, auto companies are also witnessing a cut-down in margins because of increase in prices of components and raw material, which has forced the manufacturers to raise prices of their offerings. In order to improve the situation for themselves, several car makers are offering goodies and freebies in hopes to pacing up the stagnant demand, which can be also considered as another reason for their reduced margins.

Notably, Ashok Leyland and Maruti Suzuki registered their lowest operating margins since the fiscal 2010. Similarly, the margins of Hero MotoCorp, Mahindra & Mahindra, Tata Motors and Bajaj Auto took a hit in fiscal 2012 when evaluated against the previous financial year. However, TVS Motors and Eicher Motors still managed to report a growth in operating margins.