Auto sales figures over the last few months have given a clear indication on the direction automakers’ earnings would take for the quarter ended December 31, 2018. Financial results of major automobile firms released so far show that earnings have taken a beating during the period. And while, two-wheeler sales have been better compared to cars and SUVs, their margins too have come under pressure. 

For instance, India’s largest carmaker — Maruti Suzuki India — disappointed the markets with a 17 per cent drop in net profit, and Hero MotoCorp, the country’s largest two-wheeler maker, announced a 4.5 per cent decline in net profit on Thursday at Rs 769 crore. Bajaj Auto, meanwhile, had reported a relatively healthy net profit growth at 16 per cent, but its EBITDA margins have contracted by a sharp 376.1 basis points year-on-year -- from 19.4 per cent to 15.6 per cent. 

For Hero, EBITDA stood at Rs 1105 crore and EBITDA margin at 14 per cent, lower than the 15.8 per cent posted in the same period last year. Hero’s expenses soared nearly 10 per cent compared to the corresponding quarter of the previous year. The firm’s income from operations however grew 8.5 per cent and sales volumes at 5.3 per cent. 

“There have been temporary setbacks in the third quarter of the current fiscal on account of multiple factors, leading to higher than normal inventory levels at dealerships. However, the fourth quarter has historically been positive and we look forward to an improved market situation in the coming months,” Pawan Munjal Chairman, Hero MotoCorp said.

But it is not just Hero which is struggling, with the entire sector undergoing a slowdown because of rising ownership costs due to higher insurance and high fuel prices during the quarter dampening demand. Margins have also been impacted by rising input costs for manufacturers. 

For instance, Bajaj Auto’s contracting margin prompted analysts to predict lower margins going forward, even as its market share is seen rising in the near-future. ICICI Direct noted that its stance on the firm’s stock remained cautious since it did not support the strategy to “undercut its product prices to gain market share, as it structurally lowers the return ratios”. Reliance Securities said it expects the “domestic market to witness slowdown owing to higher system inventory and likely lower demand in 1HFY20. Moreover, we expect down-cycle for the automobile industry in FY21E”. 

More positive was the management call from TVS Motor Company, which said it expected growth recovery in the fourth quarter, with scooters likely outgrowing motorcycles again. Exports too are expected to be positive. 

Assembly elections in three key north Indian states during the quarter added to the sales slowdown, and the finance crunch faced by non-banking finance companies also contributing to woes to some extent. Industry veterans only hope that the lacklustre demand doesn’t extend to the summer, when the Lok Sabha elections are due.