Mumbai: Listed Indian automobile companies could post a cumulative loss of Rs 10,000 crore for the June quarter.As much as Rs 7,000 crore of this is expected to be the consolidated loss of Tata Motors, according to brokerage estimates compiled by ETIG. Maruti Suzuki is projected to post its first loss as a listed company, while 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 rural market, which is recovering faster from the pandemic’s impact than cities, and significant treasury income are expected to help Hero MotoCorp, Mahindra & Mahindra and Escorts to stay in the green. The forecasts underscore also the importance of hinterlands in the earnings performance and cash reserves of automakers. On Wednesday, Bajaj Auto posted a quarterly profit, which was less than half the year before.Almost no sales for 45 days and resultant cash burn from fixed cost — which is equal to 14-16% of the revenue for automakers — dented the financial performance in the fiscal first quarter. Truck makers were the worst hit by the lockdown with an over 90% decline in sales in the quarter, followed by passenger vehicle makers who posted an 80% fall in sales and two-wheelers companies that saw a 70% fall. Sales of tractors — Mahindra is the biggest manufacturer — fell 20%, but the segment has seen a quick turnaround in June when sales grew from a year earlier.With the exception of Tata Motors and TVS, rest of the nine listed companies are debt-free or have relatively low debt — hence the pressure from interest burden for the quarter was fairly benign.These nine automakers account for nearly 80% of the total industry revenue. The estimated loss of Rs 10,000 crore is excluding any impairment charges or non-cash write-off, according to the median estimate of the leading brokerages.These automakers had posted an average combined profit of Rs 4,989 crore in the past five years, data from Capitaline show.Tata Motors is expected to post a consolidated loss of Rs 6,500-7,000 crore for the past 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 leader Hero MotoCorp, the estimated profit of Rs 50-70 crore is the lowest since March 2001.Maruti’s volume fell 81% to 76,599 units in the June quarter; this was almost half of the monthly volumes of the company in the pre-Covid period. The sharp drop in volume, cash burn from the fixed cost and negative operating leverage may result in loss even at the operating level.Other income from treasury operations, which contributed nearly half of the total profit before tax for Maruti Suzuki in the March quarter, may help lower the loss.Ashok Leyland could post a loss of Rs 383 crore, its biggest quarterly loss since 1997 — data beyond that was unavailable. The largest quarterly loss for Ashok Leyland was Rs 167 crore, in the previous downcycle of 2013.The combined revenue of the nine automakers could fall 55% to Rs 55,663 crore in the quarter. Maruti Suzuki’s revenue may fall 79%. For Hero MotoCorp, it would be about 64%.Arjun Yash Mahajan, the head of institutional business 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%.
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