Auto cos may see 40% top line growth
Passenger carmakers have managed to clock a year-on-year volume growth of 38 per cent between October and December against the same period in 2008. The two-wheeler companies have posted 40 per cent growth in volume.
The numbers are, of course, propped up by the low base of December 2008, the worst quarter for auto companies last year.
However, growth has received a fillip from other factors as well. A slew of launches throughout the year played a big role in keeping customer interest alive.
Low financing cost because of declining interest rates also helped boost demand for cars and two-wheelers.
Given the volumes expansion, sales growth for automobile companies will certainly be strong this quarter and will probably translate into 30-40 per cent growth in the top line performance for the passenger carmakers and two-wheeler companies.
Raw material prices, which have been upward-bound, pose a challenge even as other expenses are likely to remain where they were last quarter.
There has been a steep 30-45 per cent bounce in prices of some key raw materials such as steel and rubber and component makers are already affecting price hikes.
This may see the raw material factor of vehicle makers go up 40-50 per cent over last year's levels.
Manufacturers who rely to a larger extent on imported components may see higher incidence.
While this quarter may see impact from this front, most car manufactures have decided to pass on the higher cost to their customers in the forthcoming months by way of hiking prices.
Two-wheeler companies are likely to follow suit despite being in a relatively better position to handle raw material cost concerns since more than 95 per cent of their components are procured from indigenous part makers.
Over the medium term (and not in the current fiscal), carmakers would also face the additional challenge of transition to Bharat Stage-IV norms.
BS-IV will become mandatory across 11 metros and the rest of the country will also upgrade to the next level of technology from April 2010. For now companies have decided to put through another round of price hikes in April to absorb the cost of change in technology.
However, if interest rates trend up by then, it is uncertain whether customers would still be willing to accept these price hikes. If the two price hikes come through, cars may cost Rs 50,000 to Rs 80,000 more.
At present, automobile manufacturers are bullish about a comfortable domestic demand for the next two years. So if the two cost pressures - increasing raw materials cost and the transition to new emission norms - are handled well, the rest of 2010 and fiscal year 2011 may continue to be a smooth drive for auto makers.
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