Sector Watch: Automobiles
The automobile sector had a turbulent ride in the fourth quarter of 2006-07, with a near600 basis points decline in the sales growth rate over the first three quarters. Profit growth remained elusive yet again as raw material costs moved up at a higher pace than sales.
The Commercial vehicle makers, which posted a decline in the sales growth rate, increased their profit growth in the fourth quarter compared with the third quarter.
The motorcycle makers posted a decline in the fourth-quarter profit, on the back of a modest 12 per cent growth in sales even as total expenditure surged 19.9 per cent. Utility vehicle makers also suffered a setback, with profits falling 20.2 per cent, as the cost of production rose 20 per cent compared with 19 per cent sales growth.
The profitability of the sector declined substantially during the quarter as motorcycle firms,in particular, could not increase prices despite the increase in the cost of production owing to fierce competition for a higher market share. Also, higher interest rates impacted demand across all segments. The sales growth rate declined further in the first two months of 2007-08, with passenger vehicle sales rising 11.61 per cent compared with 19.8 per cent a year-ago. Sales of commercial vehicles declined 6.14 per cent (56 per cent growth), while two-wheeler sales fell 8.02 per cent (16 per cent growth).
Higher interest rates continued to impact demand, with a slowdown in all segments. The sales performance differed among sub-segments, with the commercial vehicle and two wheelers hit harder than the passenger car segment. According to analysts, while the two-wheeler segment was hit by a lower allocation of finance, commercial vehicle demand suffered from an increase in risk aversion on the part of financiers. Analysts expect the sales growth disparity between cars and commercial vehicles to continue in the coming months.
Source: Business Standard
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