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'Weakness continued in auto sector during Q3'
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SME Times News Bureau | 24 Feb, 2020
The automobile and ancillary companies continued to post grim but above
estimate earnings despite weak performance during the October-December
quarter, said a report by Emkay Global on Monday.
Domestic sales
volumes of medium and heavy commercial vehicles were 39 per cent lower
on a year-on-year (YoY) basis and that of tractors and personal vehicles
fell by 6 per cent and 1 per cent. The sale of two-wheelers in the
domestic market witnessed a 15 per cent fall during the third quarter of
the financial year 2019-20.
"Margins saw an expansion, after
seeing a contraction for five quarters. Overall, earnings fell 9 per
cent yoy (our estimate: down 11 per cent) but were above estimates due
to higher-than-expected operating margins and lower tax rate. The
quantum of decline in earnings was lower than the past three quarters,"
said the brokerage firm's report.
It also said that the
management commentary by auto companies was positive on the volume
expectations for the upcoming fiscal, owing to low base, pick-up in
rural demand, lower interest rates and a gradual pick-up in macros.
"In the near term, the covid-19 outbreak is expected to negatively
impact China region revenues of TTMT (Tata Motors) and MSS (Motherson
Sumi Systems), while it could positively impact the margins of
battery/tyre companies," it said.
In addition, the supply chain
could be impacted, as auto companies source a small portion of component
requirements from Chinese vendors either directly or indirectly, it
said, adding that there could be delays in the activation of alternative
supply-chains and increase in costs.
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