Another bad quarter for auto firms

The quarter ending September 2019 is not expected to show any bright signs for the struggling auto sector. Companies continue to struggle with low demand, inventory correction and cuts in production across segments. According to Kotak Institutional Equities, the revenue/Ebitda (earnings before interest, tax, depreciation and amortization)/PBT (profit before tax) for companies under its coverage are expected to decline by 12%, 23%
and 37% respectively on a year-on-year basis. Even Prabhudas Lilladher sees a weak quarter for auto companies, though it expects the negative operating leverage and product mix “to be offset partially by easing commodity inflation, cost control initiatives and positive forex”.

The downtrend in the auto industry has persisted in September despite the players announcing higher discounts of upto 15-25% of ex-showroom prices. Maruti Suzuki reported a 26.7% drop in domestic sales, while two-wheeler manufacturer Bajaj Auto reported a 31% decline.