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Industrial Products India, Industrial Manufacturers & Suppliers
 




 
   
 
 
 

Automakers\' growth to impact earn..

Automakers' growth to impact earnings outlook

In the past three months, the auto ancillary sector, down 4%, has been a outperformer compared to the ET Automobile index, which fell 12%. This can be explained by sustainable demand from the passenger car and commercial vehicle segments whose fortune is directly linked with the production of auto component manufacturer.
As far as earnings growth is concerned, the top 29 companies in the sector have delivered strong numbers with better profitability owing to lower raw material costs in the quarter ended June '10. The list of players includes big names such as Motherson Sumi System, Sono Koyo Steering and Bharat Forge.
On the other hand, automakers, which include major players, such as Tata Motors, Maruti Suzuki and Mahindra & Mahindra, recorded an 11% growth on an aggregate basis even though their net profits were dented by 6% due to high raw material costs, which include steel components on a standalone basis.
However, auto-component makers recorded a topline growth of 21% in the similar period. However, there is moderation in demand in the automobile sector, which is visible in the current quarter.
The major worry for the auto component players is moderation in the sales of automobile since the past seven months, which can be attributed to a high base effect and increase in purchasing costs due to hike in interest rate.
As per brokerage report and SIAM estimates, the automobile sector has witnessed a 12% growth till July '11 compared with almost 24% in the last calendar year. This is already visible in the financial performance of aggregate players, which has recorded 21% growth in the quarter ended June '11 compared with 26% in the previous quarter.
The outlook of the earnings growth will depend upon the growth momentum of the automobile players in the coming quarters not only in the domestic market but also exports. On the cost front, any upward movement can dent the operating margin in the coming quarters.

Investors can take exposure in the auto-ancillary stock if they are looking for reasonable returns in the long term.

 
     
 
   
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