Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Auto: A good 3QFY06! - Views on News from Equitymaster
  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Auto: A good 3QFY06!
Feb 16, 2006

As the result season for 3QFY06 is over, we shall look at the performance of the Indian automobile sector. The real surprise was the faster growth in topline when compared to the volume sales (see table below). This was the result of a combination of factors. Firstly, the companies have announced a price hike in the current quarter. Secondly and more importantly, there has been an improvement in the product mix.

Financial snapshot (QIS companies)
Figures in m 3QFY05 3QFY06 Change
Units 1.8 2.1 12.4%
Sales 146,756 169,268 15.3%
Operating profit 18,885 23,148 22.6%
OPM 12.9% 13.7%  
Net Profit (inc extraordinary) 11,936 16,798 40.7%
NPM 8.1% 9.9%  

The expansion in the operating profits should be viewed in light of a significant reduction in the raw material costs. The companies have benefited from the weakening steel cycle. We have been stating that the benefit of the softening steel prices is likely to kick in post 1HFY06. Having said that, the auto companies have benefited slightly on a higher side than initially expected by us. But for other expenses, the operating profits would have grown at a faster pace. The increase in other operating expenses is primarily on two counts. Firstly, the companies intensified their brand building exercise in the current quarter. Secondly, almost all the automobile companies bore the brunt of fluctuation in foreign exchange rates. As compared to a notional gain reported in 3QFY05, the companies had to face forex losses in the current quarter.

Operating costs breakup (QIS companies)
Figures in m 3QFY05 3QFY06 Change
Raw material 104,689 119,371 14.0%
% Sales 71.3% 70.5%  
Staff Cost 6,211 6,922 11.4%
% Sales 4.2% 4.1%  
Other expenses 16,970 19,992 17.8%
% Sales 11.6% 11.8%  

At the first glance, the net profit shows a phenomenal growth of 41% YoY. However, a closer look into the performance reveals that the net profit from continuing activities has grown by 22% YoY, a tad lower than the operating profit growth. As can be seen from the table below, the 41% growth is due to non-recurring gains recorded in the current quarter as compared to the loss in 3QFY05. This again highlights the importance of separating the extraordinary items in the final analysis of the performance of the company.

Net Profit analysis (QIS companies)
Figures in m 3QFY05 3QFY06 Change
Net Profit (inc extraordinary) 11,936 16,798 40.7%
Extraordinary items (212) 1,963  
Net Profit (exl. extraordinary) 12,148 14,835 22.1%
NPM 8.3% 8.8%  

What to expect?
The automobile industry being a barometer of the economy, we expect the same to grow at a steady rate. However, investors should bear in mind that the growth rates would not be as high as those witnessed during FY03 to FY05, as most of the pent up demand of the period 1998 to 2002 has already been reflected in the performance of the industry during FY03 to FY05. In our opinion, automobile stocks in general are no more a 'value buy', and to that extent, investors should tread caution and be selective in their stock selection.

Equitymaster requests your view! Post a comment on "Auto: A good 3QFY06!". Click here!


More Views on News

What They Forgot to Tell You About Sensex at One Lakh (Profit Hunter)

Nov 29, 2017

Stocks that could beat Sensex returns in the long term.

How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

Jun 10, 2017

Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

Why Wall Street's Seasoned Pros Are Jumping Ship (Vivek Kaul's Diary)

Mar 17, 2018

Bill Bonner tries to explain how the Fed will want to stimulate the American economy by cutting interest rates.

How to Have a Portfolio That's Market Crash Proof (Profit Hunter)

Mar 16, 2018

What would really happen if our stocks were to fall in value due to a stock market crash tomorrow? How would our overall results change in such a scenario?

How to Permanently Solve Inequality (Vivek Kaul's Diary)

Mar 16, 2018

Bill explains his take on inequality in America, and offers a solution on how to solve it.

More Views on News

Most Popular

The Best Blue-Chip Stocks to Ride Sensex 100,000(The 5 Minute Wrapup)

Mar 8, 2018

Here are the four criteria by which you can easily identify safe blue-chip stocks to consider investing in this market correction if valuations fall to reasonable levels.

This Phone Call Changed How I Look at Markets...And Will Change You as Well(Smart Contrarian)

Mar 8, 2018

Nifty is down almost 10% from its all-time highs. It may be difficult for retail traders to make money in such markets but not for the institutional traders. Here's how they survive and thrive in such difficult times.

Is it Time to Redeem Your Balanced Fund(The Honest Truth)

Mar 5, 2018

Rs 50,000 crore of mis-selling and mis-understanding.

Trump's Trade Wars Aren't Going to Make America Great Again(Vivek Kaul's Diary)

Mar 12, 2018

The American president like other politicians is just looking at the first order effects of his decision to impose tariffs.

Mirae Asset Emerging Bluechip Fund: A Cautiously Managed Midcap Fund(Outside View)

Mar 6, 2018

PersonalFN takes deeper look at the performance of Mirae Asset Emerging Bluechip Fund.


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Mar 16, 2018 (Close)