X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 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
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Feb 16, 2006

    Auto: A good 3QFY06!

    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

    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.

    Enter My Inner Circle of Safe Stocks (The 5 Minute Wrapup)

    Sep 19, 2017

    The Inner Circle of Sensible Investing is where every safe investor wants to be.

    Gold Imports Surge: Are People Hedging the Risk of Another Demonetisation? (Vivek Kaul's Diary)

    Sep 19, 2017

    Imports of the yellow metal have surged big time this year.

    Why Most Mutual Fund SIP Strategies Fail (Outside View)

    Sep 18, 2017

    A super investment portfolio strategy is a must for steady wealth creation.

    It's Time Enforcement Directorate(ED) Investigated "Errant" Real Estate Companies (Vivek Kaul's Diary)

    Sep 18, 2017

    Only then can the problem of non-delivery of homes be solved now and forever.

    More Views on News

    Most Popular

    India's Big and Messy Real Estate Ponzi Scheme, Just Got Messier(Vivek Kaul's Diary)

    Sep 11, 2017

    The question is, whether real estate buyers are financial creditors or not.

    180,000%: The Returns That Could Have Been(The 5 Minute Wrapup)

    Sep 7, 2017

    For successful investing in small caps, it's important to know when not to press the panic button.

    Feeling Left Out? Two Opportunities to Make Money in This Market(Daily Profit Hunter)

    Sep 13, 2017

    Nifty is above 10,000 once again. Have you missed the bus?

    Introducing Smart Contrarian: The Blueprint for Big Profits from Small Investments

    Sep 18, 2017

    Welcome to a bold, new initiative designed for the truly contrarian investor.

    How To Link Aadhaar With Your Mutual Fund Investments(Outside View)

    Sep 11, 2017

    The Government has extended the linking of the unique Aadhaar number to nearly all financial transactions.

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Sep 20, 2017 (Close)

    MARKET STATS