News: Indian vehicle makers see mostly higher Q4 earnings

(RTR 21/04/2006) Mumbai - Indian vehicle makers are set to report mostly higher quarterly profits on stable raw material costs and modest sales growth, but high oil prices and firm interest rates could squeeze margins in coming quarters.

Bajaj Auto Ltd., India's number-two motorcycle maker, and top truck producer Tata Motors Ltd. could report earnings grew 51 and 30 percent respectively on new launches and sales of premium products, a Reuters poll showed.

Low vehicle ownership, rising incomes and affordable loans have helped Indian vehicle makers post rapid growth in the last three years.

But a cyclical slowdown, stricter emission standards and higher prices of oil and raw materials like steel and rubber slowed the pace of growth in India's $15 billion vehicles market in the fiscal year to March 2006.

"The long-term growth prospects are strong, given the low penetration, increased affordability and changing demographics," said Dipen Sanghavi, auto analyst at Pranav Securities.

Small cars make up more than three-fourths of car sales in India, and a tax cut to 16 percent from 24 percent in February is expected to boost sales of top car maker Maruti Udyog Ltd. -- 54.2-percent owned by Japan's Suzuki Motor Corp. -- and Tata Motors in the coming quarters.

Maruti, which cut prices of five of its models in March, is expected to report a 32 percent rise in quarterly earnings on April 26. Tata Motors, which makes cars too, had also cut prices on its hatchback models.

India's passenger vehicle sales are forecast to more than double to 2 million units by 2010.

Tata Motors is also expected to gain from a rule banning overloading of trucks, which will also boost revenues of Ashok Leyland Ltd., the second-biggest bus and truck maker.

"The tax cut on small cars and the overloading rule will help sales of cars and commercial vehicles this year," Sanghavi said.

Continued development of India's highways network and higher freight rates will also encourage higher truck sales.

Utility vehicle maker Mahindra & Mahindra Ltd. is also forecast to report higher profits, a Reuters poll showed.

BIKES BOOM

India's top two motorcycle makers are expected to report strong earnings growth on the back of new launches that spurred sales in the world's largest market for motorcycles after China.

Motorbike makers roll out about 6 million units a year in India. More than half of India's billion-plus population is below the age of 25 years, and a motorbike is usually the first vehicle of purchase by young Indians.

Leader Hero Honda Motors Ltd., 26-percent owned by Japan's Honda Motor Co., is expected to post a 22 percent earnings growth, but number-three TVS Motor Co. could see a 28 percent decline, the poll showed.

But intense competition from new entrants including Honda Motorcycle Scooters, Suzuki Motor and rejuvenated Yamaha Motor will pose an increasingly big challenge.

Still, interest rates on vehicle loans -- which have firmed by about 100 basis points in the last three months and are expected to rise further -- will encourage higher motorcycle sales.

"Despite the tax cut (on small cars), the price differential is still quite big, with the cheapest car still four times as expensive as the average motorcycle," said Sanghavi. "So we are not going to see a huge movement to cars from motorcycles yet."