Financial Analysis of Key Auto Companies (FY09-FY19)
ETAuto takes stock of the ground realities and maps the past decade to analyse the situation minutely to delve deep into the issue plaguing the industry. The shift has led to a massive alterations in costs that has left the precarious finances in a deep anguish as salary and job cuts are becoming the new reality of the day.
India, being an underpenetrated market that offered growth opportunities, has done better than other major markets in terms of operating margins in the last few years. In the US, the average net margin is about 6 percent for automakers and 3.5 percent for component manufactures. In India, these have been about 10 percent and 5 percent, respectively.
Bajaj Auto, the Pune-based two-wheeler and three-wheeler maker has enjoyed almost zero interest and finance charges for the last 10 years.
The gradual start of production at automakers and component suppliers will bring some positive sentiment to the sector, feel experts. But they don’t expect the activities to become smooth at least for two-three months, as the supply value chain is massively impacted.
The shock to the industry due to the pandemic will now impact profitability and even sustainability of some companies, as this time there is limited to no government bail-out packages available unlike 2008. This will lead to more alliances and consolidation, as the industry repairs balance sheets and strives to deliver pre-Covid-level shareholder returns.
Many a time the component makers, especially the smaller ones, are not allowed to serve the aftermarket directly as the OEMs themselves serve the customers to earn the higher profit margins.
Bajaj Auto’s employee cost as a percentage of operating income has stayed at almost 4 percent — one of the lowest in the industry whereas for Maruti Suzuki, employee cost has gone up to 4 percent from about 2 percent.
Employee cost in the component sector shows a marked difference: 8.4 percent for the large companies and 11.2 percent for the small ones.
Maruti Suzuki’s consolidated PAT at 9 percent of operating income in 2018-19 has grown from about 6 percent ten years ago. While the largest two-wheeler maker, Hero MotoCorp, which had announced force majeure in March for a brief period to suspend full payments to some vendors, too has zero debt and has maintained a PAT of about 10 percent.
According to a study by the ACMA, the PAT of suppliers is on average 6 percent of operating revenue for companies with more than Rs 1,000 crore of annual turnover. For those with Rs 50-150 crore turnover, this shrinks to 4.1 percent.
In the component space, over 70 percent manufacturers are in MSMEs which are facing a tough time due to liquidity crunch and demand slump. They are also the biggest contributor to jobs and so need urgent help to survive.
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