The automobile industry is one of the largest spending ad category in the country. While in 2014 the auto sector’s ad spends accounted for an estimated Rs.3,000 crore, in 2015 the ad spends are estimated to grow by 30% to Rs.4,000 crore. The reason for this large rise in auto sector ad spends is that a large portion, around 60% i.e. Rs.2,400 crore, is estimated to spend auto companies during the festive period this year. This surge in ad spends from the auto sector is due to the slow but steady revival in their sales figures from a large slump last year.
In October itself Auto sales saw a surge in growth as sales grew by 21.8%. This was 12th consecutive month of growth in the auto sector says the SIAM report. With sales improving of auto makers, so are their results expected to. Recent Q2FY2016 results of most automobile companies saw a surge in their net profit.
Tata Motors and M&M post poor results in Q2 among 4-wheeler companies
India’s leading auto manufacturer Maruti Suzuki in the September end quarter (Q2FY2016) reported a 42.1 jump in the net profit. The net profit of the company grew to Rs.1,225.56 crore in Q2FY2016 from Rs.862.54 crore during the same period last year. The company’s net sales during the quarter had increased by 13.2% to Rs.13,574.8 crore from Rs.11,996.33 crore in the corresponding quarter last year.
Mahindra & Mahindra (M&M) on the other hand had reported a decline in its net profits during Q2FY2016. The net profit of the company was marginally down by 2.43% and stood at Rs.923.56 crore as against Rs.946.63 crore during the same period last year. M&M Ltd., which is a combination of M&M and Mahindra Vehicle Manufacturers (MVML), total revenue stood at Rs.10,206 crore which declined from Rs.10,267 crore in the corresponding quarter last year. The reason for this decline in growth is said to because of the poor monsoon season. This could be seen as domestic tractor industry de-grew by 24.8%. However, the passenger vehicle market grew by 6.3% with good growth in the car segment.
Tata Motors posted its first net loss in 25 quarters. The net loss amounted to Rs.428 crore was on account of a one-time charge of Rs.2,493 crore as a result of Jaguar Land Rover (JLR) vehicles damaged in a Tianjin Port explosion in August. It was also hit by foreign exchange revaluation and higher depreciation and amortization expenses in the JLR business. The company in the same period last year had recorded a net profit of Rs.3,291 crore. However, the consolidated net sales were higher at Rs.61,318 crore as against Rs.60,641 crore in the same quarter last year.
Ashok Leyland in Q2 recorded one of the largest rise in its net profit with a 137% rise. The company’s net profit rose to Rs.286.61 crore from Rs.120.68 crore during the same period a year ago. The net sales were up by 51.6% to Rs.4,878.81 crore. The company saw a 4.5% rise in the sales of its light commercial vehicles (LCVs). The company sold 7,712 LCVs during Q2 this year as against 7,497 LCVs in the same period a year ago.
Two-wheeler companies post larger growth in Q2
Eicher Motors in the July to September quarter this year saw its profit after tax (PAT) jump by 53.6% to Rs.285 crore from Rs.186.1 crore during the same period last year. The company’s total income from operations increased by 37.3% to Rs.3,122.5 crore during the quarter. Two-wheeler brand Royal Enfield’s, which is under Eicher Motors, high sales during the period was a reason for the excellent results posted by the company. Royal Enfield motorcycle sales had increased by 45,634 units than during the same quarter last year. The total Eicher Motor sales stood at 11,657 units.
TVS Motors Q2 results reported a large rise of 22.78% in its net profit. The net profit rose to Rs.116.41 crore from Rs.94.81 crore during the same quarter last year. The net sales of the company was up 7.99% to Rs.2,880.72 crore from Rs.2,677.44 crore in the same period last year. However, the total two-wheeler sales saw a marginal decline of 0.30% to 6.46 lakh units as against 6.48 lakh units in the corresponding quarter last year. The reason for this is while scooter sales had a good growth of 12%, motorcycle sales had a flat growth of 2.55 lakh units.
Bajaj Auto reported a 57.9% rise in its net profit during the second quarter. The company’s net profit surged to Rs.933.06 crore during this quarter from Rs.590.90 crore from the same period last year. Its total income had increased to Rs.6,250.42 crore during this quarter from Rs.6,076.70 crore in the same period a year ago.
Hero MotoCorp on the other hand reported a marginal growth of 1.13% in its net profit. The company’s net profit increased to Rs.772.06 crore from Rs.763.37 crore during the same quarter last year. The reason for this low growth was due to the slowdown in sales in rural markets post the bad monsoon season.
Most of the auto companies are positive of a good growth in Q3 with the festive sales kicking off. This can be seen as October sales have significantly risen by 21.8% and auto companies expect much larger sales in the following two months of the quarter. Apart from the festive season another reason for the rise is the recent interest rate cuts by the RBI prior to the festive period which have reduced interest rates for auto loans. This all has pushed auto companies to increase their ad spends significantly during the quarter.