Despite the automotive industry witnessing a growth of 28 per cent in 2010-11, the profitability level has fallen, which is causing concern, said Mr Srivats Ram, President, Automotive Components Manufacturers Association of India.
Mr Srivats Ram told Business Line that analyses of financials for the first half of 2010-11 saw the return on investment declining for automotive companies.
“We will have to wait for companies to announce their financial results for 2010-11, to see how much the return on investment has been affected,” he said.
It is estimated that the automotive industry grew by $30 billion in 2010-11, exports reported a $5-billion growth and imports went up by $10 billion.
Exports have shown a revival, with the US economy showing signs of recovery, to post a growth of 15 per cent over the previous year. In 2009-10 the market did not grow due to the impact of the financial crisis.
Exports have risen because new entrants are sourcing components from India for their other markets. With India becoming a global platform, car companies are looking at the mass market with usage of similar auto components across countries.
Issues facing the industry
The withdrawal of Duty Entitlement Passbook (DEPB) from June 30, 2011 may hurt automotive component manufacturers particularly the small and medium enterprises that cater to the export market.
The industry is grappling with the commodity price hike and declining profits. With no Value Added Tax in place, the removal of DEPB will make the Indian automotive industry uncompetitive in global market, he said.
Mr Srivats Ram said the withdrawal of the DEPB scheme without accompanying tax reforms, which ensure that domestic taxes are not exported, would leave Indian exporters handicapped in the global market.
DEPB scheme encourages the use of domestic raw material. It is known that the element of the import duty may be contained in the pricing of the domestic suppliers itself even though such customs duty may not be reflected, he said.
Auto Makers See Branding Advantage in Exclusive Showcasing
Bajaj Auto has started a branding exercise for its high-end products by opening exclusive companyowned showrooms and others are following suit.The countrys second-largest two-wheeler maker has even branded these showrooms separately,as Probiking,where only the bigger bikes in its portfolio are sold.Now,several auto makers are seeing the value of the branding exercise.Force Motors,the commercial vehicle and tractor maker which is about to debut its personalised vehicle division with the launch of a sports utility vehicle,is setting up company-owned showrooms.
The first of these will come up in its home city Pune,while it plans to open such showrooms in Mumbai and Delhi.These company owned showrooms will not be sales points,they will only display our range of products.This is an investment in longterm brand building.Yes,we will start with the SUV but we will add more products.The new van,a sixseater that we plan to launch next year,could go into such a showroom.We could also showcase the 4x4 Gurkha,whose production we discontinued last year but which we plan to re-introduce with a new driveline,higher torque,more attractive and refined interiors, Prasan Firodia,managing director,Force Motors,said.While he maintained this was an investment for the long term,he declined to comment on the actual investment,beyond saying it ran into several crores.For Force Motors,sale of the SUV will happen from new showrooms which some of their existing dealers will set up,but traffic to these showrooms will be driven from such display rooms which are being located in premium residential areas.The Pune showroom is situated on Senapati Bapat road,an area that is fast developing into another high street shopping zone.In Mumbai,it will be in the upmarket south Mumbai area,while a location in Delhi is yet to be finalised.Then theres Fiat India Automobiles,which will open two brand boutiques in Delhi and Pune next month to display only Fiat products.
These outlets,which are internally being called brand image points,will be company-owned and operated,meeting international standards of the Italian group.Sales could also happen here,a company official said,requesting anonymity.This is a brand-building exercise,modelled on Fiats international practice where sales could also happen.These brand boutiques will exclusively showcase Fiat products,there will be no Tata products.These are additional and separate from the dealerships that Fiat and Tata have, the official added.Fiat India Automobiles is a fouryear old JV between the Fiat group and Tata Motors where its 175 dealers across the country sell the products of both companies.Garware Motors,the Indian assembler and distributor of Hyosung,a Korean bike brand which is currently rolling out dealerships in select cities across the country,has chosen to own and operate the showroom in its home town,Pune.Diya Garware Ibanez,managing director,Garware Motors,explained,The Garware Superbiking showroom in Pune is a model showroom.We will bring our dealers from all over the country to show the service,display,etc,here.Sales will also happen here.
The first of these will come up in its home city Pune,while it plans to open such showrooms in Mumbai and Delhi.These company owned showrooms will not be sales points,they will only display our range of products.This is an investment in longterm brand building.Yes,we will start with the SUV but we will add more products.The new van,a sixseater that we plan to launch next year,could go into such a showroom.We could also showcase the 4x4 Gurkha,whose production we discontinued last year but which we plan to re-introduce with a new driveline,higher torque,more attractive and refined interiors, Prasan Firodia,managing director,Force Motors,said.While he maintained this was an investment for the long term,he declined to comment on the actual investment,beyond saying it ran into several crores.For Force Motors,sale of the SUV will happen from new showrooms which some of their existing dealers will set up,but traffic to these showrooms will be driven from such display rooms which are being located in premium residential areas.The Pune showroom is situated on Senapati Bapat road,an area that is fast developing into another high street shopping zone.In Mumbai,it will be in the upmarket south Mumbai area,while a location in Delhi is yet to be finalised.Then theres Fiat India Automobiles,which will open two brand boutiques in Delhi and Pune next month to display only Fiat products.
These outlets,which are internally being called brand image points,will be company-owned and operated,meeting international standards of the Italian group.Sales could also happen here,a company official said,requesting anonymity.This is a brand-building exercise,modelled on Fiats international practice where sales could also happen.These brand boutiques will exclusively showcase Fiat products,there will be no Tata products.These are additional and separate from the dealerships that Fiat and Tata have, the official added.Fiat India Automobiles is a fouryear old JV between the Fiat group and Tata Motors where its 175 dealers across the country sell the products of both companies.Garware Motors,the Indian assembler and distributor of Hyosung,a Korean bike brand which is currently rolling out dealerships in select cities across the country,has chosen to own and operate the showroom in its home town,Pune.Diya Garware Ibanez,managing director,Garware Motors,explained,The Garware Superbiking showroom in Pune is a model showroom.We will bring our dealers from all over the country to show the service,display,etc,here.Sales will also happen here.
Auto cos learn to handle risk tied to growth
Expansion into newer geographies, exposure to multiple currencies and uncertain political climate have increased the risk factors for the Indian automobile companies. The newer risk factors become even more acute if growing competition and volatile raw material costs are added. The combination of such factors has led the country’s top auto firms to set up separate verticals solely dedicated to risk management.
Companies such as Mahindra & Mahindra, Tata Motors, Hero Honda and Maruti Suzuki have sharply increased focus on risk management and are also considering having a designated executive or a chief risk officer (CRO) to oversee the various functional aspects and gauge the risk profile of the firm.
Even clause 49 of the listing agreement mandates every listed company to have a risk management framework in place, according to which companies are required to “lay down procedures to inform board members” about the risk profile of the company. However, the emerging risk management aims to go beyond the narrow definitions of risk by broad-basing its nature and scope.
So against the present practice where typically chief financial officers (CFO) double up as CROs, in the coming days most companies would have a distinct risk officer.
“The concept of enterprise risk management is becoming increasingly important and require a dedicated focus of a strong, full-time risk officer to champion risk management initiatives,” said Monish Chatrath, partner (consulting & markets leader) at Mazars India. He said that traditionally companies did not put a lot of emphasis on risk management, but in the backdrop of increasing challenges, many OEMs or original equipment manufacturers now prefer to have a dedicated team to look into risk management.
Adithya Bhat, managing director of consulting firm Protiviti, said that the sharper focus on enterprise risk management was mainly among the homegrown auto companies.
“We are now getting more queries on risk management. Among the Indian companies, there is sharper focus now because awareness about such practices are going up,” Bhat said. According to him, a CRO would be typically required to coordinate with the marketing and supply divisions and draw up a complete risk profile of the company. As followed in the West, a CRO reports directly to the board. The most common risk factors that companies are forced to take cognizance of include over-dependence on a particular segment or customer for revenues, threat of natural calamities, attrition and unforeseen developments such as hike in interest rates. Chatrath said that in the recent past, companies were also redrawing plans based on their risk parameters that included increased competition from China, rising unionisation and even succession planning. Mahindra & Mahindra’s president (finance, legal & financial services) and member of the board Uday Phadke said that the company has a robust risk management policy.
“At M&M, business managers are responsible for managing business risks and functional managers manage function-specific risks. We regularly review our risk universe,” he said. Similarly, Maruti Suzuki has increased its focus on risk management substantially, with the senior members of the top management also being a part of the executive risk management committee, thereby constantly gauging the risk profile of the company, which was not the case three years ago.
Companies such as Mahindra & Mahindra, Tata Motors, Hero Honda and Maruti Suzuki have sharply increased focus on risk management and are also considering having a designated executive or a chief risk officer (CRO) to oversee the various functional aspects and gauge the risk profile of the firm.
Even clause 49 of the listing agreement mandates every listed company to have a risk management framework in place, according to which companies are required to “lay down procedures to inform board members” about the risk profile of the company. However, the emerging risk management aims to go beyond the narrow definitions of risk by broad-basing its nature and scope.
So against the present practice where typically chief financial officers (CFO) double up as CROs, in the coming days most companies would have a distinct risk officer.
“The concept of enterprise risk management is becoming increasingly important and require a dedicated focus of a strong, full-time risk officer to champion risk management initiatives,” said Monish Chatrath, partner (consulting & markets leader) at Mazars India. He said that traditionally companies did not put a lot of emphasis on risk management, but in the backdrop of increasing challenges, many OEMs or original equipment manufacturers now prefer to have a dedicated team to look into risk management.
Adithya Bhat, managing director of consulting firm Protiviti, said that the sharper focus on enterprise risk management was mainly among the homegrown auto companies.
“We are now getting more queries on risk management. Among the Indian companies, there is sharper focus now because awareness about such practices are going up,” Bhat said. According to him, a CRO would be typically required to coordinate with the marketing and supply divisions and draw up a complete risk profile of the company. As followed in the West, a CRO reports directly to the board. The most common risk factors that companies are forced to take cognizance of include over-dependence on a particular segment or customer for revenues, threat of natural calamities, attrition and unforeseen developments such as hike in interest rates. Chatrath said that in the recent past, companies were also redrawing plans based on their risk parameters that included increased competition from China, rising unionisation and even succession planning. Mahindra & Mahindra’s president (finance, legal & financial services) and member of the board Uday Phadke said that the company has a robust risk management policy.
“At M&M, business managers are responsible for managing business risks and functional managers manage function-specific risks. We regularly review our risk universe,” he said. Similarly, Maruti Suzuki has increased its focus on risk management substantially, with the senior members of the top management also being a part of the executive risk management committee, thereby constantly gauging the risk profile of the company, which was not the case three years ago.
TVS Motors reports 14 per cent overall growth sales for April
CHENNAI: Automotive maker TVS Motors today reported 14 per cent growth in overall sales for April 2011, propelled by the company's scooter sales and international business besides substantial growth in the three-wheeler segment.
"The company registered sales of 167,744 units as against 147,172 units in the corresponding month of the previous year," a TVS release here said.
Scooter sales "led the growth," increasing by 31 per cent with sales of 35,074 units compared to 26,860 units in April 2010, it said. The South India-based automaker sold 69,573 motorcycles in April 2011, registering an increase of five per cent.
Domestic two-wheeler sales accounted for 141,619 units in April 2011 against 125,471 in the corresponding month of 2010, recording a growth of 13 per cent.
Exports recorded cumulative sales of 25,275 units in April 2011 as against 19,657 units in the previous year.
During the month, the company exported 22,564 units of two wheelers against 19,218 units in April 2010, the release said, adding it had sold 3,561 three wheelers as against 2,483 units in the comparable month of the previous year.
"The company registered sales of 167,744 units as against 147,172 units in the corresponding month of the previous year," a TVS release here said.
Scooter sales "led the growth," increasing by 31 per cent with sales of 35,074 units compared to 26,860 units in April 2010, it said. The South India-based automaker sold 69,573 motorcycles in April 2011, registering an increase of five per cent.
Domestic two-wheeler sales accounted for 141,619 units in April 2011 against 125,471 in the corresponding month of 2010, recording a growth of 13 per cent.
Exports recorded cumulative sales of 25,275 units in April 2011 as against 19,657 units in the previous year.
During the month, the company exported 22,564 units of two wheelers against 19,218 units in April 2010, the release said, adding it had sold 3,561 three wheelers as against 2,483 units in the comparable month of the previous year.
Hero Honda ropes in Law & Kenneth for brand positioning
Law and Kenneth has been mandated to bring alive the positioning of the new brand, and evolve an impactful 360 degree campaign to communicate the same
New Delhi: India’s largest two-wheeler maker Hero Honda Motors Ltd (HHML) on Sunday said it has roped Law & Kenneth (L& K) as a creative partner to launch and establish a new brand for the company after Honda’s exit.
Law & Kenneth (L& K), an independent brand communications firm, has been mandated to devise the new brand positioning of the company.
“Law and Kenneth has been mandated to bring alive the positioning of the new brand, and evolve an impactful 360 degree campaign to communicate the same,” HHML Senior VP (Marketing & Sales), Hero Honda Motors Ltd Anil Dua said in a statement.
L& K’s appointment follows the hiring of international brand and innovation specialist, Wolff Olins by HHML to work on its new brand identity.
“Wolff Olins and Law & Kenneth will work closely together to ensure that there is seamless transition between the strategic thought behind the new identity and the new brand campaign,” Dua added.
Commenting on its appointment as a creative partner, Law & Kenneth chairman Praveen Kenneth said: “This is a once-in-a -lifetime opportunity for any creative agency and we feel really privileged to be the chosen one.”
Hero Honda has embarked on the journey to acquire a new brand name post the two joint venture partners of HHML- Hero Group of India and Honda Motor Co of Japan - deciding to part ways in December last year.
The Munjals-promoted Hero Group had agreed to buy out Honda’s 26% stake in HHML for Rs. 3,841.83 crore.
As per an agreement signed between the two erstwhile partners, Hero can use the Honda brand till 2014, but it is understood that the Indian group wants to acquire a new identify of its own at the earliest in order to maintain its leadership position.
Hero Group and Honda had signed a new licencing agreement in March under which the Indian firm will pay its Japanese counterpart ¥45 billion (about Rs. 2,450 crore) till 2014.
New Delhi: India’s largest two-wheeler maker Hero Honda Motors Ltd (HHML) on Sunday said it has roped Law & Kenneth (L& K) as a creative partner to launch and establish a new brand for the company after Honda’s exit.
Law & Kenneth (L& K), an independent brand communications firm, has been mandated to devise the new brand positioning of the company.
“Law and Kenneth has been mandated to bring alive the positioning of the new brand, and evolve an impactful 360 degree campaign to communicate the same,” HHML Senior VP (Marketing & Sales), Hero Honda Motors Ltd Anil Dua said in a statement.
L& K’s appointment follows the hiring of international brand and innovation specialist, Wolff Olins by HHML to work on its new brand identity.
“Wolff Olins and Law & Kenneth will work closely together to ensure that there is seamless transition between the strategic thought behind the new identity and the new brand campaign,” Dua added.
Commenting on its appointment as a creative partner, Law & Kenneth chairman Praveen Kenneth said: “This is a once-in-a -lifetime opportunity for any creative agency and we feel really privileged to be the chosen one.”
Hero Honda has embarked on the journey to acquire a new brand name post the two joint venture partners of HHML- Hero Group of India and Honda Motor Co of Japan - deciding to part ways in December last year.
The Munjals-promoted Hero Group had agreed to buy out Honda’s 26% stake in HHML for Rs. 3,841.83 crore.
As per an agreement signed between the two erstwhile partners, Hero can use the Honda brand till 2014, but it is understood that the Indian group wants to acquire a new identify of its own at the earliest in order to maintain its leadership position.
Hero Group and Honda had signed a new licencing agreement in March under which the Indian firm will pay its Japanese counterpart ¥45 billion (about Rs. 2,450 crore) till 2014.
Hero Honda to par Rs.2,450 cr royalty to Honda
NEW DELHI: Hero Honda will pay Honda 45 billion yen (about Rs.2,450 crore) till 2014 as part of a new licensing agreement signed between the Hero Group and the Japanese auto major after deciding to part ways on their joint venture. Hero Honda Motors Ltd (HHML) said the amount is in line with its existing rate of royalty payment, which is about 2.7 to 2.8 per cent of net sales. For the existing products, the Indian group will stop paying royalty by June, 2014.
“... Honda and HHML have signed a new licensing agreement, which enables HHML to continue producing, selling and servicing its current products. Consideration for the licensing agreement was yen 45,000 million and becomes due through 2014,” Honda Motor Co said in a statement. — PTI
“... Honda and HHML have signed a new licensing agreement, which enables HHML to continue producing, selling and servicing its current products. Consideration for the licensing agreement was yen 45,000 million and becomes due through 2014,” Honda Motor Co said in a statement. — PTI
TVS Motor misses earnings estimates, disappoints investors
Stock markets thrive on expectations and outperformance. That’s why TVS Motor Co. Ltd’s shares fell by 5.7% on the Bombay Stock Exchange on Friday, despite net profit for the March quarter doubling to Rs. 41.7 crore compared with a year ago.
But this figure was a good 30% lower than the Street’s estimate for the quarter. Also, the underperformance was attributable to its operating profit margin coming in lower over the year-ago period and the preceding quarter.
The positive side to the third largest two-wheeler maker’s results is that it has maintained its growth trajectory over the past four to six quarters. It is benefiting from the unabated boom in the two-wheeler segment, just as its peers Hero HondaMotors Ltd and Bajaj Auto Ltd.
The company’s March quarter sales volumes jumped by 27.3% and, along with a 6% improvement in realization, resulted in a robust 34.3% year-on-year (y-o-y) jump in net revenue to Rs. 1,633 crore.
Higher revenue, mainly driven by the operating leverage from rising volumes, trickled down to 11.4% y-o-y growth in operating profit. This was in spite of cost pressures, which affected operating profit margin. At 5.6% in the March quarter, it was 114 basis points (bps) lower from a year ago and about 80 bps below from the preceding quarter. One basis point is one-hundredth of a percentage point.
The main dampener was the rise in raw material cost due to a surge in commodity prices in their underlying inputs such as metals. As a percentage of sales, it rose 340 bps from a year ago, though flat compared with the December quarter. It was partially offset by the drop in other expenditure relating to marketing and advertising costs.
What did the trick to drive up profits is the all-round growth across products—mopeds, motorcycles, scooters and three-wheelers. TVS Motor is steadily gaining mileage as a pan-India player, which is a change from being predominantly a southern firm for several years.
“Its changing product mix—higher contribution of more profitable product categories like scooters and three-wheelers—augured well for TVS,” says Umesh Karne, analyst at Brics Securities Ltd.
Scooter sales grew by 54% y-o-y and now account for about one-fourth of vehicles sold by the firm. Further, three-wheeler sales grew by a significant 92%, although on a low base of about 6,200 vehicles sold in the previous year. TVS Motor is a new entrant in this segment unlike veterans such as Bajaj Auto and Piaggio.
Of course, its oldest product—mopeds—also grew by a significant 20%. So did motorcycles, which comprise two-fifths of the firm’s sales volumes. TVS Motor met its volume guidance for the year at two million vehicles.
What took the charm off the stock is the negative surprise in lower-than-estimated net profit. The firm stated that it provided about Rs. 9 crore towards the natural calamity cess for its new facility in Himachal Pradesh, where it enjoys tax exemptions.
Companies operating in the state are contesting this demand, which will affect profits, unless it is reversed. Besides, some analysts also view its other income as being lower-than-expected, while the tax outgo was higher.
TVS Motor’s stock trades at Rs. 56.30, which discounts the estimated earnings (stand-alone) for fiscal 2012 (FY12) about 10 times. Given that the firm’s revenue is estimated to grow faster than the industry growth rate of 12-15% per annum for at least two years, the stock offers value.
But some risks could trip investors. One is the performance of its Indonesian subsidiary. Although sales are growing, whether its operations are yet profitable is not known.
Losses could, therefore, pull down consolidated earnings for FY11, as it did in the previous year. If domestic operations don’t see better profitability, that too could affect its performance.
But this figure was a good 30% lower than the Street’s estimate for the quarter. Also, the underperformance was attributable to its operating profit margin coming in lower over the year-ago period and the preceding quarter.
The positive side to the third largest two-wheeler maker’s results is that it has maintained its growth trajectory over the past four to six quarters. It is benefiting from the unabated boom in the two-wheeler segment, just as its peers Hero HondaMotors Ltd and Bajaj Auto Ltd.
The company’s March quarter sales volumes jumped by 27.3% and, along with a 6% improvement in realization, resulted in a robust 34.3% year-on-year (y-o-y) jump in net revenue to Rs. 1,633 crore.
Higher revenue, mainly driven by the operating leverage from rising volumes, trickled down to 11.4% y-o-y growth in operating profit. This was in spite of cost pressures, which affected operating profit margin. At 5.6% in the March quarter, it was 114 basis points (bps) lower from a year ago and about 80 bps below from the preceding quarter. One basis point is one-hundredth of a percentage point.
The main dampener was the rise in raw material cost due to a surge in commodity prices in their underlying inputs such as metals. As a percentage of sales, it rose 340 bps from a year ago, though flat compared with the December quarter. It was partially offset by the drop in other expenditure relating to marketing and advertising costs.
What did the trick to drive up profits is the all-round growth across products—mopeds, motorcycles, scooters and three-wheelers. TVS Motor is steadily gaining mileage as a pan-India player, which is a change from being predominantly a southern firm for several years.
“Its changing product mix—higher contribution of more profitable product categories like scooters and three-wheelers—augured well for TVS,” says Umesh Karne, analyst at Brics Securities Ltd.
Scooter sales grew by 54% y-o-y and now account for about one-fourth of vehicles sold by the firm. Further, three-wheeler sales grew by a significant 92%, although on a low base of about 6,200 vehicles sold in the previous year. TVS Motor is a new entrant in this segment unlike veterans such as Bajaj Auto and Piaggio.
Of course, its oldest product—mopeds—also grew by a significant 20%. So did motorcycles, which comprise two-fifths of the firm’s sales volumes. TVS Motor met its volume guidance for the year at two million vehicles.
What took the charm off the stock is the negative surprise in lower-than-estimated net profit. The firm stated that it provided about Rs. 9 crore towards the natural calamity cess for its new facility in Himachal Pradesh, where it enjoys tax exemptions.
Companies operating in the state are contesting this demand, which will affect profits, unless it is reversed. Besides, some analysts also view its other income as being lower-than-expected, while the tax outgo was higher.
TVS Motor’s stock trades at Rs. 56.30, which discounts the estimated earnings (stand-alone) for fiscal 2012 (FY12) about 10 times. Given that the firm’s revenue is estimated to grow faster than the industry growth rate of 12-15% per annum for at least two years, the stock offers value.
But some risks could trip investors. One is the performance of its Indonesian subsidiary. Although sales are growing, whether its operations are yet profitable is not known.
Losses could, therefore, pull down consolidated earnings for FY11, as it did in the previous year. If domestic operations don’t see better profitability, that too could affect its performance.