Weakness continued in auto sector during Q3: Emkay

New Delhi: The automobile and ancillary companies continued to post grim but above estimate earnings despite weak performance during the October-December quarter, said a report by Emkay Global on Monday.

Domestic sales volumes of medium and heavy commercial vehicles were 39 per cent lower on a year-on-year (YoY) basis and that of tractors and personal vehicles fell by 6 per cent and 1 per cent. The sale of two-wheelers in the domestic market witnessed a 15 per cent fall during the third quarter of the financial year 2019-20.

"Margins saw an expansion, after seeing a contraction for five quarters. Overall, earnings fell 9 per cent yoy (our estimate: down 11 per cent) but were above estimates due to higher-than-expected operating margins and lower tax rate. The quantum of decline in earnings was lower than the past three quarters," said the brokerage firm's report.

It also said that the management commentary by auto companies was positive on the volume expectations for the upcoming fiscal, owing to low base, pick-up in rural demand, lower interest rates and a gradual pick-up in macros.

"In the near term, the covid-19 outbreak is expected to negatively impact China region revenues of TTMT (Tata Motors) and MSS (Motherson Sumi Systems), while it could positively impact the margins of battery/tyre companies," it said.

In addition, the supply chain could be impacted, as auto companies source a small portion of component requirements from Chinese vendors either directly or indirectly, it said, adding that there could be delays in the activation of alternative supply-chains and increase in costs.