Fall in demand for auto parts firms in July-Sept

December 29, 2009 8:39 am

A recent trend in weak exports has partly offset domestic market recovery, with the result that India’s auto parts firms have reported mixed earnings in July-Sept. Firms with sizeable exports exposure may show less export volumes following the decline in demand from developed countries due to the economic slowdown, according to analysts. 
 
Motherson Sumi and Amtek Auto are likely to report drop in quarterly profits, while Bharat Forge may report a sharp rise.  Although global recession had affected the Indian auto components industry, it is slowly coming back on track. There has been an increase in production schedules at auto component firms post-March quarter, following two stimulus packages and substantial improvement in the volumes of auto companies. 
 
Bharat Forge, India’s top forgings maker from Pune, is expected to see higher profits on account of reduced forex losses due to a one-time forex loss of Rs 87.5 crore a year ago. 
 
Sales would be lower on year as the year-ago period was a good quarter for most auto ancillary firms. However, if we take sales sequentially, there would be an improvement this quarter.  Motherson Sumi Systems Ltd is likely to see net sales soar, but profits will fall due to certain restructuring costs related to the acquisition of Visiocorp earlier this year. Motherson had acquired Europe’s Visiocorp’s rear view mirror business in March, which was then renamed as Samvardhana Motherson Visiocorp Solution. The firm is restructuring Visiocorp’s operations in Europe and Australia.
 
“The acquisition will have an impact on their margins. They are doing a lot of restructuring of overseas plants. That restructuring cost will be spread over the next two-three quarters,” said Vaishali Jajoo, analyst at Angel Broking. However, sales may surge on the back of the acquisition and on an improving domestic passenger vehicle market, which forms a major portion of Motherson’s overseas revenue. Car sales rose an annual 21 per cent in September for their eighth straight rise, with industry expecting continued growth.
 
Amtek Auto Ltd is also likely to see a fall in net profit due to weak performance of its overseas subsidiaries and high interest and depreciation costs. Bharat Forge is expected to report a 127 per cent rise in stand-alone net profit to Rs 25.6 crore. Motherson Sumi’s consolidated profit is expected to fall 23 per cent to Rs 32.6 crore and Amtek Auto may report a 73 per cent drop to Rs 21.6 crore.