Vehicle Price Hikes To Limit Impact of Rising Input Cost on OEMs: Report
Vehicle price hikes, coupled with cost rationalisation measures taken by OEMs (original equipment manufacturers), will limit the impact of rising input cost but these might not be adequate enough to sustain margins at the 3QFY20-21 levels, said India Ratings and Research.
 
Accordingly, the Q4FY20-21-Q1FY21-22 stand-alone EBITDA (earnings before interest, taxes, depreciation and amortisation) margins of OEMs could be 100-200 basis points (bps) lower than Q3FY20-21's margins, on account of the recent spike in input prices.
 
"The vehicle price hikes coupled with the cost rationalisation measures taken by OEMs to counter the sharp rise in the prices of commodities might not be adequate to sustain margins at the 3QFY20-21 levels,"
 
"While operating leverage is likely to remain favourable due to the demand rebound witnessed in most of the industry sub-segments, 4Q being a seasonally lower quarter, operating leverage could remain lower on a quarterly basis."
 
Besides, the shortage of components, such as semi-conductors and other electronic components, could impact the overall vehicle production and hence limit the potential demand upside.
 
Overall, for FY20-21, the report said Ind-Ra does not expect significant deviation in the industry EBITDA margins from its earlier expectations.
 
"Ind-Ra believes that although the increasing input prices would impinge on the near-term profitability of auto OEMs, they are likely to benefit from these corrective measures including cost rationalisation over the medium term, as the input prices normalise."
 
At present, cost of raw materials account for 65%-70% of the total revenues, depending on industry segments.
 
"The proportion of metal components is over 95% in commercial vehicles (CVs) and tractors (by weight), while it is 65%-70% in passenger vehicles (PVs) and two-wheelers (2Ws)."
 
"In terms of value, metals cost directly account for 8%-16% of revenues on parts such as body or chassis, powertrain or engine components, wheel rims."
 
Additionally, metals are used in certain other components, child parts, sub-assemblies which is difficult to quantify.
 
"The prices of these commodities have been on an increasing trend."
 
In YTDFY21, the average cost of steel increased 12.6% compared to the FY20 average, while the prices of aluminum and copper increased 8% and 5%, respectively.
 
"In 3QFY21 alone, the prices for steel, aluminum and copper had increased by 29%, 19% and 9% yoy, respectively. In January 2021, the prices of steel were hovering at historically high levels of INR 73,843 per tonne."
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
  • Like this story? Get our top stories by email.

    User 

    We are listening!

    Solve the equation and enter in the Captcha field.
      Loading...
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email

    BUY NOW

    online financial advisory
    Pathbreakers
    Pathbreakers 1 & Pathbreakers 2 contain deep insights, unknown facts and captivating events in the life of 51 top achievers, in their own words.
    online financia advisory
    The Scam
    28 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
    Moneylife Online Magazine
    Fiercely independent and pro-consumer information on personal finance
    financial magazines online
    Stockletters in 4 Flavours
    Outstanding research that beats mutual funds year after year
    financial magazines in india
    MAS: Complete Online Financial Advisory
    (Includes Moneylife Online Magazine)