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How the slowdown will hit your stocks

December 2, 2008

Auto

The slowdown in the global auto sector is impacting companies with a significant exposure to developed markets.

Auto sales across categories in the world's two largest markets, the United States and Europe were down 16 per cent and 19 per cent q-o-q respectively for the September quarter.

Notably, for companies such as Tata Motors which derive a significant chunk of their consolidated revenues from outside the country, the slowdown will lead to a dip in revenues in the short to medium term. Bajaj Auto and TVS Motors are much less impacted as emerging markets continue to show healthy growth due to low two wheeler penetration.

In the passenger car segment, Maruti Suzuki is trying to take a leaf out of Hyundai i10's success in the export market and is pinning its hopes on the recently launched A-Star, which it expects will deliver, in a phased manner, annual exports of two lakh units by FY2011.

Tata Motors has seen a 20 per cent dip in exports in the current fiscal (till October) due to global economic slowdown. Even for its subsidiary Jaguar Land Rover (JLR), retail volumes dropped five per cent y-o-y for the first nine months of the calendar year.

This was despite a 13 per cent increase in sales of Jaguar cars on the back of the launch of XF model. In the short term, JLR would have to increase its focus on its high growth markets of Russia, China and Brazil on the face of drastic decline in sales from its two largest markets---the US and Europe.

For now, Moody's has downgraded Tata Motors' corporate family rating to B1 from Ba2 on the back of a slowdown in demand in domestic and overseas markets and believes that the outlook will continue to be negative for India's largest auto company.

Going ahead, while demand in developed markets continues to be weak, lower commodity prices (steel, crude oil), lower interest rates and a depreciating rupee could improve the outlook for players in the sector. Overall, the outlook is positive for two-wheelers, but neutral to negative for others.

Image: Maruti Suzuki India chairman R C Bhargava (right) and director of sales and marketing, S Oishi (left) pose with the newly unveiled Maruti Suzuki ' A-Star ' in New Delhi. | Photograph: Manan Vatsyayana/AFP/Getty Images

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