MUMBAI -- Indian auto companies witnessed a sharp recovery in earnings in the last quarter of 2020, as the festival season boosted sales despite an economic slowdown and rising cases of COVID-19.
The top three auto manufacturers -- Maruti Suzuki India, Tata Motors and Mahindra & Mahindra -- all posted profits for the first time since the pandemic hit in early 2020. It was also the best financial performance by the automakers in seven quarters in terms of both revenue and net profit.
Indians tend to splash out during year-end festival seasons as companies also offer promotions to capture demand.
The combined net profit of the three companies for the quarter reached 56.1 billion rupees ($770 million), up 59% from the same period of the previous year pre-pandemic. The combined revenue more than doubled to 1.2 trillion rupees from 524.2 billion rupees recorded in the April-June quarter that spanned lockdown in the country.
Pent-up demand and preference for owned vehicles over shared mobility has pushed growth in the sector. Rural demand for entry-level vehicles on account of a good crop season also boosted demand.
Mahindra posted a threefold jump in net profit at 7 billion rupees on revenue of 216.2 billion rupees. The profit numbers were still below analysts' expectations though, as the company took a one-time impairment charge on subsidiary SsangYong Motor in South Korea.
Mahindra Managing Director and CEO Pawan Goenka attributed the growth to strong sales of its utility vehicles and tractors and expected the order book to remain robust for the next two quarters.
Mahindra's results followed those of the country's largest carmaker Maruti Suzuki India which reported a 26% increase in net profit at 19.9 billion rupees. Its revenue rose 13% to 234.7 billion rupees. The company attributed the earnings to improved capacity utilization, lower sales promotion expenses and cost reduction efforts.
Tata Motors' net profit jumped 67% to 29 billion rupees, while revenue was up 5.4% to 756.5 billion rupees.
"We could leverage the improved demand by a consistent ramp-up of production, addressing supply chain bottlenecks," said Guenter Butschek, CEO and managing director of Tata Motors. "Due to a strong festival season and a clear preference for personal mobility, the passenger vehicle business posted highest sales in the last 33 quarters."
The robust December quarter came as good news to the auto sector, which had spent most of 2019 reeling under a serious slowdown in demand.
In the coming months, however, the industry is seen facing increased challenges from the global shortage of some auto components and a rise in input price. "The two big concerns for M&M and for the world is the shortage of semiconductors, something we are perplexed by, and a persistent rise in commodity prices," Mahindra's Goenka told local media.
Earlier in January, Ford India shut production at one of its factories because of the global shortage of semiconductors. Semiconductors are chips used in executing critical commands such as releasing air bags, operating air conditioners remotely, and detecting collision. Mahindra too had said it was expecting reduced production because of the issue.
Tata Motors, however, is bullish despite challenges the company faces. "We are confident of keeping our performance on track in this quarter to close the year on a high for an even stronger play in fiscal 2022," Butschek said.
The auto sector is being closely watched because of its contribution to the Indian economy. According to CARE Ratings, the sector's vast value chain contributes nearly 40% to India's manufacturing gross domestic product.
"This sector has the potential to bring inclusive growth and community development along with enhancing employment," it said in a note in December. "Naturally, when the automotive sector witnesses a downward trend, it is a clear depiction of the present state of the country's economy."
Analysts also expect the announcements made in the Union Budget on Feb. 1 to provide a fillip to the sector. The government has rolled out a voluntary vehicle scrappage policy that would pave the way for phasing out old vehicles. It also spoke of the induction of over 20,000 buses in the public transport system and it increased infrastructure spending.