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Old 1st August 2017, 16:18   #1
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Default Operating margins of Indian car & bike manufacturers (FY 2011 - 17)

Adding to an old thread. As part of my professional assignment I got hold of some numbers with respect to the automobile companies. I have compiled the EBITDA margin (Earnings before interest, tax, depreciation and amortization) of these companies to see where they stand on a relative basis. I chose to compare the EBITDA margin since it reflects the company's operational efficiency in a better way. I do not have FY2017 financials for companies which are not listed.

Analyzing the data, VW and Maruti make the best operating margins in the 4W industry. Hyundai makes a steady operating margin of ~10% and Toyota is also trying to reach the number now. Honda seems to have stabilized now after 3 consecutive bad years. Why GM exited India business is clear from the numbers - if you are not making money from operations, how can you survive? What puzzles me is that even Renault is making operational losses

Coming to 2W manufacturers, these guys do make a lot of money operationally compared to the 4W counterparts. Eicher's operating margin is highest in the industry at ~30% Bajaj, Hero and Honda also make good consistent operating margin. TVS has traditionally reported a single digit operating margin mainly due to higher advertisement spends compared to other 2W players.

PS: I have not added TaMo in the EBITDA analysis since the reported numbers include sales from CV and PV and any inference would not have been possible. Eicher numbers are for the standalone entity which manufactures motorcycles and does not include VECV.
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Old 1st August 2017, 17:39   #2
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Default Re: Actual Revenues & Profits of car manufacturers (via company filings)

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Originally Posted by subhro1988 View Post
Adding to an old thread.
And we always had this impression of Toyota milking Indian consumers to the fullest with their overpriced products (Innova and Fortuner).
This suggests their manufacturing and operational costs are pretty high.
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Old 1st August 2017, 18:06   #3
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Originally Posted by S.MJet View Post
And we always had this impression of Toyota milking Indian consumers to the fullest with their overpriced products (Innova and Fortuner).

This suggests their manufacturing and operational costs are pretty high.

... or that they charge a high royalty and redirect profits. Maruti also pays a very high royalty to Suzuki, but at the scale that MSIL is at, their profitability is still remarkably high.
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Old 2nd August 2017, 09:44   #4
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Default re: Operating margins of Indian car & bike manufacturers (FY 2011 - 17)

Thanks for sharing, Subhro1988! Moving your incredibly insightful post to a new thread.
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Old 2nd August 2017, 10:04   #5
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Default re: Operating margins of Indian car & bike manufacturers (FY 2011 - 17)

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Originally Posted by subhro1988 View Post

Coming to 2W manufacturers, these guys do make a lot of money operationally compared to the 4W counterparts. Eicher's operating margin is highest in the industry at ~30% Bajaj, Hero and Honda also make good consistent operating margin. TVS has traditionally reported a single digit operating margin mainly due to higher advertisement spends compared to other 2W players.
Thanks for sharing!

Out of all the two wheeler manufacturers, Bajaj's margins are the most impressive. Even more so than Eicher's as unlike Eicher, Bajaj does not enjoy cult following (i.e., RE Bullet).

Kudos to Bajaj for maintaining that kind of margins and still launch so many new models regularly.
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Old 2nd August 2017, 10:34   #6
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Default Re: Operating margins of Indian car manufacturers (FY 2011 - 17)

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Originally Posted by torquing_points View Post
the scale that MSIL is at, their profitability is still remarkably high.
MSIL has been smart in not just selling what consumers want but also defining the market for consumers. They entered with 800, defined Alto as the new entry level, established Swift as an upgrade from entry level hatchbacks and now have comfortably positioned Baleno in place of Swift. All the while convincing consumers that they are still the best value for money. The way MSIL grows while defending profits is astounding to say the least!

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Out of all the two wheeler manufacturers, Bajaj's margins are the most impressive.
I remember reading several years ago that Rajiv Bajaj is focused on maintaining the EBIDTA margin no matter what segment they operate in or how many bikes they sell. That's the reason Bajaj isn't all that worried about numbers game since whatever they are selling, there is very healthy profit in that and this has been the case for decades now.
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Old 2nd August 2017, 11:26   #7
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Default Re: Operating margins of Indian car manufacturers (FY 2011 - 17)

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Originally Posted by subhro1988 View Post
What puzzles me is that even Renault is making operational losses
That's odd. Perhaps Renault is keeping prices of Kwid low to grab market share?

Quote:
TVS has traditionally reported a single digit operating margin mainly due to higher advertisement spends compared to other 2W players.
TVS Mopeds and TVS Scooty is likely to have lower margins than bikes and larger scooters like Activa.


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Originally Posted by the_skyliner View Post
Out of all the two wheeler manufacturers, Bajaj's margins are the most impressive.
Quote:
I remember reading several years ago that Rajiv Bajaj is focused on maintaining the EBIDTA margin no matter what segment they operate in or how many bikes they sell.
Unlike Hero Motocorp, Bajaj earns 40% of its revenues from exports. That explains its high margins.

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Originally Posted by ksameer1234 View Post
MSIL has been smart in not just selling what consumers want but also defining the market for consumers.
Steady increase in Maruti's margins is probably due to higher proportion of sales of premium models like Ciaz, Brezza, S-Cross & Baleno

Last edited by smartcat : 2nd August 2017 at 11:28.
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Old 2nd August 2017, 17:12   #8
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Default Re: Operating margins of Indian car & bike manufacturers (FY 2011 - 17)

Not really surprised with Eicher's margins here. RE has a very good role to play here IMO.

The real surprise came in the form of Volkswagen. They are selling more than 7 year old products, but their margin is only 12%. I think it is due to the fact that VW still hasn't been able to localise parts yet.

Toyota seems to have low margins chiefly because both the Innova and Fortuner are new products and localisation might still be needed.
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Old 2nd August 2017, 18:06   #9
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Quote:
Originally Posted by subhro1988 View Post
Adding to an old thread. As part of my professional assignment I got hold of some numbers with respect to the automobile companies.
Thanks for the info

Quote:
Originally Posted by subhro1988 View Post
Hyundai makes a steady operating margin of ~10%
Creta and i20 are raking in volumes with F-A-T profit margin.

Quote:
Originally Posted by subhro1988 View Post
Honda seems to have stabilized now after 3 consecutive bad years.
Ahh!! It seems that the cost cutting in the last couple of years has paid off

Quote:
Originally Posted by subhro1988 View Post
Why GM exited India business is clear from the numbers - if you are not making money from operations, how can you survive?
They should have exited Indian operation in FY 2014 itself, they could have prevented further losses. But then from -105% in 2014, they have reduced losses to -39% in 2015, down to -17% in 2016, they have been improving. With a good product portfolio and better management Chevy could have survived?

Quote:
Originally Posted by subhro1988 View Post
What puzzles me is that even Renault is making operational losses
Quote:
Originally Posted by smartcat View Post
That's odd. Perhaps Renault is keeping prices of Kwid low to grab market share?
With the Duster biting the dust, an entry level hatchback can't keep the cash registers ringing for too long. But Carlos Ghosn had told in an interview to Hormazd Sorabjee that Renault India has started to make money. If this figure is for Renault-Nissan, then it makes sense

Quote:
Originally Posted by subhro1988 View Post
TVS has traditionally reported a single digit operating margin mainly due to higher advertisement spends compared to other 2W players.
Quote:
Originally Posted by smartcat View Post
TVS Mopeds and TVS Scooty is likely to have lower margins than bikes and larger scooters like Activa.
Just checked the nos. TVS moped is the largest selling model for TVS which obviously has the weakest margin, hence TVS operates with single digit margins.

TVS Moped accounts for ~ 35% of total TVS sales (Apr'16 till Apr'17)

The 2nd largest selling model is Jupiter with ~ 24%. Both models together contribute ~60% of total sales for TVS.

Last edited by Karthik Chandra : 2nd August 2017 at 18:14.
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Old 2nd August 2017, 19:03   #10
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Default Re: Actual Revenues & Profits of car manufacturers (via company filings)

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Originally Posted by S.MJet View Post
And we always had this impression of Toyota milking Indian consumers to the fullest with their overpriced products (Innova and Fortuner).
This suggests their manufacturing and operational costs are pretty high.
Toyota's numbers are quite a surprise! Especially because Toyota is known to develop lean processes for development as well as manufacturing to Keep the costs low.

I guess the numbers here might hold true just for the India wing, the story might be different for Toyota Motors Japan.
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Old 2nd August 2017, 19:35   #11
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Default Re: Operating margins of Indian car & bike manufacturers (FY 2011 - 17)

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Originally Posted by the_skyliner View Post
Thanks for sharing!

Out of all the two wheeler manufacturers, Bajaj's margins are the most impressive. Even more so than Eicher's as unlike Eicher, Bajaj does not enjoy cult following (i.e., RE Bullet).

Kudos to Bajaj for maintaining that kind of margins and still launch so many new models regularly.
Bajaj makes super normal profits on 3 wheelers due to lack of competition in that segment
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Old 2nd August 2017, 19:41   #12
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Default Re: Operating margins of Indian car & bike manufacturers (FY 2011 - 17)

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Originally Posted by subhro1988 View Post
Adding to an old thread. As part of my professional assignment I got hold of some numbers with respect to the automobile companies. I have compiled the EBITDA margin (Earnings before interest, tax, depreciation and amortization) of these companies to see where they stand on a relative basis. I chose to compare the EBITDA margin since it reflects the company's operational efficiency in a better way. I do not have FY2017 financials for companies which are not listed.
This is a good data set. However, it would be hazardous to draw inferences just based on this. Especially for subsidiaries of foreign OEMs, you never know what kind of money may be getting siphoned off from the Indian entity in the guise of royalties and transfer pricing arrangements for exports from the Indian entity.

Also, what need to be seen is also the asset turnover ratio for all these companies and consequently the ROA/ ROE.

Last edited by GTO : 3rd August 2017 at 10:46. Reason: Please quote ONLY the relevant bits of a post. Quoting a full, long post inconveniences our mobile readers.
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Old 3rd August 2017, 01:16   #13
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Default Re: Operating margins of Indian car & bike manufacturers (FY 2011 - 17)

I am a bit surprised to not see Tata in the list. Suzuki not only has a vast portfolio but also uses common parts across different segments. If you see reviews, almost all of them criticize the switches for the windows for example - they are quite an old and dated design and used in pretty much every model. The same applies for their ICE, their steering, IRVMs, even their engines are shared. Given the sheer volume of their sales, this must really help in optimizing operating costs - the suppliers must be given them sweetheart deals. The same supplier will not be able to offer perhaps the same price to GM or a Ford.

Well, that is just my reading. I could be 100% off the mark. So am happy to be corrected by someone more knowledgeable.
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Old 3rd August 2017, 06:46   #14
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Default Re: Operating margins of Indian car & bike manufacturers (FY 2011 - 17)

9 years ago, when my cousin (an engineer for a shipping company) picked up his first Royal Enfield, he called me up and sounded rather disappointed. Nothing broke down or fell apart. He asked me if the bike was worth the money that he paid which was around 85-90k at the time. I did not have an answer. He wanted an explanation for the poorly fitted tool box, leaking oil (It was one drop), angled tail light assembly, dangling wires, etc. To me all this was very normal but I see where he was coming from.

I am not one bit surprised by the numbers for Eicher (Royal Enfield). For a motorcycle that once cost around Rs. 9k, is pushing 2 lacs for their top of the line model today! Siddarth Lal has turned around a company that was borderline on going dead. Over 30% margins today! There is no more experimenting at Royal Enfield. They are building great motorcycles today.

Honda and Hero Motors. They continue to sell (A majority) products where the foundation block dates back almost 4 decades on technology. Little has changed from the time Honda showed them how to build a motorcycle. Steady numbers for both.

Not surprised by the numbers for Bajaj. A product at almost every price point and one that is updated too.

Toyota's numbers seem okay to me. There are just two products that bring in the dough for them.

Wonder what is going on at Ford.

Last edited by GTO : 3rd August 2017 at 10:46. Reason: Rule #11
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Old 3rd August 2017, 09:35   #15
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Default Re: Operating margins of Indian car & bike manufacturers (FY 2011 - 17)

What is surprising the most to me is Hyundai's operating margins are virtually same now compared to 5-6 years ago when they were selling mostly low end products like i10s and santros. Currently 80% of their sales are from creta, i20, grand i10 and vernas.

Is this because of relatively high quality parts being used compared to competition?
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