[Jas21]

Somehow I feel this does not show complete picture. With as low Earnings % that too before Tax etc., for most of the Manufacturers, why would someone be in business, Our stock market is giving better returns than this these days (in few cases even humble FD gives better results).

May be its the case of Royalties for many manufacturers, as someone pointed out.

If they are operating at low margin to capture market share, then even that has been steady for most manufacturers, from last few years (more or less). I believe that Market share should be looked at by the $ Revenue instead of number of units sold, and may be that is what explains negative numbers for Renault (to some extent), even with increased market share by units sold.

[NiInJa]

Thats insightful ! thanks for article
I am interested in EBITDA of FIAT India, my bet is it would be better than most of the competition.

Renault's negative numbers can be explained as they are scouting for new dealerships and advertisements costs based on a small low cost car (other models are dud or not bringing good sales), it also explains that one small car cant really help a company get good margins, you need to launch a massive assault like Maruti Suzuki.

[Axe77]

Wow - this is very telling indeed. I'm really surprised that a mass market volume player like Maruti also pulls in such high profit margins. Really shows how much they have focussed on cost optimization. On the flip side, I do hope it is not at the cost of quality.

The other telling sign about Maruti is that it is a steady upward trajectory. I'm sure increasing absolute volumes only improve profitability but even so to have an upward curve shows their focus on this aspect and clearly getting it right too! No wonder their stock is richly rewarded on our stock markets.

[satishv1987]

Eicher leveraged to the fullest the cult status that the Bullet has . When you sell substandard products which are incredibly overpriced, your profit margins are bound to be colossal . Siddhartha Lal must be laughing all the way to the bank.

[GTO]

Originally Posted by ksameer1234

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.

Let's not overlook that their margins are boosted by more expensive cars. Maruti is no longer a cheap hatchback manufacturer. The Ertiga (based on the Swift), Ciaz, Vitara Brezza, Baleno etc. are all pushing the average transaction price up. A Dzire top-end now crosses a million bucks on the road ! Then, you have strong sellers like the Omni which is 30 years old, the Alto (still an old platform) and the old Dzire (sold to taxi market).

Furthermore, Maruti is indulging in platform-sharing more than ever before.

[vamsi.kona]

Since the figures are in public domain, one can easily expect the Accountants of the respective companies showing their expertise in bringing down the income enough to reduce the tax, while retaining the trust of the shareholders.

I have studied accountancy long back (More than a decade) and if I remember properly every manufacturing concern has two major costs 'Fixed' and 'Variable'. As the name suggests variable cost is incurred only if one tries to manufacture an additional unit. However, Fixed cost, as the name suggests, is fixed and is incurred irrespective of the number of units produced. This is where I believe, capacity utilisation comes into play. And I believe MSIL should be amongst the top in terms of capacity utilisation, which would bring down their fixed cost per unit as the cost is spread over large number of units. An example on the other extreme should possibly be Fiat, which barely utilises its Ranjangaon plant and thus incurs Fixed costs irrespective of their sales. Also given the economies of scale, I believe, MSIL can also bring down their variable costs by being able to bargain with their part suppliers.

As far as Toyota is concerned, I believe that is purely some accounting trickery at play.

[OrangeCar]

One theme among posts is royalty payments to parent companies.

For example, Toyota's thin margins with highly priced Innova/Fortuner point to that. Royalties + cost structure build up in expectation of perceived (planned) demand of Etios/Liva; which since then has not be shed -> both result in poor margins.

Now, why should we Indians, who have provided a market for these foreign firms to sell their products, help their subsidiaries make money, and pay royalties? We eventually bear the brunt of this cost.

We are paying royalties on products, which are not exactly modern! For example, same Toyota has better products in the form of Avalon, Highlander, RAV4 equipped with better tech like lane change warning systems, forward collision avoiding systems, etc in mature markets. Our market does not have any of these. But, we still pay royalties - why? Because they provide us with some technology, however dated? Because we should consider ourselves to be blessed to have such manufacturers (Toyota, Honda, Hyundai, Ford, etc) in our country.

I think the fault is not that of foreign manufacturers. But that of Indian manufactures. Imagine if Tata and M&M were ahead of the curve, with class leading products at excellent prices. We would not have these foreign company subsidiaries charge us a bomb for a bare bone base variant product. Can you imagine, Honda can get away selling cars without damping in wheel wells? Why? Because we do not have much alternatives - particularly from Indian makers.

If Indian makers squeezed these foreign players with products, pricing and in general ahead of curve innovative products - these foreign subsidiaries would have fought back on royalties to contain cost structure. Market forces would have dictated this.

Hopefully, eventually our markets will evolve to a position where car makers cannot get away with ridiculous pricing, building lethargic cost structures which are passed on to consumers.

[anand_lukose]

Originally Posted by OrangeCar

Now, why should we Indians, who have provided a market for these foreign firms to sell their products, help their subsidiaries make money, and pay royalties? We eventually bear the brunt of this cost.

I would disagree with that. Companies are free to operate in any manner according to the relevant rules and regulations. How did these foreign firms start operations in India ? How was their expansions funded ? Obviously through investments from parent companies. Lets consider royalties as dividend or returns that one gets from investments. I see no issue with that.
Can we say that Indian companies do not get royalties from their overseas subsidiaries ? No.

Originally Posted by OrangeCar

We are paying royalties on products, which are not exactly modern! For example, same Toyota has better products in the form of Avalon, Highlander, RAV4 equipped with better tech like lane change warning systems, forward collision avoiding systems, etc in mature markets. Our market does not have any of these. But, we still pay royalties - why? Because they provide us with some technology, however dated? Because we should consider ourselves to be blessed to have such manufacturers (Toyota, Honda, Hyundai, Ford, etc) in our country.

I agree with you here. Its unfortunate that companies do not offer products from the current generation. There is definitely some complacency from manufacturers considering that there is good demand in current times. Additionally, majority of the Indian consumers do not yet prioritize important aspects such as sheet metal strength, build quality , safety etc. If you ask the 5 most important aspects a consumer looks in a car to 100 random people, i don't think the majority would value build quality, safety etc.

The moment Indian consumers shift their mindset from cost to quality when choosing a car, manufacturers would take notice and follow suit.

Let's take the Innova for example. Consumers are willing to pay a premium for a well built product. However, there is growing disappointment with the Crysta. In my opinion, Toyota was complacent here. Customers have to react and ask Toyota to do more to ensure that the Innova's brand image do not falter.

[arjab]

VW at 16-17% ? .
Is this for the entire group's sales in India , that is including, VW/AUDI/SKODA/Lamborghini/Bugatti or only VW standalone operations in India?
Just curious to know that just by selling Polo, Vento and Ameo these guys seem to be doing quite well. And making VW cars is not cheap

[the_skyliner]

Originally Posted by srh

Bajaj makes super normal profits on 3 wheelers due to lack of competition in that segment

They do but the contribution to the revenue (and subsequently to profits) of two wheelers is multifold over three wheelers.

They sell 3+ million two wheelers compared to 500k three wheelers. Also, they only enjoy monopoly in passenger three wheelers segment. In commercial three wheelers area they hardly hold 10% market share.

Bajaj is well known among the automotive manufacturing community for it's production efficiency which is one of the main reasons for them to deliver such high profits year on year despite fierce competition.

[subhro1988]

Originally Posted by srh

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

Originally Posted by Jas21

Somehow I feel this does not show complete picture.

I am doing some more number crunching on similar lines and will post those once ready.

Originally Posted by invidious

I am a bit surprised to not see Tata in the list.

I did not include Tata Motors since the numbers include both PV and CV sales and would not give a clear picture. Anyways in case you are interested, the operating margin for TAMO (only Indian operation) is:
FY2013: 7.61%
FY2014: 2.34%
FY2015: 0.61%
FY2016: 8.16%
FY2017: 4.36%

The operating margin for TAMO (Indian+overseas JLR) is:
FY2013: 12.81%
FY2014: 14.66%
FY2015: 14.98%
FY2016: 13.49%
FY2017: 11%

No doubt JLR is helping them make the majority of the money.

Originally Posted by NiInJa

Thats insightful ! thanks for article
I am interested in EBITDA of FIAT India, my bet is it would be better than most of the competition.

Sorry I missed that in the original post. Your guess is absolutely right. Here are the numbers for Fiat India -
FY2012: 16.43%
FY2013: 23.87%
FY2014: 16.84%
FY2015: 18.77%
FY2016: 18.37%

Originally Posted by arjab

Is this for the entire group's sales in India , that is including, VW/AUDI/SKODA/Lamborghini/Bugatti or only VW standalone operations in India?

The reported numbers are for Volkswagen India Private Limited. I am not very sure as to whether Audi, Skoda etc. sold in India gets added to this numbers. Will do some more research and get back to you.

[srh]

Originally Posted by the_skyliner

They do but the contribution to the revenue (and subsequently to profits) of two wheelers is multifold over three wheelers.

While I don't dispute that Bajaj is comparatively operationally efficient, the fact around the 3W business contributing to profitability remains. While 3W may be 16% by sales volume, the revenue realization per 3W would be 2 to 2.5 times of that per 2W.

Also, Bajaj's 2W sales include more of high capacity bikes as compared to competition. Even this helps in achieving a higher margin.

[ksameer1234]

Originally Posted by subhro1988

Here are the numbers for Fiat India -
FY2012: 16.43%
FY2013: 23.87%
FY2014: 16.84%
FY2015: 18.77%
FY2016: 18.37%

I guess that 2013 number is due to the peak in our diesel obsession which has since then tapered due to rising diesel prices. The maker of national diesel engine deserves to have such stellar profits!

Originally Posted by srh

Also, Bajaj's 2W sales include more of high capacity bikes as compared to competition. Even this helps in achieving a higher margin.

I don't think that is how Bajaj sees it. I believe they aim to achieve 20% margin in every product of theirs. If you look at platforms, there aren't many within Bajaj. Extensive part-sharing would also be helping.

[AdiSinghV12]

Interesting. Could you manage and compile a list for premium car makers such as BMW, Audi, Merc and JLR? Would be very very interesting

[msk016]

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

This is one of the may key factors to assess any company. In my opinion, ROE/ROCE should be the starting point in order to assess any company's financials. The EBITDA figures have a lot of room for distortion due to the "accounting" practices. I would also like to leave depreciation out of consideration while calculating profits, simply because for an industry like the automobile industry, regular overhauls and maintenance of plant and machinery is pre-requisite in order to stay in business. Another aspect to consider, is the amount of taxes these businesses are paying. No one will pay taxes out of their own pockets
Lets also look at who is listed and who is unlisted on our exchanges. The motive for either under stating or over stating their profits might be linked to this factor.
FYI, I'm a marine engineer and have no expertise in finance matters, so please bare with my simplistic approach.