Chennai, Nov 11 (KNN) The second quarter operating margins for the auto industry has reached upto 200 Bps owing to the softening of raw material prices, reported TOI. 

With prices of steel, aluminium, natural rubber staying range bound, vehicle makers and tyre companies have seen a boost in their EBITDA margins as a result of this trend. 

Said Anuj Sethi, senior director, CRISIL Ratings: “Moderation in raw material prices, coupled with hikes taken by original equipment manufacturers (OEMs) have enabled EBITDA margins improvement by around 100-200 bps across the sector over Q1 and Q2.”

Raw material wise, steel has brought in the highest margin benefits also because it saw the sharpest curve of all commodities. Aluminium and natural rubber prices “have moderated and aided margin expansion,” he added.

The good news is that this trend is likely to continue in the second half as well. Dheeraj Hinduja, executive chairman, Ashok Leyland said, “In the next six months we don’t see tightening of these prices.” 

The only factor that can play spoilsport is if China demand comes back strongly,” he added.

Tyre major JK for instance saw a 5 per cent reduction in raw material prices in Q2 which helped boost its margins alongside cost reduction and better product mix. 

However auto marketers say the price softening has been nowhere near the multiple increases that commodities like steel saw in 2021 and early 2022 for instance. 

Rajesh Jejurikar, executive director & CEO auto and farm sectors, M&M said, “While raw material prices have softened they are not yet anywhere near the 2019-2020 range. In both auto and farm we have taken significant price hikes to offset material cost but it is not higher than the cumulative material cost increase.” M&M, he explained, improved margin by managing the organisational cost structure and operating leverage.

Auto industry experts say most of the benefits have gone to OEMs and tyre makers because parts makers have indexed their commodity costs. Sunil Bohra, executive director & group CFO, Uno Minda said, “When there was a sharp increase during and after the pandemic, we indexed all of the prices so any increase or decrease in price is passed on to the customer.”

(KNN Bureau)