World
India
The Indian automobile sector is expected to report weak earnings for the fourth quarter due to subdued demand across both domestic and international markets, according to a report by HDFC Securities. The report highlighted ongoing challenges for auto companies, stating that global trade complexities and potential changes in India’s trade terms could weigh on growth. The sector may face prolonged headwinds stemming from higher U.S. tariffs and a structurally impacted global supply chain. Original equipment manufacturers (OEMs) will likely experience muted demand and slow growth in the near term, despite some margin improvement driven by lower raw material (RM) costs and better operating leverage.
OEMs Face Prolonged Growth Pressure
The report noted that growth pressure would continue for most OEMs as demand remains weak in both domestic and global markets. It said, “Growth pressure is expected to continue for most OEMs as demand remains soft both domestically and globally. Margin to improve QoQ for OEMs on operating leverage, lower RM costs. Overall, we expect EBITDA margin to improve QoQ for OEMs on better operating leverage and softer RM costs.”
Despite the demand slowdown, OEMs may see quarter-on-quarter (QoQ) improvements in their EBITDA margins, supported by cost efficiencies. However, the benefits may not be uniform across the sector.
Auto Expo Participation to Affect Margins
The report identified several companies that may experience pressure on their margins due to expenditures related to their participation in auto expos. These include Mahindra & Mahindra, Maruti Suzuki, TVS Motor, and Hero MotoCorp. The impact of these costs may offset some of the gains achieved from improved cost structures during the quarter.
Mixed Impact of Price Hikes and Discounts
While auto companies implemented price hikes during the quarter, the report indicated that the benefits might be partly offset by discounts offered in the market. However, discounting levels are expected to be lower compared to the previous quarter due to seasonal factors, offering some margin protection.
CV Segment and Exporters Show Divergent Trends
In the commercial vehicle segment, companies like Ashok Leyland and Tata Motors are likely to report margin improvements on the back of better operating leverage. On the other hand, export-focused auto component manufacturers may continue to face pressure, as a substantial portion of non-U.S. exports ultimately ends up in the U.S., indirectly exposing them to global trade risks.
(With Inputs From ANI)
