 | « Back to article | Print this article |
Overall, volume growth is likely to be in the range of 3-8 per cent for two-wheelers and 5-7 per cent for passenger vehicles owing to healthy demand from urban and rural areas and pending order books.
Automobile companies are expected to post revenue growth in the range of 7-13 per cent during the third quarter of 2024-25 riding on healthy rural demand and new launches, while the earnings before interest, taxes, depreciation, and amortisation (Ebitda) growth rate is likely to be in the range of 9-13 per cent, brokerages believe.
Ebitda growth will be driven by a richer product mix and positive operating leverage. The depreciating rupee against the dollar is likely to boost exports revenue growth besides also impacting input costs (imported component prices to increase).
The rupee has depreciated sharply since October due to the strengthening of the dollar, worsening Indian economic indicators, and concerns about potential tariffs imposed by Trump.
Nomura and Mirae Asset pointed out that Ebitda margins are likely to see a 40-70 bps contraction due to change in product mix and promotional offers used by companies to clear the inventory post festive season.
Analysts at Nomura said, “While our commodity cost index is largely flattish for passenger vehicles and 2 wheelers versus Q2 levels, we do see margin pressure from less favourable product mix and higher discounts in Q3. Hence, earnings growth is likely to be impacted.”
Furthermore, although the commodity costs and marketing spends are higher for the companies from last year, analysts expect the currency movement is positive for most companies.
“Rupee depreciation against the pound/dollar should aid Tata Motors (JLR), Bajaj Auto, TVS Motor, Bharat Forge and Ramkrishna Forgings as commodity costs and marketing spends are higher year-on-year while currency movement is positive for most companies,” analysts at Nuvama said in their report.
Overall, volume growth is likely to be in the range of 3-8 per cent for two-wheelers and 5-7 per cent for passenger vehicles owing to healthy demand from urban and rural areas and pending order books.
According to analysts at Nuvama Institutional Equities, domestic two-wheeler volumes have grown by 3 per cent year-on-year (y-o-y) in Q3FY25 constrained by inventory correction despite a strong festive demand, but exports have registered double-digit growth.
Meanwhile, domestic PV industry volumes registered 7 per cent y-o-y improvement due to healthy festive demand and higher marketing efforts by the OEMs.
Analysts expect Maruti Suzuki's revenue to grow by around 18 per cent, driven by exports, higher discounting and recovery in the hatchback segment's demand.
Average realisation for the quarter is also expected to be up by 3.1 per cent from the year ago period due to a richer product mix.
Tata Motors' revenue is expected to increase by 6-8 per cent Y-o-Y aided by healthy growth in Chery sales, the Chinese partner of Jaguar Land Rover, along with an increase in average realisation.
In two-wheelers, KR Choksey's analysts predicted Bajaj Auto revenue to grow by 9.7 per cent y-o-y mainly due to an increase in volume driven by export sales with higher price realisations.
“We expect average realisation to increase by 6.5 per cent on the back of a higher mix of premium motorcycles and volume to increase by 2 per cent.”
“Meanwhile, for Hero MotoCorp, recovery in rural sentiment has aided by a good monsoon, followed by expectation of a higher Kharif harvest, and then a better Rabi sowing. This coupled with higher discounts in the festive season has aided demand for motorcycles. Despite slower urban demand, scooter sales continue to remain buoyant, also aided by a ramping up of electric two-wheeler sales,” said analysts at HDFC Securities.
However, the volume growth in the commercial vehicle (CVs) segment is likely to be muted due to weak demand.
According to analysts at KR Choksey, “The CV segment continued to face challenges, with overall market weakness despite positive demand in the buses segment."
Ashok Leyland is likely to experience a 2.8 per cent y-o-y decline due to weak M&HCV (Medium and Heavy Commercial Vehicle) demand.
The average realisation is also expected to fall. However, in the quarter, the Ebitda margin is expected to increase due to raw material tailwinds and marginal operating leverage.
Tractor wholesales are likely to see a growth of 14 per cent y-o-y driven by healthy monsoon.
Over the medium term, the domestic passenger vehicle (PV) industry is anticipated to grow at a 5-7 per cent compound annual growth rate (CAGR), the 2-wheeler (2W) segment at 8-10 per cent CAGR, and commercial vehicles (CVs) are expected to begin an upcycle by FY26, supported by sustained economic growth and government capital expenditure initiatives.
Analysts believe the next CV cycle could be longer than usual due to structural tailwinds.
Analysts also pointed out weakening rupee against the US dollar, which would aid realisations as exports from India, both in terms of vehicles and components, remain a bright spot.
India is increasingly becoming a preferred manufacturing and export base for global players due to the China plus one and Europe plus one diversification strategies, improved supply chains, cost advantages, and supportive government policies.
Feature Presentation: Rajesh Alva/Rediff.com
