India's automobile and auto component companies are expected to report another quarter of healthy volume-led revenue growth for the June quarter, supported by resilient domestic demand and improving exports.
However, higher commodity prices, energy costs and limited pricing power are likely to weigh on margins across much of the sector, making profitability and management commentary the key focus during the earnings season.
Analysts broadly expect revenue growth to remain healthy as volume momentum continued through the quarter. Even so, earnings are likely to be shaped by margin performance rather than sales growth. Brokerages expect the pressure to be most visible among companies with limited pricing flexibility, while exporters and select component makers could outperform on the back of improving overseas demand and favourable product mix.
ALSO READ: The End Of Commitment: Is The Auto Industry Global, Regional Or National In Its Emerging Character?
The June quarter is expected to mark the point where cost inflation overtakes the benefit of strong demand. Investors will closely watch whether recent price increases, easing commodity prices towards the end of June and improving exports are enough to limit margin erosion. Management commentary on demand, pricing and the pace of margin recovery is likely to drive market reaction more than reported volume growth.
Here's what analysts expect from the Auto sector's Q1FY27 results:
Citi
- Margins are expected to decline across most OEMs and component makers because of higher commodity prices and manufacturing costs.
- Demand has remained resilient despite inflationary concerns, with rural recovery improving as the monsoon progressed.
- Commodity prices have eased recently, suggesting margin pressure may begin to moderate if current trends continue.
- Export-oriented companies could benefit from global demand.
- Top picks are Maruti Suzuki, Eicher Motors and Mahindra & Mahindra.
- Citi expects investors to focus on pricing, margins, demand trends, exports and capacity expansion across companies.
IIFL Capital
- Strong domestic volumes should support revenue growth, although higher input costs are likely to hurt margins.
- Domestic-focused suppliers are expected to deliver healthy earnings backed by robust OEM production.
- Export-focused companies such as Bharat Forge, Balkrishna Industries and Happy Forgings could see a recovery after a weak FY26.
- Tyre makers are likely to report sharper margin pressure than battery manufacturers because of elevated rubber prices.
- Currency depreciation could support export-oriented companies.
ALSO READ: 11 Auto Stocks In Focus Ahead Of Q1 Results; Maruti Suzuki, TVS Motor, Minda Corp. Among Top Picks
Jefferies
- Healthy volume growth should offset part of the expected margin contraction.
- Industry wholesale volumes rose strongly during the quarter, supporting double-digit EBITDA growth for most OEMs.
- Bajaj Auto is expected to lead among two-wheeler manufacturers, while TVS Motor is also seen reporting solid earnings.
- Component makers with exposure to domestic OEMs are expected to post healthy growth.
- Softer steel prices are beginning to reduce margin pressure for some auto ancillary companies.
HSBC
- Strong demand continued across vehicle segments despite higher fuel prices and macro uncertainty.
- Raw material inflation is expected to reduce OEM margins by 100-250 basis points, with a larger impact on commercial vehicle manufacturers.
- Commodity prices started easing towards the end of June, offering some relief for future quarters.
- Recent price increases by OEMs should partly offset cost inflation.
- The brokerage raised earnings estimates for selected OEMs after increasing volume forecasts.
CLSA
- Gross margins are expected to come under pressure as commodity inflation and higher operating costs outweigh the benefit of strong demand.
- Price increases should provide only partial protection against rising input costs.
- Margin pressure is expected to be more severe for commercial vehicles and tyres than for passenger vehicles.
- Falling aluminium and commodity prices towards the end of the quarter could support a gradual margin recovery from the second half of FY27.
- Investors are likely to focus on management commentary around demand sustainability, pricing and the timing of margin normalisation.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
