The brokerage firm believes that automobile companies are expected to register revenue growth in the range of 7-13 per cent during the third quarter of 2024-25 due to improvement in rural demand, new launches, while interest, taxes, depreciation and Earnings before amortization (Ebitda) growth is likely to be in the range of 9-13 per cent.
Ebitda growth will be driven by improved product mix and positive operating leverage. Apart from boosting export revenue growth, the rupee’s depreciation against the dollar is also likely to impact input costs (increase in prices of imported components). The rupee has fallen sharply since October on concerns about a strengthening dollar, worsening Indian economic indicators and possible tariffs imposed by Trump.
Nomura and Mirae Asset said Ebitda margins are likely to decline by 40-70 bps due to changes in product mix and promotional offers used by companies to clear inventory after the festive season. “While our commodity cost index is largely flat versus Q2 levels for passenger vehicles and 2 wheelers, we see margin pressure from a less favorable product mix and higher discounts in Q3,” Nomura analysts said. Therefore, income growth is likely to be affected.”
Additionally, although commodity costs and marketing expenses are higher for companies compared to last year, analysts expect currency movements to be positive for most companies. “A decline in INR against GBP/USD should help Tata Motors (JLR), Bajaj Auto, TVS Motor, Bharat Forge and Ramakrishna Forging as commodity costs and marketing expenses are up year-on-year,” Nuvama analysts said in their report. While the currency movement is positive for most companies.”
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 due to good demand from urban and rural areas and pending order book. According to analysts at Nuvama Institutional Equities, domestic two-wheeler sales are expected to grow by 3 per cent year-on-year in Q3FY25 due to improvement in inventory despite a decline in demand during the festivals. Limited, but exports have registered double digit growth. Meanwhile, domestic PV industry sales recorded a 7 per cent year-on-year growth due to the surge in demand during festivals and higher marketing efforts by OEMs.
HDFC Securities analysts said we expect average realizations to grow by 6.5 per cent and volumes to grow by 2 per cent due to higher mix of premium motorcycles. Meanwhile, for Hero MotoCorp, the improvement in rural sentiment has been helped by good monsoon, followed by higher Kharif crop and then better Rabi sowing hopes. This has helped the demand for motorcycles with higher discounts in the festive season. Despite the decline in urban demand, scooter sales have remained robust, as have sales of electric two-wheelers.
Analysts expect Maruti Suzuki’s revenue to grow around 18 percent on the back of improving exports, higher discounts and demand from the hatchback segment. Average realization for the quarter is also expected to be 3.1 per cent higher than the same period last year due to better product mix. Tata Motors’ revenue is expected to grow 6-8 per cent year-on-year due to good sales growth and increase in average realization at Jaguar Land Rover’s Chinese partner Chery. Among two-wheelers, analysts at KR Choksi estimate Bajaj Auto’s revenue to grow 9.7 per cent year-on-year, mainly due to volume growth due to export sales and higher value realisations.
However, volume growth in the commercial vehicle (CV) segment is likely to remain slow due to weak demand. According to analysts at KR Choksey, “The CV sector continued to face challenges with overall market weakness despite positive demand in the buses sector.” Ashok Leyland may face a 2.8 per cent YoY decline due to weak demand for M&HCVs (medium and heavy commercial vehicles). Average receipts are also expected to decline. However, EBITDA margin is expected to increase in the quarter due to raw material availability and modest operating profit. Tractor wholesale sales are likely to grow by 14 percent year-on-year due to good monsoon.
In the medium term, the domestic passenger vehicle (PV) industry is expected to grow at 5-7 per cent compound annual growth rate (CAGR), with the 2-wheeler (2W) sector expected to grow at 8-10 per cent CAGR. , and commercial vehicles (CV) are expected to grow by FY26, supported by sustained economic growth and government capital expenditure initiatives. Analysts believe that the next CV cycle may be longer than usual due to structural favorable conditions.
Analysts also pointed to the weakening of the rupee against the US dollar, which will help realizations as exports from India remain a bright spot, both in terms of vehicles and components. India is fast becoming the preferred manufacturing and export base for global players.