Auto companies are expected to report mixed earnings for the July-September quarter (Q2FY27), as rising commodity costs are likely to put pressure on margins despite healthy volume growth.
Demand uncertainty in the second half of the financial year, along with concerns over the impact of El Niño, could also weigh on investor sentiment, according to Kumar Rakesh, Analyst – IT and Auto at BNP Paribas India.
He added, “We see that the margin performance would be mixed. We think a couple of companies can positively surprise on margin. We think the price increases and very accelerated pass on of the commodity price inflation is something which should start reversing in this quarter, and hence should come to benefit.”
We think the price increases and very accelerated pass on of the commodity price inflation is something which should start reversing in this quarter, and hence should come to benefit. Also, in case of Maruti, they had higher production in the quarter compared to wholesale, and that typically also helps on the gross margin side.
The rise in commodity prices, particularly steel and copper, is expected to put pressure on gross margins. While lower aluminium prices may offer some relief, the overall impact of higher input costs is likely to remain a key concern for automakers.
Despite the pressure on the sector, Maruti Suzuki could report a better-than-expected margin performance in Q2FY27. “They had higher production in the quarter compared to wholesale, and that typically also helps on the gross margin side. So all of that put together, where the consensus expectation sits today, we think Maruti can positively surprise on margin.” Bajaj Auto could benefit from currency depreciation, which is expected to improve realisations from exports.
In contrast, Hero MotoCorp and Ashok Leyland could report weaker-than-expected margins.
Hero MotoCorp may face pressure from an unfavourable product mix as the share of electric vehicles (EVs), which have lower margins than internal combustion engine (ICE) vehicles, increases. Lower production compared with wholesale volumes could further weigh on its margins.
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Auto sector may see strong Q2 volume growth, but rising costs to weigh on margins
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