Auto sector to post strong Q1FY27 growth; high raw material costs likely to weigh on profits: Report
New Delhi, July 13
Domestic auto sector is expected to report strong demand-led growth in Q1FY27, but rising raw material costs are likely to weigh on profitability, according to a report by Motilal Oswal Financial Services.
The report noted, the aggregate automobile demand across original equipment manufacturers (OEMs) recorded robust growth of 24.5 per cent year-on-year in the first quarter of FY27.
The expansion was led by two-wheelers, surging 26 per cent, followed by passenger vehicles at 24 per cent, commercial vehicles at 20 per cent and tractors at 18 per cent.
"Demand has continued to be encouraging across segments in 1Q, as reflected in strong retail growth reported in Vahan. As a result, the overall auto industry volume growth for 1Q stood at 24.5% YoY," the report said.
Despite the healthy demand environment, automakers' earnings are expected to remain under pressure as elevated raw material costs, which surged during the latter part of Q4FY26 and persisted through much of Q1FY27, weighed on margins.
MOFS expects "2W OEMs to post 32% revenue growth, followed by PV OEMs at 15% and CV OEMs at 18%."
It flagged, "prices of key inputs have been on an uptrend since 3Q, and despite the price hikes taken, there is likely to be some under-recovery due to the sharp increase in a short span."
Sustained margin pressure from higher input costs is likely to limit profitability.
"Auto ancillaries are likely to post ~15% revenue growth and a much lower PAT growth of 10% due to margin pressure," it said. The Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margin for several OEMs is estimated to decline 190bp YoY to 9.6%, as per the report.
In the passenger vehicle (PV) segment, most original equipment manufacturers (OEMs) are expected to see operating margins contract by 100-150 basis points in the first quarter. Commercial vehicle (CV) manufacturers are likely to face an even steeper margin decline of 100-200 basis points year-on-year. In contrast, two-wheeler makers with significant export exposure are expected to be relatively insulated from the impact, supported by stronger overseas demand and a favourable business mix,as per the report.
— ANI
Reader Comments
As someone running a small auto parts business in Pune, the 15% revenue growth for ancillaries feels good on paper, but the 10% PAT growth is real pain. My supplier just hiked steel prices by 12% last quarter—how do we compete? The report is right about margin pressure. We need government intervention on raw material costs, maybe reduce GST on inputs? Otherwise, small players like us will struggle while big OEMs absorb the shock.
Strong growth numbers but the margin story is a warning sign. EV adoption is still low in India, and if traditional auto profits shrink, will companies invest enough in EV R&D? The government's FAME subsidy phase-out and rising steel/aluminum costs could slow down the transition. I find it interesting that 2W makers with export focus are doing better—that shows our cost advantage in global markets. But domestic consumers need better value-for-money options, not just expensive SUVs.
Happy to see tractor demand growing at 18%—our farm economy is showing some resilience despite monsoon unpredictability. But the margin pressure on CVs (100-200 bps decline) is worrying; logistics costs will rise, impacting everything from food prices to construction. The report doesn't detail rural vs urban demand split—that's crucial. In my village near Nagpur, people are still holding back on new vehicle purchases due to inflation. Hope the strong retail numbers translate to real livelihoods, not just stock market momentum.
Good analysis, but I wish the report had broken down the demand by state—auto sales in Kerala or Tamil Nadu might differ from UP or Bihar due to income disparities. Also, the 24.5% YoY growth is against a low base from earlier production issues; real growth might be 12-15% adjusted. The concern about raw material costs is valid; I saw aluminium prices jump 8% since February. For
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