Auto sector Q1FY27 revenue to stay healthy, but margins likely to lag amid input cost inflation: Report
New Delhi, July 6
India's auto sector is expected to report a sharp rise in first-quarter FY27 revenue, driven by strong industry demand and pricing gains, but margin pressure from higher input costs following the West Asia conflict is likely to cap EBITDA growth at 10 per cent, says Nuvama Institutional Equities.
As per the report, while most OEMs and ancillaries are expected to post healthy double-digit growth supported by strong volumes and favourable currency movements, performance will be uneven across the auto sector.
Select two-wheelers and certain ancillaries are expected to outperform, whereas some passenger vehicle (PV) players and tyre-linked names may see margin pressure due to cost inflation and lower scale effects.
As per Nuvama, commodity costs have been trending higher in recent quarters, driven by geopolitical tensions, surging energy prices and supply-demand mismatches.
It noted that domestic passenger vehicle volumes rose about 26 per cent year-on-year in Q1FY27, while exports increased around 6 per cent, with revenue growth supported by a richer product mix and higher electrification.
At the same time, domestic tractor volumes expanded by around 20 per cent with revenue growth further supported by improved realisation. On the other hand, domestic two-wheeler volumes expanded by nearly 19 per cent while exports increased over 30 per cent.
According to Nuvama, better realisations and favourable currency movements are expected to support revenue growth, with the brokerage forecasting OEM revenues to rise by as much as 36 per cent.
Commenting on the domestic commercial vehicle segment, the report said volumes rose about 19 per cent year-on-year in Q1FY27 on the back of a favourable base and replacement demand, with the momentum likely to drive healthy revenue growth.
"For Q1FY27, we forecast aggregate revenue for our coverage to surge 22% YoY, led by robust underlying industry growth and improved pricing. However, EBITDA growth is likely to lag at 10% YoY, primarily due to input cost pressures post-West Asia conflict," said Nuvama.
— ANI
Reader Comments
Finally some good news for the auto industry! 🚗 The 26% growth in PVs is impressive, especially with all the new electric models coming out. But honestly, as a consumer, I'm worried these higher input costs will just be passed on to us. Petrol prices already killing my budget.
The West Asia conflict is really messing up supply chains globally. India's auto sector is resilient, but we can't keep ignoring the geopolitical risks. Need more local sourcing of raw materials. "Make in India" should also mean "mine in India" for critical inputs like rare earths.
Interesting report from Nuvama. The 36% revenue growth forecast for OEMs is ambitious but plausible given the demand surge. However, I'm skeptical about the 10% EBITDA growth - if input costs stay elevated, margins could be worse. The tractor segment's 20% volume growth is a bright spot though, reflecting strong rural demand 🇮🇳
As someone who just bought a new car, I'm feeling the pinch! 🥲 Prices have gone up by at least 5-7% this year alone due to higher steel and aluminum costs. Good for the industry, bad for customers. Wish the government would reduce GST on cars to offset some of this inflation.
Auto sector = backbone of our manufacturing. The 19% growth in CVs is crucial for logistics and infrastructure. But I'm worried about the uneven performance - if PV players and tyre companies are struggling, that's a red flag. Need more policy support for ancillaries too. Let's hope the Union Budget addresses this. 🤞
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