With the fiscal fourth quarter earnings season already started, we take a loot at how the auto sector is expected to perform during Q4. Analysts and brokerage firms expect downgrades across companies due to global and domestic demand weakness. Kotak Institutional Equities said, “We forecast revenues for the auto stocks under our coverage to increase 5 per cent YoY in Q4FY25, led by (1) low-to-mid single-digit increases in the 2W/PV/CV segments, and (2) higher ASPs due to a richer product mix in the PV segment, partly offset by higher discounts across most segments. We expect the EBITDA margin to decline 60 bps YoY, driven by higher discounts, commodity headwinds (tires) and higher advertisement spends. Companies with overseas exposure may report a weak quarter.”
Nomura too maintained that domestic players appear better positioned given global risks while volume growth is expected to remain modest across segments, except for tractors which outshined in Q4.
“In Q4FY25, domestic volume growth remained modest across 2Ws, LCVs, PVs and MHCVs at 1 per cent/ 0 per cent/ 3 per cent/ 3 per cent YoY, while tractors improved significantly at 18per cent YoY. In FY25, domestic volume growth was flat for CVs, 2 per cent for PVs and 7 per cent/ 9 per cent for 2Ws/ tractors. Exports volume growth remained healthy at 11 per cent YoY/ 23 per cent YoY for PVs/2Ws. Globally, volume growth was modest in the US, and flat in the EU,” an analysis report by Nomura said.
Furthermore, Nomura maintained that consumption demand in 2025 is expected to remain slow across segments, mainly for the mass segments. “While near-term demand trends are weaker, we expect some recovery led by low income taxes/ interest rates and potential cuts in fuel prices,” it said while pencilling a 5 per cent YoY industry volume growth for PVs and 7 per cent for 2Ws in FY26.
Downside risks from US tariffs
Nomura conducted a sensitivity analysis for US-exposed domestic auto stocks. Per the brokerage firm, even with current tariffs, Indian suppliers exposed to the US may remain cost competitive to supply from India. “We estimate that the downside risks from US tariffs are largely priced in now for Tata Motors, Sansera, and Sona, while there could be modest downside to BIL, BHFC and SAMIL in a pessimistic scenario. For JLR, EBIT margin may drop to 5.3 per cent in FY27 (Nomura: 8.9 per cent), and thus, the company may need to cut capex. Overall, near term risks could be higher though, as sales in the US could drop off sharply as US OEMs make adjustments to pricing/ supply chains or anticipate further changes in tariffs,” it said while maintaining that a Bilateral Trade Agreement (BTA) between India and the US could lead to a distinct advantage for suppliers in the long term to gain share from Chinese suppliers.
India is currently negotiating a bilateral trade agreement (BTA) with the US and the recent 90-day ‘pause’ on reciprocal tariffs has given it more time to achieve tangible outcomes that could stave off the additional reciprocal tariffs by the US.
How will auto OEMs perform?
Kotak Institutional Equities estimated automotive OEM revenue growth to go up by 5 per cent YoY, mainly due to (1) low- to-mid single-digit YoY increases in PV/CV/2W production volumes, (2) a low- teen increase in tractor production volumes, and (3) a low single-digit improvement in ASPs due to a favorable mix in the PV segment, partly offset by (1) a decline in JLR production volumes, and (2) higher discounts/price cuts. “We expect the EBITDA margin to decline 40 bps YoY, mainly led by (1) higher discounts, especially in the PV segment and JLR business, and (2) higher advertisement/promotional spends. As a result, we expect the EBITDA to increase 1 per cent YoY in Q4FY25,” it said.
Meanwhile, Axis Securities, for its OEM coverage universe, projected revenue growth of 8.5 per cent, EBITDA at 8.8 per cent and PAT at 9.3 per cent on-year with flat EBITDA margins. “The growth will be driven by i) Mid to high single-digit volume growth in 2Ws, ii) Low to mid-single-digit growth for PVs/CVs, and iii) Low teens volume growth in the tractor industry. The expected YoY EBITDA margin remains flattish due to higher discounts/ advertisement expenses and negative operating leverage being partly offset by price hikes taken over the past year,” it said.
Meanwhile, Nomura said that while there is no direct exposure to the US for domestic OEMs, an indirect impact could be evident due to a subdued jobs outlook for the IT services sector (~6 million workers) and gems and jewellery sector (5 million workers). “We believe our domestic volume assumptions for domestic OEMs could have ~5 per cent downside risk from US tariffs, but this seems to be priced in for most stocks now. There could be tailwinds such as lower interest rates, lower income taxes and potential cuts in oil prices, which should limit the downside risks, in our view. Any fall in commodities may also offer earnings support,” it added.
In Q4, for the OEMs in its coverage universe (excluding Jaguar Land Rover; unlisted), Nomura estimated cumulative revenue to be up 7 per cent YoY and EBITDA up 6 per cent on-year. It further added that EBITDA margin is expected to decline marginally by ~10bp QoQ to 13.3 per cent. “In the case of JLR, cost reduction initiatives and higher volumes QoQ should partly offset the weaker mix, leading to an EBIT margin of 9.8 per cent,” it said.
Check on auto ancillaries
Nomura estimated cumulative revenue for its covered auto ancillaries to increase by 7 per cent on-year largely led by suppliers who are exposed to the domestic market. Export-oriented suppliers are likely to remain weak. EBITDA is expected to be flat YoY. In tyres, it said, modest growth in replacement continues to be offset by weak OE and exports.
Kotak Institutional Equities, meanwhile, added that auto component companies (excluding SAMIL) under its coverage is expected to report a 6 per cent YoY revenue increase due to (1) low-to-mid single-digit YoY growth in 2W/PV/CV’s volumes, (2) a low-teen YoY growth in tractor production volumes, and (3) mid-to-high single-digit YoY growth in replacement segment volumes (tires, bearings). “We expect the EBITDA margin to decline 120 bps YoY, mainly due to (1) an inferior product mix (batteries), (2) RM headwinds (tires) and (3) a weak export mix (higher margin segment). Overall, we expect EBITDA (excluding SAMIL) to decline 4 per cent YoY. Furthermore, we expect companies with exposure to the global automotive market to report weak numbers, given a low single-digit YoY decline in EU production volumes and muted demand trends in the EV PV segment,” the brokerage firm said.
Now moving on to mass segments like 2Ws, Nomura said, it will likely continue to recover led by good monsoons, a recovery of farm incomes, and a low base. The affordable EV model launches across players should further drive the EV adoption trend. The analysis report by the firm maintained that MHCV demand is expected to improve with increased government spending in FY26.
Overall, Nomura said, “Compared with Bloomberg consensus’ Q4FY25 estimates, we believe Hyundai (HYUNDAI IN, Buy), TVS Motor (TVSL IN, Buy) could surprise positively, while MM (MM IN, Buy) and TTMT (TTMT IN, Buy) will likely miss. In auto ancillary, we expect MSUMI (MSUMI IN, Buy) and Amara Raja (ARENM IN, Neutral) to surprise positively.”