Two-Wheelers to Lead Auto Earnings Growth in September Quarter
Jefferies report predicts two-wheeler manufacturers will lead earnings growth in the September quarter despite rising commodity cost pressures.
The Indian automotive sector is bracing for a mixed bag of results in the September quarter, with two-wheeler manufacturers poised to take the spotlight. According to a recent report by Jefferies, while vehicle sales have shown significant strength, rising commodity costs are expected to act as a drag on overall profit margins across the industry.
Two-Wheelers Outperform Passenger Vehicles
The brokerage highlights that the two-wheeler segment is expected to lead the charge in earnings growth. This momentum is being driven by a sustained demand boost following recent Goods and Services Tax (GST) changes, which has supported double-digit wholesale volume growth across various vehicle categories.
Jefferies has provided specific growth projections for key players in the two-wheeler space for the second quarter of FY27:
- TVS Motor Company: Expected pre-exceptional profit before tax (PBT) to surge by 45 per cent year-on-year.
- Bajaj Auto: Projected to see a 26 per cent growth in PBT.
- Eicher Motors: Anticipated to grow by 14 per cent.
The report suggests that two-wheeler manufacturers are currently better positioned than passenger vehicle makers to successfully convert their high sales volumes into actual profit growth.
The Margin Squeeze: Sales Up, Profits Lag
Despite the optimistic sales figures, the broader automobile industry faces a significant challenge. While aggregate revenue for covered automobile original equipment manufacturers (OEMs)—excluding Tata Motors Passenger Vehicles—is expected to jump by 27 per cent year-on-year, the bottom line tells a different story.
Aggregate earnings before interest, taxes, depreciation, and amortisation (EBITDA) are projected to rise by a much more modest 7 per cent. This disparity is largely due to intense pressure on operating margins caused by escalating commodity costs.
Jefferies anticipates that aggregate EBITDA margins will contract by 2.3 percentage points compared to the same period last year, although there might be a slight sequential improvement of about 20 basis points.
Wholesale Volume Trends Across Segments
The September quarter saw robust wholesale volumes across most major segments, though the performance was uneven. The growth breakdown is as follows:
- Medium and Heavy Commercial Trucks: Recorded a massive 40 per cent year-on-year growth.
- Passenger Vehicles: Saw a strong increase of 31 per cent.
- Two-Wheelers: Achieved a 16 per cent growth rate.
- Tractors: Experienced a decline of 5 per cent, which the brokerage attributed to a combination of a high base from the previous year and a weaker monsoon season.
Ultimately, the report paints a picture of an industry experiencing high demand but struggling to maintain profitability due to the rising costs of raw materials.