According to the report of Kotak Institutional Equities, demand in the auto sector is strong despite the increase in fuel prices. Also, falling commodity prices are expected to provide relief to the profit margins of automakers. Passenger vehicles and two-wheelers will benefit more.
New Delhi, [भारत] June 30 (ANI): India’s automobile sector is likely to remain robust in the coming quarters as demand remains resilient despite rising petrol and diesel prices. Moreover, according to a report by Kotak Institutional Equities, falling commodity costs are expected to provide much-needed relief to profit margins of automakers.
Demand remains strong
The brokerage said that despite recent fuel price hikes and geopolitical uncertainties, demand across key vehicle segments remains strong, indicating healthy consumer sentiment. “Demand remains resilient despite geopolitical concerns,” the report said, adding that “despite rising fuel and vehicle prices amid geopolitical uncertainty, demand remains resilient as retail volumes grew in double digits across most segments.”
Kotak expects this momentum to continue in H1FY27, supported by GST benefits, while growth will slow in H2 due to higher base effect. It expects passenger vehicle (PV) and two-wheeler (2W) sales to post high single-digit year-on-year growth during FY27.
Margins expected to improve due to cost reduction
On the cost front, the report highlights that the sharp rise in key commodity prices has now started to reverse, improving the earnings outlook for original equipment manufacturers (OEMs). “Following the US-Iran ceasefire, PGM, crude oil and aluminum prices have declined by up to 20% from their highs, which bodes well for OEMs,” the report said.
Kotak believes that the worst of the commodity-hit margins is now over for automakers. It said higher commodity costs are likely to impact gross margins in the June quarter, but the pressure should ease from Q2FY27 as lower input costs will start getting reflected in the financial results. “At current spot prices, we expect gross margin trends to improve from 2QFY27E,” the report said.
The brokerage also noted that low industrial LNG prices, recent vehicle price hikes by manufacturers, export benefits from a strong US dollar and commodity hedges will further help companies mitigate earlier cost pressures.
Passenger and two-wheeler segments benefit more
According to the report, the fall in aluminum and PGM prices is likely to benefit passenger vehicle and two-wheeler manufacturers more than commercial vehicle and tractor makers, whose input costs are more linked to steel and rubber, and prices of both of which have remained relatively stable. (ANI)
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