Automobile original equipment makers (OEMs) are likely to deliver 9 per cent volume growth annually in second quarter of current financial year driven by strong performance in two-wheeler segment, the Mumbai-based brokerage firm Motilal Oswal said in a report. The brokerage firm noted that dispatches for two wheelers rose 12 per cent annually with domestic volumes rising 11 per cent and exports growing at 13 per cent annually.
However, the report highlights that the passenger vehicle (PV) segment faced slowdown with overall volumes remaining flat on an annual basis. The passenger car segment is projected to have seen a 3 per cent decline in September quarter, while the utility vehicle (UV) segment is likely to post 2 per cent growth.
Rising inventory levels, driven by lower retail demand, have led to increased discounts, making the upcoming festive season crucial for passenger vehicle sales, the Mumbai-based brokerage noted.
Motilal Oswal added that the commercial vehicle (CV) segment continues to struggle, with volumes expected to decline by 10 per cent in Q2 affecting both medium and heavy commercial vehicles (MHCVs) and light commercial vehicles (LCVs). Despite these challenges, a gradual recovery is expected in the second half of current financial year. On the flipside, tractor volumes likely rose 7 per cent annually.
The initial festive season, according to channel checks, has shown limited momentum, making the Navratri -Diwali period a key time for overall sales performance in FY25, Motilal Oswal said.
In terms of financial performance, Motilal Oswal forecasts revenue growth of 2 per cent and EBITDA growth of 4 per cent for OEMs under its coverage (excluding JLR) during the quarter, while profit after tax (PAT) is likely to remain flat.
Commodity prices, including steel, aluminum, copper, and lead, have dropped by 5-6 per cent sequentially but the report indicates that the full benefit may not be visible in the current quarter due to lag effects from the previous quarter. Rubber prices, however, surged 4 per cent sequentially and have risen 67 per cent over the past year, which is likely to affect profitability.
The EBITDA margin for OEMs is likely to improve by 30 basis points (bp) to 13 per cent, supported by moderate commodity costs and a favourable product mix. However, a 40 bp sequential contraction is expected due to weak demand and rising discount pressures. The annual margin expansion will likely be driven by a 20bp improvement in the two-wheeler segment and 50bp in CV segment, while PV segment margins are expected to remain flat. For auto ancillaries, the EBITDA margin is expected to contract by 50 bp annually and 20 bp sequentially to 13 per cent, with rubber price hikes continuing to pressure tire companies.
