Indian Auto Sector Q3FY25 Review: Growth Slows, Profits Hit, PVs Lead While 2Ws Struggle
Mixed Performance Amid Challenges
Auto Sector : The Indian auto industry delivered a mixed performance in Q3FY25, with domestic volumes growing at a modest 3% year-on-year (YoY), excluding tractors. Despite the festive season and multiple new vehicle launches, profitability took a hit due to increased marketing expenses, rising discounts, and currency fluctuations.
Passenger vehicles (PVs) continued to drive growth, while commercial vehicles (CVs) and two-wheelers (2Ws) faced headwinds. Tractors, however, recorded strong double-digit growth, backed by a revival in rural demand.
Segment-Wise Performance: PVs Outperform, 2Ws and CVs Lag
Passenger Vehicles (PVs) Show Strength
- PV sales grew 4.5% YoY, with SUVs and vans surging 11.5% YoY.
- However, passenger car sales declined 8% YoY, indicating weak demand for smaller cars.
Commercial Vehicles (CVs) See Muted Growth
- The CV sector managed a mere 1% YoY growth.
- The bus segment supported medium and heavy commercial vehicle (MHCV) sales, but the goods segment contracted by 5% YoY.
- Light commercial vehicles (LCVs) saw a modest 3% YoY rise.
Two-Wheelers (2Ws) Struggle Despite Export Boost
- Domestic 2W demand remained sluggish, despite rural recovery.
- 2W exports surged 29% YoY, albeit on a low base, helping Bajaj Auto and TVS Motor Company.
Tractors Record Robust Growth
- 14% YoY growth driven by strong rural demand.
- Escorts Kubota and Mahindra Tractors benefitted from this trend.
Export Recovery Faces Uncertainty
While some recovery in 2W and PV exports was noted, the demand outlook remains uncertain.
- Two-wheeler exports grew 29% YoY, benefiting Bajaj Auto and TVS.
- PV exports increased 19% YoY, but demand in developed markets remains weak, especially in the EU.
- Resilience in North America offers some relief, but auto ancillary firms with global exposure continue to face challenges.
Profitability Under Pressure: Margins Shrink
Auto sector earnings were impacted by rising costs, higher festive season discounts, and forex-related losses.
| Financial Metrics (YoY Change) | Auto OEMs | Auto Ancillaries | Overall Sector |
|---|---|---|---|
| Revenue Growth | +7% | +8% | +7% |
| EBITDA Growth | -1% | -8% | -2% |
| PAT Growth | -2% | 0% | -3% |
| EBITDA Margin Change | -120 bps | -150 bps | -120 bps |
Despite 7% YoY revenue growth, EBITDA fell by 2%, and profit after tax (PAT) declined 3% YoY.
Auto ancillaries suffered a sharp 8% YoY drop in EBITDA, driven by forex losses and increased input costs.
EPS Downgrades Impact Key Players
Slower demand and uncertain exports led to earnings downgrades for 14 out of 25 companies under coverage.
| Company | EPS Downgrade (%) |
|---|---|
| Hyundai Motor India | -9% |
| Escorts Kubota | -10% |
| Exide Industries | -13% |
| Samvardhana Motherson Intl. | -15% |
| Bharat Forge | -17% |
| Craftsman Automation | -20% |
Auto ancillaries faced deeper cuts, with Bharat Forge (-17%) and Craftsman Automation (-20%) seeing the sharpest downgrades.
Top Auto Stock Picks for 2024
Despite recent stock corrections, analysts remain bullish on PVs and select auto ancillaries.
Top Picks – Auto OEMs
- Maruti Suzuki India – Strong SUV lineup, cost control measures.
- Mahindra & Mahindra (M&M) – EV expansion, leadership in SUVs and tractors.
- Hyundai Motor India – Market share gains, premium segment growth.
Top Picks – Auto Ancillaries
- Endurance Technologies – Strong aftermarket and EV parts business.
- Happy Forgings – Beneficiary of rising CV demand.
- Samvardhana Motherson International – Global expansion strategy.
Auto Sector Outlook for Q4FY25 & Beyond
- Stable Margins Expected: Cost-control efforts and premium vehicle sales could help protect margins.
- Demand Growth to Stay Muted: 2W and CV sales are expected to grow in the low to mid-single digits.
- Ancillary Companies Face Global Headwinds: Firms with global exposure may continue facing profitability pressures.
Conclusion
The Indian auto sector showed resilience in PVs and tractor sales but struggled in 2Ws and CVs. Profitability remains under stress due to higher expenses and forex challenges. However, Maruti Suzuki, M&M, and Hyundai remain top picks in the PV space, while Endurance Technologies and Samvardhana Motherson offer opportunities in auto ancillaries.
With FY26 expected to bring gradual recovery, investors will closely watch demand trends, input costs, and global market revival in the coming quarters.
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.