Stories
Festive Auto Demand Strong But Rising Costs Threaten Margins
- •India's auto sector enters the festive season with strong retail demand and higher vehicle production supported by recent GST cuts.
- •Kotak Institutional Equities projects a 29 percent year-on-year revenue increase for major auto manufacturers in the September quarter.
- •Despite strong sales, operating margins are expected to drop by around 200 basis points due to surging raw material costs including steel, rubber, and crude.
- •Tyre manufacturers face severe pressure with anticipated margin declines of 400 to 480 basis points despite projected revenue growth.
- •Companies are expected to rely on price hikes and favourable product mixes to offset persistent commodity headwinds in upcoming quarters.
Key Questions Answered
According to a report by Kotak Institutional Equities, revenues for automobile manufacturers are projected to increase by about 29 percent year-on-year in the September quarter of FY27, largely driven by strong retail momentum from GST cuts, higher average selling prices, and a favourable product mix.
Despite higher vehicle sales and strong consumer demand, rising commodity costs such as steel, rubber, and crude-linked expenses are expected to squeeze manufacturer profitability, with operating margins declining by around 200 basis points year-on-year.
Domestic tyre manufacturers are facing the most severe pressure, with operating margins expected to drop by 400 to 480 basis points year-on-year in the September quarter as higher rubber and crude oil prices offset stronger demand benefits.
