Car Sales Surge But Rising Costs Threaten Q2 Margins
- •Carmakers report sharply higher sales and revenue for the July-September quarter (Q2FY27), but operating margins are expected to weaken as rising raw material costs outpace price increases.
- •Despite multiple price hikes implemented this year, automakers have not fully offset higher input costs because they are wary of disrupting demand momentum.
- •HSBC estimates that major players like Maruti Suzuki, Hyundai Motor India, and Mahindra & Mahindra will see revenue growth accompanied by drops in Ebitda.
- •Crisil Intelligence indicates that passenger vehicle revenue likely rose about 24 percent, while Ebitda margins contracted by approximately 290 basis points.
- •Automakers face a crucial test as the festive season begins, with vehicle prices nearing pre-GST-cut levels and leaving limited scope for further price hikes without hurting demand.
Key Questions Answered
Despite expectations of sharply higher sales and revenue for the July-September quarter, rising raw material costs are outpacing price increases, leading to weaker operating margins across major automakers. HSBC estimates that firms like Maruti Suzuki and Hyundai Motor India will experience notable drops in Ebitda despite robust revenue growth.
Automakers are wary of disrupting ongoing demand momentum following last year's GST cuts and are keen not to risk losing market share during the crucial festive season. Executives like Hyundai's Tarun Garg noted that price increases have remained lower than overall commodity hikes because companies cannot pass costs on as quickly as they rise.
Analysts expect that while gross margins may remain under pressure, higher volumes from festive season dealer stocking could lead to sequential Ebitda margin improvements for most original equipment manufacturers. However, broader recovery timelines for margins have been pushed out as input cost inflation persists.
