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The Indian automobile sector is expected to report weak fourth-quarter results because of subdued demand in both domestic and global markets, according to a report by HDFC Securities.
"Auto companies could face business headwinds for a longer period on higher US tariffs and complex global supply chains that may witness a structural impact. Even domestic companies could remain under pressure if India were to give favourable trade terms for import of cars, especially EVs, which could then impact the domestic PV players as well," said the report. The report adds that most original equipment manufacturers (OEMs) are expected to see slow growth in the near term as demand continues to be soft. It said, "Growth pressure is expected to continue for most OEMs as demand remains soft both domestically and globally. Margin to improve QoQ for OEMs on operating leverage, lower RM costs. Overall, we expect EBITDA margin to improve QoQ for OEMs on better operating leverage and softer RM costs." However, the report added that operating margins of auto companies could improve on a quarter-on-quarter (QoQ) basis. This improvement is expected due to better operating leverage and a drop in raw material (RM) costs. As a result, EBITDA margins are likely to rise QoQ for most OEMs. The report mentioned that some companies, including Mahindra & Mahindra, Maruti Suzuki, TVS Motor, and Hero MotoCorp, could see a hit to their margins because of the costs related to their participation in auto expos during the quarter. The report also added that while most auto companies have taken price hikes during the quarter, the benefit may be partially offset by discounts. However, the level of discounts is expected to be lower compared to the previous quarter due to seasonal factors. In the commercial vehicle (CV) segment, companies such as Ashok Leyland and Tata Motors are expected to see an improvement in margins QoQ. This will likely be driven by better operating leverage. Export-oriented auto component companies may also remain under pressure; as even non-U.S. exports may be affected indirectly. This is because a significant portion of such exports eventually ends up in the U.S. market. Overall, the outlook for the auto sector remains mixed, with cost efficiencies offering some relief, but demand and trade-related challenges posing significant headwinds. (ANI)
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