Auto Sector Q3 Results Review: Growth slows, profits hit; PVs lead, 2Ws struggle; Maruti, M&M, Hyundai top picks | Stock Market News

The Indian auto sector witnessed a mixed performance in Q3FY25, with domestic volumes growing at a modest 3% year-on-year (YoY), excluding tractors. While festive season discounts and new launches provided a temporary boost, profitability remained under pressure due to rising marketing expenses, forex volatility, and higher discounts.

Segment-Wise Performance: PVs Lead, CVs and 2Ws Struggle

Passenger vehicle (PV) sales led the growth at 4.5% YoY, primarily driven by an 11.5% YoY increase in SUV and van volumes. However, passenger car sales declined by 8% YoY, reflecting weaker demand for small cars.

The commercial vehicle (CV) segment struggled, with overall growth at just 1% YoY. While the bus segment supported medium and heavy commercial vehicles (MHCVs), the goods segment contracted by 5% YoY. Light commercial vehicles (LCVs) posted a moderate 3% YoY growth, according to a report by Motilal Oswal Financial Services (MOFSL).

Two-wheeler (2W) exports showed a promising 29% YoY increase, albeit on a low base. However, domestic 2W demand remained sluggish despite improved rural sentiment. In contrast, the tractor segment recorded a strong 14% YoY growth, benefiting from robust rural demand.

Export Outlook: Recovery Remains Uncertain

While Q3 results of Indian auto companies saw some export recovery for 2Ws and PVs, the demand outlook remains uncertain. Two-wheelers and PV export volumes grew 29% and 19% YoY, respectively, albeit on a low base. Emerging markets, including Africa, Latin America, and the Middle East, have shown signs of revival, benefiting companies like Bajaj Auto and TVS Motor Company, MOFSL said.

However, PV demand remains weak in developed markets, particularly the European Union (EU), with some resilience in North America. The lack of broad-based demand recovery poses challenges for auto ancillary firms with significant global exposure.

Earnings Under Pressure: Higher Costs, Forex Impact Weigh on Margins

For the MOFSL coverage universe of auto companies’ (excluding CIE India), revenue grew 7% YoY, in line with expectations. However, EBITDA and PAT declined by 2% and 3% YoY, respectively, due to increased marketing expenses, higher festive season discounts, and forex-related losses. EBITDA margins contracted by 120 basis points YoY to 13%.

Among auto original equipment manufacturers (OEMs), revenue grew 7%, but EBITDA and PAT fell by 1% and 2% YoY, respectively. Auto ancillary companies saw revenue rise by 8% YoY, but EBITDA declined by 8% YoY, and PAT remained flat.

EPS Downgrades

With demand moderation and uncertain exports, earnings downgrades were reported for 14 out of 25 coverage companies. Hyundai Motor India (-9%) and Escorts Kubota (-10%) saw notable cuts in their FY26E EPS projections. Auto ancillary companies like Exide Industries (-13%), Samvardhana Motherson International (-15%), Bharat Forge (-17%), and Craftsman Automation (-20%) also faced significant revisions.

Auto Sector Top Picks

Despite recent stock corrections, MOFSL remains positive on the PV segment, expecting a gradual recovery from FY26 onward. Maruti Suzuki India remains the top sector pick, followed by Mahindra & Mahindra (M&M) and Hyundai Motor India.

Among auto ancillaries, MOFSL prefers Endurance Technologies, Happy Forgings, and Samvardhana Motherson International.

While Q4 is expected to see stable margins, demand growth across 2Ws, PVs, and CVs is likely to remain in the low to mid-single digits. Ancillary companies with global exposure could continue facing headwinds, keeping profitability under pressure in the near term.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.