Auto Sector – Strong Q1 FY27 Sales Expected Despite Rising Cost Pressures
Auto Sector – India’s automobile industry is likely to record a strong rise in revenue during the April-June quarter of FY27, supported by healthy demand across key vehicle categories, improved product mix and better price realisations. However, rising raw material and energy costs linked to the West Asia conflict may limit profit growth for several companies, according to Nuvama Institutional Equities.
Revenue Growth Outlook for Automakers
The brokerage expects the companies under its coverage to post aggregate revenue growth of around 22 per cent year-on-year in the first quarter of FY27. Original equipment manufacturers, or OEMs, could see revenue increase by as much as 36 per cent, helped by higher sales volumes, pricing benefits and favourable currency movement.
Nuvama said the industry’s overall performance may not be uniform. While select two-wheeler manufacturers and auto component companies are expected to deliver stronger results, some passenger vehicle makers and tyre-related businesses may face pressure due to increased costs and weaker operating leverage.
Passenger Vehicle Demand Supports Sales
Domestic passenger vehicle volumes reportedly rose by about 26 per cent year-on-year during the quarter, while exports increased by nearly 6 per cent. Higher-value vehicle launches, improved model mix and growing electrification are also expected to contribute to revenue growth for companies operating in this segment.
The stronger demand environment has provided automakers with room to improve realisations. However, the benefits from better pricing could be partly offset by higher commodity costs, particularly for companies with limited ability to pass on increased expenses to customers.
Two-Wheeler and Tractor Segments Show Momentum
The two-wheeler segment is expected to remain among the better-performing parts of the auto market. Domestic two-wheeler volumes rose nearly 19 per cent during the quarter, while exports grew by more than 30 per cent, indicating stronger demand in overseas markets as well.
Tractor makers also recorded encouraging sales growth, with domestic volumes increasing by around 20 per cent year-on-year. Improved pricing and higher realisations are expected to support revenue expansion for companies in the farm equipment segment.
Commercial Vehicle Sales Gain from Replacement Demand
Commercial vehicle sales also improved during the first quarter, with domestic volumes rising by approximately 19 per cent from a year earlier. Nuvama attributed the increase to a favourable comparison base and continued replacement demand in the market.
The brokerage said the segment’s sales momentum is likely to translate into healthy revenue growth, although profitability may depend on the ability of manufacturers to manage higher production costs.
Input Costs Could Restrict EBITDA Expansion
Despite the expected revenue increase, operating profit growth may remain comparatively modest. Nuvama has estimated that aggregate EBITDA growth for the companies under its coverage could be around 10 per cent year-on-year in Q1 FY27.
Commodity prices have been rising in recent quarters due to geopolitical uncertainty, higher energy prices and supply-demand imbalances. The impact has become more pronounced after the West Asia conflict, which has raised concerns over input costs for automakers and component suppliers.
Nuvama said the first-quarter results are likely to reflect strong underlying demand and pricing support, but cost pressures may continue to influence margins across parts of the Indian auto sector.