Indian Automakers Poised for Strong Q1, But Regional Uncertainty Looms

Indian Automakers Set to Report Strong Q4 Earnings Amid Supply Chain Worries

Top Indian carmakers are expected to report robust quarterly earnings, with revenue growth projected to range from 11% to 26% in the fourth quarter, according to data compiled by LSEG. The growth is largely attributed to steep tax cuts that have helped boost total sales to a record high in the fiscal year.

Maruti Suzuki, the industry leader, is set to kickstart sectoral earnings on April 28. The company, which produces the popular compact SUV, Brezza, is expected to deliver one of its strongest quarters, supported by a richer export mix. According to LSEG-compiled data, Maruti is expected to post 25.5% revenue growth.

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However, brokerages, including HDFC Securities, expect electric-vehicle-related spending and new model launch expenses to offset recent price increases. Mahindra & Mahindra, which has a higher mix of electric SUVs and implemented price hikes in January, is expected to support margins on a sequential basis, according to HDFC Securities.

Tata Motors Passenger Vehicles' luxury unit, Jaguar Land Rover, is expected to recover sequentially as production restarted after the cyberattack at its UK plant last year. The company was not included in the LSEG-compiled estimates after its October demerger from its commercial vehicles unit.

The overall industry's wholesale volumes grew 13.2% during the quarter, faster than the 2.4% growth recorded in the same period last year. However, Hyundai Motor India could be the outlier, with profitability constrained by an adverse product mix, higher marketing spends, and elevated input costs.

Analysts warn that the industry's cushion is beginning to thin due to rising prices of steel and aluminium, as well as freight costs. Automakers are becoming increasingly wary of steep price hikes given competition and regulatory constraints. Maruti has already announced plans to raise prices, following in the footsteps of its global peers, Mercedes-Benz and BMW. HDFC Securities expects margins to soften sequentially across the sector.

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Analysts at CLSA estimate that carmakers would have to increase prices by about 6% to soften the impact of soaring input costs. The key risk for upcoming quarters is not demand collapse, but whether rising costs begin to outpace the industry's ability to protect margins, according to analysts at Motilal Oswal.