Q4 Auto Sector Outlook: Tractors and Two-Wheelers Poised for Strong Performance

The earnings season for the automotive sector is set to kick off as several major players prepare to release their quarterly financial results. Notably, Maruti Suzuki India is expected to unveil its Q4FY25 figures on April 25. Analysts predict modest growth across most automotive segments for this quarter, with standout performances anticipated in the tractor and two-wheeler categories, which have shown significant strength in recent months.

Anticipated Growth in Tractors and Two-Wheelers

According to Nuvama, the sales outlook for rural-centric segments like tractors and two-wheelers remains optimistic, bolstered by favorable market sentiments and the early onset of the festive season. The firm forecasts a 10% year-on-year (YoY) growth in both revenue and EBITDA for the automotive sector (excluding Tata Motors). Companies such as TVS, Mahindra & Mahindra, Eicher Motors, and Ashok Leyland are expected to report strong profitability. Conversely, Tata Motors, SONA, and Bharat Forge may face challenges in profitability.

Insights on Volume Performance

The overall automotive industry is projected to see modest volume growth, particularly in the tractor segment, which is benefiting from positive consumer sentiment. Nuvama notes that tractor and two-wheeler volumes are poised for high-single-digit growth over the next few years, outperforming the low-single-digit growth expected for passenger and commercial vehicles. Domestic tractor sales have surged approximately 17% YoY, while the revenue for Mahindra’s agricultural division is set to increase by 18% YoY.

Tractor Growth: Strong performance with 17% YoY growth.
Two-Wheeler Exports: Increased by 23%.
Revenue Projections: EIM RE at 23% and TVSL at 15% growth.

Passenger and Commercial Vehicle Trends

In terms of passenger vehicles (PV), the domestic market has seen a modest 2% YoY increase in volume. Mahindra’s auto division projects an impressive 23% YoY revenue growth, while Maruti Suzuki expects a 7% rise. However, Tata Motors is likely to report a 2% decline in its PV division. The commercial vehicle (CV) sector experienced stagnant growth, primarily due to selective financing and average fleet utilization rates.

Ancillary Sector Performance

The performance of ancillary players is expected to vary significantly. Nuvama predicts that MSUMI and Uno Minda will outperform, achieving 19% and 16% YoY growth, respectively. In contrast, firms like SONA and Bharat Forge may see declines of 4% and 3% in revenues.

OEMs and Market Outlook

Nomura has highlighted potential challenges for domestic OEMs, noting a possible 5% downside risk due to US tariffs, although this decline appears to be reflected in stock prices. Positive influences such as reduced interest rates, lower income taxes, and potential drops in oil prices may mitigate these risks.

Revenue Growth Estimates: Anticipated 7% YoY increase for OEMs in coverage.
EBITDA Margins: Expected to decrease slightly to 13.3%.

Key Players to Watch

As major auto manufacturers prepare for their earnings announcements, certain factors will be critical:

Maruti Suzuki: Look for volume growth and revenue support, but watch for potential margin contractions due to rising expenses.
Tata Motors: Revenue expected to remain flat, with a focus on JLR’s performance.
Hero Motocorp: Revenue growth projected, but marketing expenditures may pressure margins.
TVS Motors: Volume growth should bolster revenue, and margins may improve due to favorable conditions.
Mahindra & Mahindra: Anticipated strong revenue growth driven by robust sales in both auto and farm segments.

This earnings season will provide valuable insights into the automotive sector’s health, with significant attention on how these companies adapt to the evolving market landscape.