Auto Sector: Q4FY25 Auto OEM Review – Growth in 2W/Tractor OEMs By Axis Securities Ltd
* Financial Performance
* Revenue/EBITDA in Q4FY25 grew by 9%/6% YoY, respectively, against our expectations of ~8%/7% on a YoY basis for Auto Ancillaries under our coverage on account of sale volume growth (2w's and tractors) and premiumization trend. Revenue/EBITDA grew by 7%/12% QoQ against our estimates of 7%/13% QoQ, respectively, on account of cost control initiatives, operating leverage with marginal impact from commodity headwinds for some auto OEMs. PAT was flat YoY inline with estimates due to one-offs in certain OEMs, while improved 16% QoQ (our estimates 14%).
* Margin pressures stemmed mainly from poor product mix, higher commodity prices and increased other expenses. While Maruti, Eicher Motors, Hero Motocorp faced margins pressure downward by 113bps, 24bps, 22bps respectively, margins were largely positive for Ashok Leyland and TVS - up by 226bps, 207bps respectively. Q4FY25 Auto Ancillaries Review – Mixed Performance
* Financial Performance
* The companies under our coverage reported 9%/6% growth in Revenue/EBITDA in Q4FY25, respectively, against our expectations of ~8%/7% on a YoY basis on account of sale volume growth (2w’s and tractors) and premiumization trend. Revenue/EBITDA grew by 7%/12% QoQ against our estimates of 7%/13% QoQ, respectively. EBITDA growth was on account of cost control initiatives, operating leverage being set off with a marginal impact from commodities for some auto ancillary. PAT was flat YoY in line with estimates due to oneoffs in certain OEMs, while improved 16% QoQ (our estimates 14%).
* Endurance Technologies, UNO Minda, SSWL and Minda Corp delivered strong YoY EBITDA growth, while Sansera Engineering and Automotive Axles remained largely flat. CIE Automotive saw a 7% YoY decline due to a delay in the ramp-up of new order wins from OEMs.
• Overall Export Growth: +18.75% YoY – Strong rebound led by 2Ws (21%YoY) and CVs (23% YoY), indicating export market revival.
• Overall Domestic Growth: +7.37% YoY – Driven mainly by 2Ws (9% YoY) and Tractors (8% YoY); CVs marginally down (1 % YoY) due to macro and cyclical softness.
• Aggregate Outlook: Moderately Positive o The Indian auto sector is witnessing export-led strength and a gradual domestic revival. o The rural economy revival and commodity price stability will play a key role. o While EV adoption continues to build traction, near-term challenges persist due to supply restrictions by China on Rare Earth Minerals to Indian OEMs.. o A normal monsoon, festive season demand, and post-election policy clarity will be key monitorables for sustaining this growth into H2FY26.
Outlook – Industry Approaching Long Term CAGR volumes
* We expect EBITDA margins to remain largely stable in the near term, supported by a richer product mix. However, raw material headwinds could exert slight pressure. The price benefits realised in previous quarters for some companies may limit further margin expansion.
* We expect 2W sales volumes to sustain high single-digit growth in FY26E, supported by new premium segment launches, an extended replacement cycle, and recovery in exports. A favourable monsoon, income tax relief, and increased rural spending are likely to further drive demand for entry-level motorcycles.
* PV sales will be led by strong UV launches; however, overall growth is expected to remain in the low single digits in FY26E due to the high base of FY25.
* For FY26, OEMs remain optimistic about long-term structural growth drivers, including India’s vast road network, policy measures aimed at reducing supply chain costs, the Vehicle Scrappage policy, reduced interest rate costs and continued infrastructure Capex outlined in the Union Budget.
* Tractor volumes are expected to grow in the mid-high single digits in FY26, supported by a favourable monsoon, lower financing costs and increased government allocations towards the farming sector before the state election.
* We remain selective in our approach. Among OEMs under our coverage, our Top Conviction Idea in 2Ws is Hero Motocorp, in CVs is Ashok Leyland, and in the PV/tractor segment, we favour Mahindra & Mahindra (non-coverage), given its strong SUV product portfolio and leadership position in the domestic tractor industry. We recommend “Buy On Dips” Strategy for TVS Motors, Bajaj Auto and Eicher Ltd. Auto Ancillaries
* In the long run, product premiumization, strong order books, growing exports, and the shift toward EVs are expected to drive higher content per vehicle, boosting profitability. Considering current valuations, our top conviction picks in the ancillary space are Sansera Engineering Ltd, Steel Strip Wheels Ltd. We also suggest a "Buy on Dips" approach for CIE Automotive, Endurance Technologies, and UNO Minda for long-term gains.
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