India Auto Industry Shows Resilience Despite Cost Pressures: HSBC Report

Indian automobile manufacturers delivered a broadly resilient performance in the first quarter despite a challenging cost environment with most two-wheeler makers limiting margin erosion through pricing actions and cost controls, a report said on Wednesday. According to an analysis of HSBC Global Investment Research, most two-wheeler original equipment manufacturers (OEMs) reported only minimal margin contraction during the quarter, reflecting effective management of rising input costs.

In addition, commercial vehicle manufacturers delivered a reasonable quarter with performance trends positioned between those of two-wheeler and passenger vehicle makers, the report said. It identified commodity costs as a key pressure point for the sector, while prices have softened modestly in the current quarter and input costs remain broadly stable and continue to weigh on profitability. To offset cost pressures, most automakers implemented price increases in July and August. These hikes should provide partial support to margins, although the benefits will depend on demand elasticity and the pace of easing commodity costs, according to the report.

Analysts at the global brokerage noted that demand has remained healthy across vehicle segments despite successive price increases and expected mid-single-digit growth in the second half, an improvement from its earlier forecast of low-single-digit growth for most OEMs. HSBC added that concerns related to the monsoon have eased somewhat. However, the report cautioned that additional price hikes and a high comparative base could pose challenges to growth in the second half of FY27 and into FY28, particularly if consumer affordability weakens.

In terms of valuations, HSBC said stocks across its coverage universe are trading at premiums to historical averages with two-wheeler manufacturers appearing significantly more expensive than passenger vehicle makers. Over the next one to two years, the brokerage said it prefers companies offering reasonable valuations, diversified and defensive revenue profiles and long-term structural growth drivers.

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