Auto Sector's Growth Slows Amid Mixed Signals in Q3 FY25

The auto sector's earnings growth in Q3 FY25 is projected to rise by a modest 3% YoY, marking the slowest growth in 11 quarters, as reported by Motilal Oswal. While the two-wheeler segment shows signs of export recovery, domestic sales remain flat. Meanwhile, passenger and tractor sales recover.

In the third quarter of the fiscal year 2025, the auto sector faces a deceleration in earnings growth, marking an increase of just 3% year-on-year, the slowest in the past 11 quarters, according to Motilal Oswal Financial Services. This limited growth persists despite the typically lucrative festive season, which generally boosts automobile sales.

Motilal Oswal notes, "The Auto sector's earnings are anticipated to climb by 3% YoY in the quarter." Auto OEMs are projected to achieve around 6% YoY volume growth in Q3FY25, notwithstanding the festive period. A notable concern has been the two-wheeler segment, a pivotal growth component earlier this fiscal year, which saw significant deceleration during Q3.

Two-wheeler sales domestically by the four primary 2W OEMs stagnated YoY in Q3, a contrast to the first half's 15% growth. The report states, "Subdued dispatches even during festive season; demand outlook remains weak." Nevertheless, two-wheeler exports exhibit recovery signs in key markets like Africa. In contrast, the commercial vehicle segment saw continued weak demand, with leading OEMs reporting flat YoY growth in Q3.

Conversely, passenger vehicles exhibited recovery after subdued demand earlier in FY25. The top four PV OEMs showed a 10% YoY sales increase in Q3, improving from stagnant growth earlier. Tractor demand has surged, with the two main tractor OEMs experiencing a 17% YoY growth, rebounding from earlier flat growth.

FADA data from December highlights a 12.4% decline in overall retail auto sales, with two-wheelers down 17.6%, three-wheelers down 4.5%, PVs down 1.9%, and CVs down 5.2%, while tractor sales jumped 25.7%. FADA suggests that near-term projections show 48% of dealers anticipate growth in January, 41.22% expect flat sales, and 10.69% foresee a downturn.

Two-wheeler demand may gain from better MSP and rural liquidity, though challenges in financing and the transition to electric vehicles persist. The report underscores the mixed trends across segments, reflecting both challenges and recovery indicators for the auto sector during Q3FY25.

(With inputs from agencies.)