Auto launches may jump-start Q4FY25 revenue, but margins could stall

Richer product mix to drive Ebitda growth; margins under pressure due to rising input costs, discounting, ad-spends

Automotive (auto) companies are expected to post a 5–8 per cent improvement in revenue during the fourth quarter (Q4) of 2024-25 (FY25), aided by new launches, early-year momentum in January, and festivals such as Gudi Padwa and Holi.

 

Earnings before interest, tax, depreciation, and amortisation (Ebitda) growth is estimated at 4–8 per cent year-on-year (Y-o-Y), according to several brokerages. This is being driven by positive operating leverage and a richer product mix. However, margins are expected to remain under pressure, impacted by rising input costs, higher discounting, increased advertising spends, and negative operating leverage — though partially offset by price hikes implemented over the past year.

 

Analysts at Axis Securities said, “The expected Y-o-Y Ebitda margin remains flat due to higher discounts/advertisement expenses and negative operating leverage being partly offset by price hikes taken over the past year.”

 

Meanwhile, auto original equipment manufacturers (OEMs) are expected to report around 6 per cent Y-o-Y volume growth in Q4FY25, though underlying demand is expected to remain weak. Some OEMs are likely to benefit from regional festivities such as Holi and Gudi Padwa, which could provide marginal support to volumes in select markets.

 

Automakers are not expected to be impacted by the looming US tariffs; analysts believe component makers will remain cost-competitive.

 

Analysts also highlight potential tailwinds such as lower interest rates, tax cuts, and falling oil prices, which could help offset demand concerns. Easing commodity prices may support margins, though discounting pressure could partially negate this benefit. Companies with robust product cycles are expected to perform better in this environment.

 

The passenger vehicle (PV) segment is expected to see volume growth in the low- to mid-single digits in Q4. PV segment revenues are likely to grow by 5.2 per cent Y-o-Y, driven by strong volumes in sport utility vehicles (SUVs). Entry-level demand remained subdued, with longer conversion cycles and growing caution among dealers. Elevated inventory levels — estimated at 50–52 days — emerged as a major concern, with dealers urging OEMs to better align dispatches with on-ground demand.

 

“Entry-level demand remained soft, with conversion cycles stretching longer and dealer sentiment turning increasingly cautious,” Deven Choksey Research observed.

 

The two-wheeler (2W) market is expected to see 1–6 per cent volume growth due to a recovery in exports, festival demand, healthy demand from urban and rural markets, and easing government regulation for the electric 2W vehicle market.

 

Commodity cost stabilisation may aid margins for auto ancillary players and OEMs. However, discounts and higher ad spends may offset the benefit.

 

As for major OEMs, analysts expect Maruti Suzuki India’s revenue to grow by 8–11 per cent, driven by exports, a strong SUV lineup, electric vehicle expansion, rural growth outpacing urban growth, and a richer product mix.

 

Tata Motors’ revenue is expected to grow by 2 per cent, supported by steady performance from Jaguar Land Rover (JLR) in Q4FY25, when its global wholesale volumes rose 1.1 per cent, led by North America. High-margin models like Range Rover and Range Rover Sport contributed 67.8 per cent of FY25 wholesale volumes for JLR, and the company ended FY25 with a net cash-positive position despite softer volumes from China.

 

As for 2Ws, Motilal Oswal said Bajaj Auto’s total volumes grew by around 3 per cent Y-o-Y in Q4FY25, driven by a 3 per cent increase in 2W sales and a 5 per cent rise in three-wheelers. The growth was entirely led by exports, which surged 19 per cent Y-o-Y, offsetting a 7 per cent decline in domestic demand. Deven Choksey also highlighted that Bajaj is expected to report a 7.1 per cent Y-o-Y revenue growth, supported by strong export performance.

 

Hero MotoCorp’s volume growth remained subdued in Q4FY25, with a 1 per cent Y-o-Y decline as 2W demand lagged expectations. However, the average selling price is expected to improve by 3 per cent Y-o-Y, driven by a better product mix, particularly in the 125cc segment, supporting a projected 2 per cent revenue growth. Overall, profit after tax is estimated to grow 3 per cent Y-o-Y. Similarly, Axis Securities estimates a 27-basis-point (bp) Y-o-Y expansion in Ebitda margins for Hero in the 2W segment.

 

The commercial vehicle (CV) segment continued to face headwinds in Q4FY25, with listed OEMs reporting a 3 per cent Y-o-Y decline in volumes, Motilal Oswal noted. Retail sales were affected by subdued transportation demand, constrained financing, and pricing pressures, which delayed bulk fleet purchases. While the tipper segment benefited from sustained government infrastructure spending, overall market sentiment remained weak. Structural challenges such as elevated vehicle acquisition costs and limited recovery in freight rates persisted. Looking ahead, brokerages anticipate low single-digit growth for CVs, while tractors may see mid- to high-single-digit growth supported by improved crop realisation, seasonal wedding demand, and rural-focused government initiatives, which are expected to lift rural sentiment.

 

Ashok Leyland’s Ebitda margins are expected to expand by roughly 42 bp Y-o-Y, supported by operating leverage, cost-control measures, and a stronger contribution from the non-auto segment, though partially offset by higher sales promotion expenses.

 

In contrast, tractor demand is expected to see a strong revival in Q4, with domestic volumes rising 18 per cent Y-o-Y. The robust performance is expected to continue the positive momentum witnessed since the third quarter, as the two listed tractor OEMs are expected to post a 19 per cent growth during the quarter.