Low volumes, discounts may have dented auto margins

Downside risks from rare-earth magnets an overhang for the sector

- SOHINI DAS

The first quarter (Q1) performance of auto original equipment manufacturers (OEMs) in 2025-26 (FY26) is likely to be impacted by factors like muted volumes, commodity inflation, shortage of rare-earth magnet components, discounts and dent on exports due to the Iran-Israel conflict.

Analysts feel that revenue growth for OEMs is likely to be in the range of 4-8 per cent year-on-year (Y-o-Y), varying with the coverage mix. And, margins are likely to taper owing to commodity inflation, negative operating leverage, and changes in regulatory norms.

Axis Securities said in its report that it expects the revenue for its OEM coverage universe to grow by 4 per cent Y-o-Y while the earnings before interest, taxes, depreciation, and amortisation (Ebitda) or profit after tax (PAT) is expected to decline by 3.4 per cent. The expected Ebitda margin decline would be due to higher discounts, advertisement expenses, negative operating leverage (production halts) being partly offset by richer product mix (higher exports) and price hikes taken over the past year, the analysts said.