Auto sector’s recovery under clouds

Owing to a decent festive season show in Q3, the auto sector has started showing signs of recovery. At the same time, passenger vehicle (PV) and tractor sales stood out while rural growth remained healthy. However, the third quarter will also be driven by the low base of last year.

It is estimated that higher auto volumes will lead to better operating leverage and profitability in Q3. “We expect aggregate recurring net profit for our covered original equipment manufacturers to rise 18% year-on-year (y-o-y) in Q3—first y-o-y growth after two years of decline,” stated analysts at Jefferies India Pvt. Ltd. “The sharp rise in commodity costs in H2CY20 will start affecting auto sector’s gross margins in Q3, although the full impact is likely to come through in H1CY21,” they however added.

However, in order to deal with this, the auto companies are looking for several ways. For example, auto companies have been cutting back costs through reduced marketing spends and offering lower discounts.