Auto sector Q3FY25 review: Muted profit growth despite higher sales; what lies ahead?

The earnings season ended on February 15th, with most large-cap companies across sectors reporting their quarterly earnings for Q3FY25.

The broader NIFTY500 index reported a 6.6% jump in total revenues and an 18% YoY jump in consolidated net profit compared to a 2.6% YoY jump in Q2FY25. Sectors like FMCG, IT, and Auto, in particular, saw single-digit top-line growth.

Here’s how the auto sector performed in Q3FY25

Healthy volume growth

The overall volume growth for Q3FY25 remained healthy at 10.8% YoY at 77.98 lakh units as against 70.36 lakh units in Q3FY24. The two-wheeler and passenger vehicle segments grew 12.4% and 5.9%, respectively. The tractor segment grew by 20.1% YoY at 2.44 lakh units for the quarter. An uptick in urban demand and robust rural volume growth largely drove the volume growth. On a YTD basis, the overall volume growth stood at 8.4% YoY at 2.2 crore units as compared to 2.03 crore units in the previous year similar period.

Moderate top-line growth

The 15 companies from the NIFTY Auto index saw a 7.6% YoY growth in total sales at ₹2.98 lakh crore as compared to ₹2.12 lakh crore in the year-ago period. The high single-digit growth in the quarter was largely aided by healthy volume growth and some price hikes.

In addition, the rural demand outpaced the urban demand, keeping the overall sales growth healthy. Experts predict better numbers in coming quarters because of the major boost to the middle class through tax relief in the union budget 2025.

Muted bottom-line growth

Despite healthy volume growth and moderate top-line growth, the operational performance remained muted due to operational headwinds in the industry. Heavy discounts and heightened cost pressures impacted the operational profitability of the auto companies. The profit before interest, depreciation and taxes (PBIDT) jumped 3.6% YoY at ₹42,305 crore. Consequently, the net profit for the quarter also witnessed muted growth of 1.75% YoY to ₹21,103 crore. However, the industry witnessed better growth across the board than Q2FY25, where the profits remained unchanged over the previous year.

Hits and misses for the quarter

What lies ahead?

The NIFTY Auto index has corrected 21% from the record-high levels achieved in September 2024. However, market participants expect the sentiments to turn positive, led by strong broader tailwinds for the industry like price hikes, interest rate cuts and tax reliefs provided in the Union Budget. In addition, the EV space is expected to see more competition and traction with new launches catering to rising demand for EV vehicles.