As costs pinch, auto cos hike prices

CHENNAI: After a soft curve all through the second half of FY25, commodity prices are hardening once again and auto companies are already taking small price hikes to mitigate the bite. A slew of big auto analyst calls red flagged the creeping increase in raw material prices, particularly steel, all through last quarter and the current one. While companies are hoping to use cost reduction and product mix to manage the pinch, this could become a headwind going ahead, say top auto bosses.Speaking at M&M’s Q1 earnings call, Rajesh Jejurikar, executive director & CEO (auto and farm sector), M&M said, “Steel is up 6% over last quarter and so far we have taken some price hikes to neutralize it. But if steel inflation continues it will be a head wind.” Analysts say that’s particularly so since precious metals are also seeing increases driven by US pre-buys.Sector analysts expect the raw material price curve to continue to harden in the current quarter and the next. Rohan Kanwar Gupta, VP & sector head, corporate ratings, ICRA said, “There has been some increase in select raw material prices over the past two quarters, post a softening in prices in H2 CY2024. Some hardening in raw material prices is expected over Q2-Q3 FY26, which could exert pressure on margins to an extent.“The impact, for the moment, is not very big with CFOs putting it in the range of 0.5%. But even in segments where the exposure is lower, there is a pinch. Said Bharat Madan, CFO of Escorts Kubota: “The commodity increase is severe for PV companies but this quarter there was some pressure on us as well and Q2 may see some inflationary impact of around half a percent.”Analysts however feel the pinch is not big enough to cause too much discomfort for auto companies as of now. “Despite the increase in prices, the gross margins for OEMs across automotive segments continue to remain at steady levels, aided to an extent by price increases taken by OEMs at the start of the calendar/fiscal year,” said ICRA’s Gupta.