Investors in the Indian auto sector might need to adjust their expectations as the scorching pace of growth witnessed in the past year appears to be cooling down. Simultaneously, in the financial sector, a notable shift is underway as Indiabulls Housing Finance rebrands itself as Sammaan Capital, marking a significant transition for the non-banking financial company (NBFC).

Auto Sector Growth Moderates

After a year of impressive returns, the Nifty Auto index’s stellar performance may not be sustainable. Recent data indicates a moderation in auto sales, particularly in passenger vehicles and two-wheelers. Retail sales figures for June, following a similar trend in April and May, reveal a month-on-month decline since April. Year-on-year growth rates are also showing signs of slowing down across various auto segments.

Industry experts attribute this slowdown to factors such as high interest rates, the subsiding of pent-up demand post-pandemic, and inflationary pressures affecting both vehicle prices and disposable incomes. The consequences are evident in rising dealer inventories and increased discounts on vehicles, potentially leading to a slowdown in wholesale dispatches from auto manufacturers in the coming quarters. Indeed, the initial quarter of FY2025 already shows signs of this stuttering growth, with both passenger vehicle and two-wheeler wholesales indicating only single-digit year-on-year growth. Market leaders like Maruti Suzuki, Hyundai, Hero MotoCorp, and Bajaj Auto have also reported slower sales growth in the June quarter.

Adding to the concerns are rising input costs. Key commodities like steel and rubber, coupled with volatile crude oil prices and increasing fuel and energy expenses, are likely to put pressure on the profitability of auto companies. Investors should brace for potentially flatter or even slightly reduced operating margins in the first quarter of FY2025 compared to the previous year. If these trends persist, the robust earnings growth trajectory enjoyed by auto companies over the past year could face significant headwinds.

Sammaan Capital’s Fresh Start

In a separate but significant development, Indiabulls Housing Finance has officially rebranded itself as Sammaan Capital. This name change follows the company’s transformation from a promoter-led entity to a board-run and diversely-held financial institution. The company has received the necessary approvals from the Registrar of Companies and the Reserve Bank of India for this transition. The regulatory filing confirms that the former promoter, Sameer Gehlaut, has completely divested his stake and no longer holds any shares in the company. S.S. Mundra, former Deputy Governor of the RBI, now chairs the board, which includes several independent directors with diverse expertise.

Sammaan Capital will continue to focus on retail lending, primarily through affordable home loans and mortgage-backed loans for micro, small, and medium enterprises. The company aims to pursue asset growth through co-lending and sell-down partnerships with banks and other financial institutions. This strategic shift signifies a move towards enhanced governance, transparency, and a renewed focus on sustainable and inclusive growth.

While the auto sector navigates a period of moderating growth and rising costs, Sammaan Capital embarks on a new chapter with a fresh identity and a board-led approach. For investors, understanding these shifts is crucial. In the auto sector, a more cautious and selective approach might be warranted, while Sammaan Capital’s rebranding could signal a potential opportunity for long-term value creation, provided it executes its new strategy effectively.

Image Courtesy: X (KPMG India)