The earnings impact for auto suppliers following the imposition of a 25% tariff by the US could range between 5% and 30%, depending on how the tariffs are absorbed by original equipment manufacturers (OEMs), suppliers, and consumers, said JP Morgan.
The brokerage has released a report highlighting the potential earnings impact on Indian auto suppliers following the recent imposition of a 25% tariff on automobiles and parts by the US, along with a 26% reciprocal tariff on India.
The report identifies Samvardhana Motherson International, Bharat Forge, and Sona Comstar as the most affected under JP Morgan’s coverage. Motherson is expected to be relatively less impacted due to its local presence in multiple geographies, while Bharat Forge and Sona Comstar, which primarily export to the US from India, could face more significant challenges.
Motherson derives approximately 20% of its revenues directly from the US, with an additional 40% from the EU, a significant portion of which is ultimately exported to the US by German customers.
The company sources sub-components from outside the US, but this should be partially offset as a substantial part of its sourcing is USMCA compliant. JP Morgan estimates a 5-10% EPS impact if tariffs are borne entirely by Motherson, and a 10% impact if tariffs are passed on but US demand declines by 10%.
BHFC, which derives around 40% of its standalone revenues from the US, could see both its auto and non-auto exports come under the new tariffs.
JP Morgan believes a full pass-through of tariffs could lead to a 5-10% decline in demand for trucks, passenger vehicles, and industrial products, resulting in a 20% earnings impact. If BHFC bears the tariffs entirely, the EPS impact could be higher at 25-30%.
Sona Comstar, with 40% of its revenues coming from North America and almost entirely exported from India, is expected to face a 15% EPS impact if tariffs are passed through but demand is affected.
If the tariffs are borne entirely by Sona Comstar, the EPS impact could range from 15-20%. The company has a large order book of new models, mainly electric vehicles (EVs), which could mitigate some of the impact unless there is a disproportionate effect on EV demand in the US.
JP Morgan emphasises that the main risk lies in lower US demand if tariffs become the new normal. However, Indian suppliers have strong balance sheets and should be able to mitigate the impact through capacity investments and acquisitions of smaller suppliers over time. The brokerage expects OEMs to pass on a greater share of the costs to consumers, potentially leading to structurally lower US vehicle demand.
. Read more on Markets by NDTV Profit.The report identifies Samvardhana Motherson International, Bharat Forge, and Sona Comstar as the most affected under JP Morgan’s coverage. Read MoreMarkets, Business
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