US- Iran War To Reduce Margins For India's Auto Companies
India’s auto sector is moving into the final quarter of financial year 2026 (FY26) under great pressure. The rising geopolitical tensions between the US and Iran has started to affect the industry. These have limited the energy availability and also brought about a hike in input costs. Automotive manufacturing is a capital and energy intensive process, and the challenges brought about by the tensions aren’t small either. As a result, automakers are likely to lose out on margins. A recent sector update by Axis Securities highlights a likely EBITDA margin compression of 80 to 100 basis points for manufacturers dependent on natural gas.
Geopolitical tensions between the US and Iran have affected the global supply of industrial gas significantly. Tightened supply has forced companies to switch from piped natural gas to more expensive spot LNG or alternative fuels. This transition is expected to push manufacturing costs higher by an estimated 15% to 25%.
In automotive manufacturing, operations like paint shops and forging units are gas-intensive. These rely heavily on consistent energy supply and are the first to experience the impact. More complex production bottlenecks are likely to be created if the supply constraints continue to persist or in the worse case, escalate.
Some Original Equipment Manufacturers (OEMs) have already reported minor disruptions. The situation is not yet critical. Most companies are currently sitting on three to five weeks of channel inventory, which could act as a short-term buffer. These crises would slow down manufacturing and make waiting periods rise in the foreseeable future. Analysts believe that buyers are likely to accept longer waiting periods rather than cancel their orders.
Now, the other side of the picture. The demand for CNG cars and SUVs have gone up in recent years. Manufacturers like Maruti Suzuki and Bajaj Auto have strong CNG portfolios. While the manufacturing side may face supply-related challenges and gas shortages, consumer demand for these CNG-powered vehicles is expected to remain stable.
The Government of India continues to prioritise gas allocation for CNG transport, ensuring availability at fuel stations. This ensures that users of CNG-powered vehicles are not deprived of fuel and more importantly, the prices of consumer CNG do not shoot up due to limited availability. This is critical in maintaining the fuel’s cost advantage over petrol and diesel vehicles, which in turn, is essential in supporting demand.
Beyond energy, automakers are also dealing with spikes in costs related to crude oil-linked raw materials. Plastics, Synthetic rubber and paints contribute around 3-7 percent of OEM revenues. These are all becoming more expensive, reducing margins for the companies. To compensate, we may soon see carmakers resorting to price hikes of 0.5% to 1% across segments.
The impact of the current situation is not uniform across the industry. Among OEMs, Maruti Suzuki, Ashok Leyland and Bajaj Auto are expected to face the highest impact. In comparison, Eicher Motors falls in the moderate category, while Escorts Kubota is seen as relatively low-impact OEM.
On the component side, companies like Sansera Engineering and CIE Automotive are in the high-impact bracket. Endurance Technologies faces moderate pressure, while Uno Minda and Minda Corporation are expected to see limited impact.
A direct export exposure to the Middle East remains relatively limited. Logistics remains the bigger concern. Any escalation affecting the Strait of Hormuz could disrupt global shipping routes, driving up freight costs and insurance premiums. Companies like Ashok Leyland, which have a strong presence in GCC markets, could face delays and cost escalations in exports.
In short, automakers are now closely watching two key variables- the duration of gas supply disruptions and the trajectory of crude oil prices. The auto sector’s recovery momentum now hinges on how quickly these ease.