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While the auto pack delivered a steady performance in May-26, with outliers in each segment, growth moderation was visible (as also in Vahan retail volumes).

Key observations:

1) 2Ws witnessed a modest month, with TVS an outlier; 2W industry retail growth stood at 7% YoY vs 22/13% in H2FY26/FY26.

2) PVs were a mixed bag, with outperformance at TMPV/MSIL, moderation at M&M (constrained by supply challenges), and HMIL still muted; M&M’s retail PV volume growth was 7% YoY amid sharp moderation in underlying ICE retails and base catch up in BEVs.

3) MHCV industry retail momentum slowed down, with volumes up 8% YoY (H2FY26/FY26: 23/10%) and TMCV a clear outlier.

4) While tractors fared well, on favorable macros, the management indicated potential demand moderation ahead.

5) E2W penetration stood at 9.2% (Apr26/FY26: 7.9/6.6%); industry volume growth accelerated to 63% YoY (vs H2FY26/FY26: 23/21%) – TVSL led the pack, followed by BJAUT/Ather; E-3W penetration saw a fresh high of 47%, with BJAUT leading, followed by M&M; EPV penetration up, to 6.5%, with TMPV at the helm. Given ongoing geopolitical challenges, demand sustenance is a key monitorable across segments.

2Ws: TVS a clear outlier; growth moderation visible in retail volumes

TVSL was an outlier, with total 2W volume growth at ~31% YoY amid ~30/32/28% YoY growth in motorcycles/scooters/mopeds, with 2W exports up ~48% YoY. EIM RE logged 15% YoY growth, led by 24% YoY rise in domestic volume amid a 33% YoY decline in exports. BJAUT logged 18% YoY growth, led by 10/30% growth in domestic/exports. HMCL logged 12% YoY growth led by 10/78% growth in domestic/exports. Industry retail momentum moderated; volume up 7% YoY (22/13% in H2FY26/FY26). E2W penetration was 9.2% (Apr-26/FY26: 7.9/6.6%); E-2W industry volume growth was ~63% YoY in May-26 (H2FY26/FY26: 23/21%); TVSL maintained leadership, followed by BJAUT/Ather.

PVs: TMPV/MSIL lead the pack; M&M’s volume moderates; HMIL still muted

TMPV/MSIL led the pack, with domestic PV dispatches up 42/35% YoY. MSIL’s volume rebounded strongly, with small-car volume growth surging to 42%, supported by 44%/34% YoY growth in UVs/exports. HMIL’s overall volume growth was limited to 4% YoY, as the 9% YoY growth in domestic dispatches was offset by 10% YoY decline in exports. M&M’s domestic PV dispatches were up ~11% YoY, as sustained demand across the portfolio was constrained by supply-chain challenges (manpower shortages at suppliers); M&M’s underlying ICE PV retail volume growth moderated sharply; PV industry YoY retail growth was 22% (H2FY26/FY26: 20/13%); E-PV penetration rose to 6.5% (FY26: 4.5%).

CVs: TMCV continues to outpace AL; growth slowdown in MHCV retails

TMCV reported 19% YoY growth in domestic CVs, led by 10%/27% YoY growth in MHCVs/LCVs. AL logged weak numbers in May-26, with domestic CV volume down 3% YoY due to 11% decline in MHCV volume, partially offset by 13% YoY growth in LCVs. MHCV industry’s retail volume growth slowed to ~8% YoY (vs H2FY26/FY26: 23/10%). TMCV outpaced AL in MHCV retails, with 18% YoY growth vs 10% YoY for AL. LCV industry retail volume growth moderated to ~16% YoY vs ~22/13% in H2FY26/FY26.

Tractors: Strong performance by the pack; potential demand moderation ahead

Escorts and M&M witnessed strong ~23/23% YoY growth in domestic dispatches, supported by favorable macros. Escorts’s exports volume fell 35% YoY; M&M saw 7% YoY growth. Per the management, the current geo-political situation, near-term headwinds, increasing input costs, and softer prices for select cash crops may moderate farmer affordability and near-term demand sentiment. Evolving weather conditions, particularly emerging El Nino signals, will remain a key monitorable for future demand trends

Our view: Prefer 2Ws and CVs over PVs; SPRL, CAL, JKI, and Pricol in ancillaries

We favor 2W/CV OEMs vs PVs, due to a similar demand trajectory, albeit better pricing flexibility amid commodity pressures. In 2Ws, while we favor TVSL/Ather on structural basis (refer to Yet another mega shift in motion; Ather the frontrunner), BJAUT offers a better risk-reward – valuation at 22x FY28E PER vs 28/26x for TVSL/EIM RE (The best risk-reward within 2Ws; upgrade to BUY). We prefer to play the CV upcycle with TMCV (A turning CV cycle; TMCV to lead). In Ancillaries, we favor Shriram Pistons (Strong Q4; subsidiaries to drive next leg of scale-up), Craftsman Automation (Strong Q4; guides to mid-teens FY27 revenue growth), JK Tyre (Near-term RM headwinds to persist; valuation support emerging), Pricol (Robust Q4; multiple strategic initiatives to accelerate growth)

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