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Auto sector growth momentum sustained across segments in Q4FY26; outlook remains cautious

We maintain a constructive outlook on India’s automobile sector as demand momentum remained strong in Q4FY26, driven by festive demand and structural recovery led by GST rationalisation. As per the Vahan retail data, auto retail sales grew ~23% YoY in Q4FY26, with broad-based growth across segments.

* The 2W segment witnessed strong growth of ~25% YoY in Q4FY26, aided by an increase in EV traction, improving rural demand, wedding season and better financing availability. Entry-level demand is gradually recovering, indicating improving rural liquidity

* PV retail sales grew ~19% YoY in Q4FY26, supported by strong SUV demand, premiumisation trend and new model launches. Rural PV demand continues to grow faster than urban markets, indicating demand expansion beyond metro and Tier-1 cities

* CV retail grew ~19% YoY in Q4FY26, driven by infrastructure activity, construction, mining and replacement demand. Fleet utilisation remains healthy, supporting MHCV & LCV demand. The tractor segment continued to outperform other segments, supported by healthy reservoir level, strong rabi output and continued government rural spending

* For the FY26–27E, the industry aims to sustain the strong demand for passenger vehicles which developed as a result of GST rationalisation. This positive trend is expected to continue due to solid fundamentals and low inventory level. Multiple product launches planned in the SUV and electric vehicle (EV) segments are poised to drive growth through replacements, repeat buyers and first-time buyers

* However, the ongoing Middle East conflict remains a key near-term monitorable, as rising crude oil prices, higher freight rates and commodity inflation (steel, aluminium, copper) could lead to margin pressure for OEMs and auto ancillaries. Higher fuel prices may also affect demand, particularly in entry-level PVs, 2Ws and CVs ? We continue to monitor the developments and may revise our estimates after detailed analysis of Q4FY26 results and management commentary.

Automobile OEMs:

* The OEMs under our coverage (ex-Tata Motors) are expected to deliver strong growth, with aggregate Revenue/EBITDA/PAT increase of 22.6%/24.3%/22.4%, respectively, on a YoY basis. Growth is driven by a surge in demand, aided by GST rate changes and festive season momentum

* The PV companies under our coverage are anticipated to post strong results, with a 20.4% YoY revenue growth. In the 2W segment, the OEMs are expected to expand 24.8% on a YoY basis

* The CV segment has shown strong volume recovery in this quarter; AL is expected to post 18.9% YoY revenue growth ? In OEMs, TVS is likely to lead the pack with 29.4% YoY revenue growth, followed by BJAUT at 26.7% and HMCL at 24.1%.

Automobile Ancillaries:

* The ancillaries under our coverage are likely to deliver solid growth in Q4FY26, driven by robust demand and a shift towards premiumisation. Aggregate Revenue/EBITDA/PAT growth is respectively expected at 15.8%/12.3%/9.5% YoY, reflecting healthy performance

* However, we expect EBITDA margin to be under pressure due to commodity headwinds

* ENDU is projected to lead with 22.0% YoY revenue increase. SANSERA and LUMX are forecast to post 19.2% and 16.7% YoY revenue growth, respectively.

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