IGI Logo

CVs and 2Ws see demand revival in Q2

OEMs likely to outperform ancillaries

* After a weak print in 1Q, auto OEMs in our coverage universe delivered 12.9% YoY volume growth in 2QFY26. Among the listed companies, 2W/CV OEMs posted volume growth of 15%/10% in 2Q. Aggregate PV growth for the four listed OEMs stood at just 3% YoY.

* For our OEM coverage universe (excl. TTMT), revenue is likely to grow 13% YoY on the back of healthy volume growth. Similarly, excl. TTMT, EBITDA/PAT for our coverage universe is expected to grow by 11%/14% YoY.

* For auto ancillaries under our coverage, we expect ~9% growth in revenue but a much slower 3% growth in both EBITDA/PAT in 2Q. ? TVS (+49%), EIM (+31%), Escorts (+22%) and HMCL (+20%) are expected to outperform OE peers in 2Q. In auto ancillaries, outperformers include APTY (+23%), Craftsman (+40%) and ENDU (+21%).

* Overall earnings estimate cuts have been moderate in 2Q.

* Our top OEM picks are MSIL and MM. Top auto ancillary picks are ENDU and Happy Forgings.

Demand has picked up well in CVs and 2Ws in 2Q, PVs remain weak

After a subdued show in 1Q, auto OEMs in our coverage universe posted a much better 12.9% YoY volume growth in 2QFY26. Both 2Ws and CVs posted a smart revival in volumes even as PV demand remained subdued. Among the listed players, 2W/CV OEMs posted 15%/10% growth in 2Q volumes. On the other hand, aggregate PV growth for the four listed OEMs stood at just 3% YoY. In 2Ws, except for BJAUT (+6%), other three listed players saw healthy double-digit growth – RE (+43%), TVS (23%) and HMCL (+11%). In PVs, TTMT outperformed peers with 11% YoY growth. MM UV growth was slower at 7% as it intentionally reduced dispatches to dealers given the lack of clarity on cess compensation. Also, while MSIL saw 2% YoY growth, HMIL volumes declined 1% YoY in 2Q. Discounts have increased QoQ in 2Q in PVs, as per our channel checks. In CVs, TTMT was the key growth driver with 13% growth, while AL (+8%) and VECV (+5%) saw single-digit growth. The tractor segment posted the highest growth in the auto sector, as the two listed companies delivered a robust 31% YoY growth in 2Q.

Auto OEMs to see healthy earnings growth compared to auto ancillaries

On the back of a healthy recovery in volumes, auto OEM companies under our coverage are expected to deliver 11%/14% growth in EBITDA/PAT (excl. TTMT). Aggregate EBITDA margin for our coverage universe is estimated to rise marginally by 20bp YoY to 13.2%. In 2Q, major margin gains are expected for TVSL (+130bp YoY), TTMT CV (+190bp), VECV (+160bp), and Escorts (+330bp). On the other hand, MSIL (-150bp YoY) and TTMT PV (-120bp) are expected to see margin contraction. For auto ancillaries, we expect our coverage universe to post ~9% growth in revenue and a much slower 3% growth in both EBITDA/PAT in 2Q.

Estimated hits and misses in 2QFY26

We expect our auto OEM coverage universe (excl. TTMT) to post 15% YoY earnings growth. It is important to highlight that excl. TTMT, all other listed OEMs are expected to post positive earnings growth. TVSL (+49%), EIM (+31%), Escorts (+22%) and HMCL (+20%) are expected to outperform their OEM peers in 2Q. TTMT is the only OEM that is expected to post earnings decline in 2Q. Meanwhile, MSIL (8%), HMIL (8%), BJAUT (+9%) and AL (+7%) are expected to post single-digit growth. Our ancillary coverage universe should deliver modest 3% YoY earnings growth in PAT in 2Q. Key earnings growth drivers include APTY (+23%), Craftsman (+40%) and Endurance (+21%). Major laggards are expected to be Sona (-11%), Amara (-14%), BHFC (-13%) and SAMIL (-15%).

Overall earnings estimate cuts have been moderate in this quarter.

Festive season starts off on an optimistic note

The GST Council has provided a much-needed booster shot to the auto sector by reducing the tax rates on the majority of auto segments. These timely rate cuts, coupled with other sectoral tailwinds like normal monsoon boosting rural sentiment, a ~100bp reduction in interest rates in CY25 and income tax benefits, are expected to revive demand for the auto sector from this festive season. The ongoing festive season has started off on a strong note across segments, with most OEMs reporting a strong revival in demand on the back of GST rate cuts and positive rural sentiment. Notably, entry-level vehicle demand has recovered from the lows, albeit with high discounts. Demand is likely to remain strong after the festive season, with the marriage season starting in Nov’25. Once demand is restored, we expect discounts to gradually trend lower. On the back of a pickup in demand and a much better earnings growth, we expect the sector to get re-rated. Our top picks in auto OEMs are Maruti Suzuki (new launches + exports ramp-up to drive 17% earnings growth) and M&M (new launches + positive rural sentiments to drive 21% earnings growth). In the auto ancillary space, we prefer ENDU and HAPPYFORG for their strong order backlog and ability to outperform core segments.

For More Research Reports : Click Here 

For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412