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We expect revenue of our Auto OEM universe (ex-Tata Motors) to improve ~29% YoY and 14% QoQ in Q3FY26E, driven by strong volume growth (in double-digits) across most segments from healthy festival season sales. We expect topline to grow 12.3% YoY for Elara auto ancillary coverage.

Demand remains strong for the passenger vehicles (PV) and 2W segments in Q3FY26 (Vahan retail growth at 19.2% and 19.8% for 2W and PV in Q3, respectively). This has led to comfortable inventory in the system, which has compelled us to revise our growth estimates for PVs to 8% (earlier 5%) while keeping 2W growth rate for FY26E unchanged at 9%. We also revise our FY26E MHCV/LCV growth assumption to 9%/11% from 4%/4% and to 6%/9% from 4%/4% for FY27E. Growth in tractors continues to surprise us positively, with projected growth rate of 19% YoY in FY26E..

Operating leverage to aid in QoQ margin expansion: Maruti Suzuki’s EBITDA margin on a like to like basis is expected to expand 100bp QoQ to 11.5% (though including SMG merger would be 12.7% on reported basis). Positive factors for ASP on a QoQ basis are stronger mix of Victoris+Grand Vitara, partially offset by weaker exports mix and likely lower CNG mix. From margin perspective positive drivers are operating leverage partially offset by commodity headwinds and higher discounts. M&M’s auto segment ASPs are likely to decline sequentially owing to weaker BEV mix and higher Bolero mix; though margins are likely to be positively impacted with weaker BEV mix. TVS Motor and Bajaj Auto are expected to benefit from INR depreciation for exports, however, mix within exports has weakened owing to higher contribution from lower cc motorcycles. Royal Enfield lower exports mix QoQ is likely to result in ~1% ASP contraction QoQ, however margins are expected to increase on a QoQ basis owing to controlled marketing expenses

Amongst auto ancillaries, we expect companies under our coverage to report a 12% revenue growth, led by strong production growth across segments. Two-wheeler-focused companies – Uno Minda, Minda Corp, Endurance and Gabriel – may post revenue growth of 12-21% YoY in Q3E. Globally-focused ancillary companies –Samvardhana Motherson and Sona BLW – are likely to post a margin contraction within ~30-230bps YoY. Tyre companies are expected to post double digit revenue growth YoY led by pick-up in replacement and OEM segments. There may be a one-time impact of employee cost due to revision in labor laws for most companies – We have not factored this in our estimates for Elara auto universe.

Maruti Suzuki, M&M, TVS Motor and Eicher Motor are top OEM picks: Our top picks in our OEM universe are Maruti Suzuki, M&M, TVS Motor, and Eicher Motors. Amongst ancillaries, our top picks are Uno Minda, Gabriel India, Minda Corp and Sona BLW. We retain our negative view on ancillary companies, such as Samvardhana Motherson , Bharat Forge, Motherson Sumi Wiring India, and the tyres segment

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