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2025-10-08 12:29:46 pm | Source: Axis Securities Ltd
Automobiles Sector Update : Q2FY26 Results Preview by Axis Securities Ltd
Automobiles Sector Update : Q2FY26 Results Preview by Axis Securities Ltd

STRONG VOLUME GROWTH TO PARTLY OFFSET MARGIN PRESSURE

Auto OEMs: We expect Revenue/EBITDA/PAT for our OEM coverage universe to grow by 12.6%/11.2%/21.2% YoY on account of GST rate cut, subdued commodity inflation, and favourable regulatory norms. The revenue growth is largely led by low to mid-single-digit industry growth for 2W/PVs/CVs and double-digit volume growth in the tractor industry. The expected YoY EBITDA margin declines due to higher discounts and advertisement expenses being partly offset by richer product mix (higher exports) and price hikes taken over the past year. On a sequential basis, the Revenue/EBITDA/PAT growth for Q2FY26 is expected to grow by ~10.7%/14.8%/10.4% with over ~50 bps increase in EBITDA margin.

Operating Performance of Auto OEMs: In Q2FY26, OEMs under our coverage are likely to decline in margin trends YoY on an aggregate basis. This is mainly due to commodity inflation, higher sales promotional expenses, and negative operating leverage. In 2Ws, we estimate EBITDA margins to expand 122 and 46 bps YoY for TVS and Hero, while Bajaj is expected to remain flat, and Eicher motor is likely to see a 147 bps decline. The EBITDA margin for Maruti is expected to decline by ~154 bps YoY due to negative operating leverage, higher personnel costs due to wage revision, higher marketing and advertisement spends, and forex costs, which are being partly offset by increased sales of CNG vehicles and exports. For Escorts Kubota, the EBITDA margins are expected to increase marginally by 19 bps QoQ due to stability in some commodity prices. EBITDA margins for Ashok Leyland are expected to improve by ~129 bps YoY, led by operating leverage, cost control efforts, and marginally positive ASP being partly impacted by mildly higher commodity costs and sales promotion efforts..

Auto Ancillaries: We estimate Revenue/EBITDA in Q2FY26 to grow ~13%/14%, respectively, on a YoY basis for Auto Ancillaries under our coverage on account of sales volume growth (2w's and tractors), premiumization trend, and GST rate Cut. We expect Revenue to improve by 4.6% and EBITDA by 5.2% QoQ on account of commodity inflation, inferior product mix being offset by cost control initiatives by auto ancillaries. PAT is expected to improve by 16% YoY and 14% QoQ.

Operating Performance of Auto Ancillaries: Operational performance of the Auto Ancillaries is expected to improve, driven by higher volumes across the sector, specifically catering to the tractor industry, the 2W premiumization trend, alongside continuous cost control efforts. Revenue and profitability are mildly better in the European business due to a low PV base.

Endurance Tech: Revenue is expected to grow ~16%/2% YoY/QoQ, owing to highsingle digit growth in overall India 2W volumes and ramp up in ABS and alloy wheel division; also increase in European subsidiary revenues (in INR terms) over the last year.

Minda Corp: Revenue is expected to grow by ~14% YoY, led by growth in the 2W/tractor industry, along with a revival in PV and CV demand

Sansera Engineering: We expect revenue to improve by ~9%/8% on a YoY/QoQ basis on account of higher revenue from Indian 2W (TVS/RE) and Aerospace division, partly offset by slower business ramp-up from key OEMs in the EU.

Input Cost: In Q2FY26, average steel HRC prices (ex-Mumbai traders market) decreased by 4.0% QoQ, followed by a price increase in rare earth metals, while LME AL/Cu prices increased by 1-3% QoQ each.

Outlook: We expect positive earnings with improvement across certain companies, due to an increase in domestic demand, supported by the GST rate cut and the festive season. We also anticipate the Tractor segment to perform better than the 2W/PV/CV, supported by favourable monsoon and higher water reservoir levels, leading to a revival in rural demand. Additionally, export volume recovery is supporting earnings visibility in FY26 and beyond. PV sales are expected to improve on a high base, while new product launches from certain OEMs in the SUV segment are anticipated to drive growth. Demand for entry-level vehicles is expected to improve further on account of the current GST rate cut. We anticipate mid-single-digit growth for CVs, and 2W/tractors may witness high single-digit to low double-digit growth in the near term. GST rate cut, income tax relief, wedding season demand, expectations of the 8 th pay commission announcement, and rural-focused government budgets may improve rural sentiments in the coming months. Given these factors, we remain selective in our approach towards OEMs under our coverage.

For Q2FY26, our Top Earnings Plays are:

Auto OEMs: TVS Motors, Eicher Motors, Hero MotoCorp. (M&M - Non-Coverage)

Auto Ancillary: Sansera Engineering Ltd, Endurance Technology, Minda Corporation

 

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