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Q1FY27 saw double-digit wholesale auto volume growth even as higher commodity costs, supply chain disruptions and manpower shortage impacted the industry. The West Asia conflict has led to international logistic challenges and the increase in fuel prices has prompted customers to shift to EVs. New EV model launches provided further tailwind as EV penetration increased strongly. Weaker INR should aid companies with higher export exposure. Domestic retail demand remained strong even as most OEMs took price increases in the range of 1%-3% and are in process of increasing capacities to service the demand. Even as some commodities saw corrections toward the end of Q1, margins are expected to be evidently impacted, partially offset by higher operating leverage, price increases, and stronger exports. Some softness in rural demand was visible toward the quarter end due to delayed and deficient monsoon and inauspicious period observed in many regions across the country. El Nino impact and input costs will be key monitorables going ahead. Top picks amongst our coverage are M&M and TVS.

Strong SUV growth and resurgence of small cars:

Wholesale volume growth YoY was in 20s with increasing preference for SUVs, whereas small cars saw sustained demand. Growth was driven largely by rural demand outpacing urban growth. PV inventory edged up to ~29/32/33 days at the end of Apr/May/Jun’26, moving away from FADA’s recommended 21 days benchmark and warranting dispatch discipline. Alternate fuel (EVs/hybrids/CNGs) share in retail PV sales crossed 40% for the 1st time ever.

Broad-based 2W growth: Wholesale volume growth

YoY for the 2W segment was in 20s. Entry level motorcycles saw sustained demand even as price hikes and expectations of a weaker rural cashflow due to below-normal monsoon might impact the segment the most. Scooters continued to grow faster as urban growth slightly outpaced rural growth. EV sales surged led by new launches and higher fuel costs, reaching double-digit penetration for the 1st time ever.

Resilient CV and tractor demand:

MHCVs saw modest growth from mining and infraactivities even as there was postponement in replacement demand and fleet expansion due to elevated fuel costs (which form 40%-50% of TCO for an MHCV customer). LCV sales were steady as growth in e-com/ q-com and overall urbanization continued to grow rapidly. Government’s capex push, growth in e-com, lower fuel prices and resilient domestic macros will be key for further growth. Tractor sales saw double-digit growth as adequate reservoir levels and fertilizer subsidies helped mitigate the cost pressure and deficient monsoon impact. Government interventions should partially offset the expected impact from El Nino going ahead

Bajaj Auto:

It saw market share gains in its strategic 125cc+ segment driven by Pulsar and 150cc+ sports portfolio as the domestic motorcycle industry saw sustained demand from strong rural cashflows. The management aims to outpace industry growth in this sub-segment, although <125cc volumes, which formed ~2/3rd of its domestic motorcycles in FY26, remain under pressure and are expected to be more vulnerable to inflation. New product launches/interventions, shifting consumer preference toward e-2Ws, and sustained exports (with depreciating INR) should enhance the topline. EBITDA margin of overall EV portfolio (which is improving and reached double digits) and better scale should increase overall margins, although further RM inflation is to be watched out for. It retains 3W leadership, although shift in preference for EVs presents some challenge where peers are scaling up rapidly. We estimate volume/realization CAGR of 10.6%/3.2% over FY26-28E, translating into revenue/EBITDA/APAT CAGR of 14.2%/14.6%/14.1%. We retain ‘HOLD’ rating with TP of INR10,500 (previous INR10,400), valuing the stock at P/E of 23x based on FY28E EPS.

Hero MotoCorp:

Entry-level motorcycle industry has seen sustained demand with HMCL gaining market share, although it remains vulnerable to price increases from higher commodity prices and lower rural cashflows due to expected below-normal monsoon. However, the company has not shown similar strength in the more resilient premium portfolio. Strong scooter and exports sales, albeit on a lower base, should help gain volumes as it increases the capacity to meet the surging demand. Its e-2W market share is also growing in line with the industry. New model launches and pricing actions will be important to track, but margins can remain under pressure in the near term. We estimate volume/realization CAGR of 6.0%/4.6% over FY26-28E, translating into revenue/EBITDA/APAT CAGR of 10.8%/10.6%/10.1%. We assign ‘Accumulate’ rating with TP of INR5,600 (previous INR6,066) valuing the stock at P/E of 16x (previous 17x) FY28E EPS and its stake in Hero Fincorp at INR40 and in Ather Energy at INR367.

TVS Motor:

It has been gaining market share across segments with strong volume growth and its e-2Ws being the market leader, capturing the shift in consumer preference toward greener vehicles amid rising fuel prices. Better scale and mix, and PLI benefits should help improve margins in the medium term. Its 3W domestic sales surged in FY26, especially in the EV segment, which is gaining traction across the industry as new regulations are coming in. Growing exports exposure and depreciating INR add to profitability. Upcoming launches and growth in the premium motorcycle segment would be important factors to track. We estimate volume/realization CAGR of 12.0%/4.4% over FY26-28E, translating into revenue/EBITDA/APAT CAGR of 16.8%/18.8%/22.2%. We assign the stock ‘Accumulate’ rating with TP of INR4,100 (previous INR3,950), valuing it at P/E of 35x based on FY28E EPS, and INR87 for TVS Credit

Eicher Motors:

Royal Enfield (RE) volumes have been consistently growing in double digits with a strong product portfolio, model refreshes and investments in strengthening the brand. It is operating at peak utilization and the management has announced capacity expansion plans to meet the strong demand in sub-350cc segment. The 350cc+ segment had seen decline since GST 2.0 rate rationalization, although it remains ~10% of its total volumes. Cost savings program and higher operating leverage should partially offset a weaker mix (lower margin 350cc models) and RM costs. Success in the newly launched EV portfolio would be important to track as regulations evolve. VECV volumes have also grown in high to mid-teens, further adding to the financials. In contrast, the CV industry has seen some moderation due to geopolitical tensions. We estimate RE volume/realization CAGR of 10.1%/3.8% over FY26-28E, translating into revenue/EBITDA/APAT CAGR of 14.2%/15.8%/14.7%. We retain ‘Accumulate’ rating with TP of INR8,000 (previous INR7,580). We value RE at P/E of 32x basis FY28E core EPS and VECV at 10x FY28E EV/EBITDA multiple

Mahindra & Mahindra:

Strong SUV portfolio and premiumization have helped the company to gain traction amongst the customer segment that is more resilient to inflation, giving it more flexibility to further hike prices without hurting demand. With interesting launches, including EVs, it has been consistently driving strong volumes and improved realization. Margin contraction due to RM cost increase and higher EV penetration could be partially offset by improved scale and mix, and stronger exports. Farm volumes have been resilient with the management guiding for mid-single-digit industry growth for FY27 and improved guidance for the medium term,where M&M is the market leader. Monsoon progression will be key to track. We estimate volume/realization CAGR of 7.8%/3.5% over FY26-28E, translating into revenue/EBITDA/APAT CAGR of 12.4%/11.0%/9.9%. We retain ‘BUY’ rating with SoTP-based TP of INR3,900 (unchanged), valuing the core business at P/E of 24x FY28E EPS and its share of subsidiaries’ value.

Maruti Suzuki:

The mini and compact segment saw sustained demand on a low base, although SUV demand remains intact. It is investing heavily in capacity addition as it aims to meet the rising demand across subsegments. Its EV sales growth has been slow but steadily gaining market share, while upcoming SUV (both ICE and EV) launches are to be watched out for. Its overall market share and margins remain under pressure given high RM inflation; however, better operating leverage, sustained exports and weaker INR should aid revenue. We estimate volume/realization CAGR of 9.2%/5.9% over FY26-28E, translating into revenue/EBITDA/APAT CAGR of 15.7%/15.7%/16.5%. We retain ‘Accumulate’ rating with TP of INR15,600 (previous INR14,550), valuing it at P/E of 25x (previous 23x) FY28E EPS.

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