Two-wheelers and passenger vehicles both recorded 17% growth, while commercial vehicles rose 22% and tractors advanced 21%.
Importantly, retail momentum in November and December remained firm, indicating that festive-led buying was not a one-off spike but part of a broader recovery trend.
Strong volume recovery is translating into robust financial performance. Sector revenues are expected to grow around 24% year-on-year, while operating profit and net profit are projected to rise by about 27% each.
Input costs have edged up sequentially due to higher precious metal prices, but this has been partly offset by softer steel prices, moderation in discounts—particularly in passenger vehicles—and operating leverage benefits.
Aggregate EBITDA margins are estimated to improve marginally by around 30 basis points year-on-year to nearly 13.5%, with no major players expected to see a meaningful margin contraction.
Ancillary suppliers are also benefiting from the recovery in original equipment demand. Revenues in this segment are estimated to grow by roughly 14%, with EBITDA and profit expected to rise by about 17% and 20%, respectively.Tyre manufacturers are seeing margin expansion on the back of lower raw material costs, while select component manufacturers are reporting sharp margin recovery from a low base, even as a few niche players continue to face pressure.
Several structural and near-term trends are reinforcing the outlook. Entry-level vehicles in both two-wheelers and passenger vehicles are witnessing a visible pickup in demand following recent tax rationalisation measures.
Strong wholesales and healthy retail sales have kept inventories lean, which should support volume momentum into the next quarter. As demand normalises, discount intensity—especially in passenger vehicles—is expected to gradually ease, aiding profitability.
From a medium-term perspective, the sector offers a compelling earnings visibility driven by broad-based demand recovery, improving capacity utilisation, disciplined inventory management, and relatively stable input costs.
Moderate upward revisions in earnings expectations across much of the sector further underline improving confidence.
While pockets of margin volatility remain among select suppliers, the overall industry trajectory points to sustained growth, making the auto sector an attractive play on domestic consumption and cyclical recovery.
Mahindra & Mahindra: Target Rs 4521
M&M targets strong long-term growth, aiming for 8x expansion in SUVs and Light Commercial Vehicles and 3x growth in the Farm segment over FY20–30 (implying a 12% revenue CAGR), supported by upcoming launches like XEV 9S, NU-IQ platform rollout from 2027, and a 1.6x volume increase in the sub-3.5-tonne segment. Its growth businesses are scaling rapidly, including Last Mile Mobility targeting 6x revenue growth, Trucks and Bus aiming for a top-three ILCV position, Aerostructures pursuing a global top-ten ranking, Mahindra Holidays targeting 3x keys, 3x revenue and 4x PAT growth, and Lifespace planning over 14x sales growth this decade. Management has indicated that it would look to enter one new segment next year, provided it fits in MM’s guiding principles of delivering 18% RoE on a sustainable basis in the long run. Considering these long-term growth drivers, we maintain our BUY rating on M&M.
TVS Motors: Target Rs 4523
TVS Motor posted its highest-ever quarterly sales of 1.5m units (+25% YoY) in 3Q, outperforming industry. Backed by GST rate cuts, management expects 2W demand momentum to sustain in 2H. Festive season retail volumes rose 32% YoY, outpacing industry growth of 24%. Exports grew 31% YoY with gains across Africa & LATAM, while domestic market share improved across 2W & EV segments, supporting margin expansion. EVs remain a key growth pillar, with sales up 77% YoY in Dec’25. TVS has expanded its EV dealership network to 900+ locations, plans 1,400 by FY26, and investing in battery localization, swappable technology, charging infrastructure. We expect revenue/EBITDA/PAT CAGR of 21%/25%/29% over FY25–28E. Consistent market share gains and gradual improvement in margins, have driven healthy returns over the years. We maintain BUY on TVS Motors.
(The author is Head of Research – Wealth Management, Motilal Oswal Financial Services)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)