The automobile companies reported strong operating performance in the fourth quarter of FY26, led by cuts in the Goods & Services Tax (GST), with profitability beating estimates despite commodity headwinds, analysts said.
The OEMs reported 22% year-on-year (YoY) volume growth in Q4FY26, led by strong two-wheelers, Passenger Vehicles (PV), and Commercial Vehicles (CV) segments along with tractors - partly due to subsidy in Maharashtra.
Revenue growth driven by volumes, price hikes
According to Kotak Institutional Equities, aggregate revenue of auto OEMs, excluding Tata Motors Passenger Vehicles, grew 24.1% YoY in the March quarter, driven by more than 20% YoY increase in the tractors, LCV, two-wheelers and MHCV segments’ volumes, and teens growth in the PV and LCV segments’ volumes.
The revenue growth was also supported by price hikes across most Original Equipment Manufacturers (OEMs) to offset the impact of commodity headwinds and lower discounts across OEMs.
However, Tata Motors PV’s luxury car subsidiary, Jaguar Land Rover (JLR), saw a sharp YoY decline in volumes during the quarter due to weakening global demand and tariff-related impact.
EBITDA margin improves
At the operational front, EBITDA of the auto OEMs, excluding Tata Motors PV, grew 26.1% YoY, driven by strong performance of two wheeler OEMs, Mahindra & Mahindra (M&M) and Escorts Kubota, partly offset by Hyundai Motor India’s weak operating performance.
As a result, aggregate EBITDA margin increased 30 bps YoY to 15.7%. Tata Motors PV’s EBITDA declined 6.4% YoY, owing to multiple headwinds for the JLR business.
Profitability trends were ahead of expectations, driven by cost control measures, despite commodity headwinds.
Kotak Equities expects demand trends across most segments to remain steady in the near term, but profitability trends are likely to worsen during the first half of FY27.
Auto Sector Top Picks
Kotak Equities remains selective in the automobile sector. Its top picks in the sector are Mahindra & Mahindra and TVS Motor Company.
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