US-Iran peace deal may fuel CV sector growth: Kotak Equities upgrades Tata Motors, Ashok Leyland

The US-Iran peace deal has triggered a sharp decline in crude oil prices, raising expectations of easing domestic petrol and diesel prices. A sustained reduction in diesel prices could provide a significant boost to India’s commercial vehicle (CV) industry by improving fleet operator profitability and enhancing visibility on vehicle purchase decisions, analysts said.

According to Kotak Institutional Equities, lower fuel costs, coupled with continued government infrastructure spending, replacement demand from an aging vehicle fleet, and healthy fleet utilization levels, are expected to support underlying demand in the domestic commercial vehicle segment.

The brokerage expects growth in the domestic medium and heavy commercial vehicle (M&HCV) industry to moderate to low single digits in FY2027E after a strong FY2026, primarily due to a high base effect and the normalization of GST-led demand pull-forward.

“With a likely US-Iran peace deal, crude oil prices and diesel prices may continue their downward trend. Diesel accounts for nearly 30-50% of the total cost of ownership (TCO) for fleet operators, and lower fuel prices could bring greater certainty to fleet purchase decisions and provide a floor to demand,” Kotak Equities said.

However, the brokerage cautioned that higher input costs, including steel, tyres, and base metals, along with a high base and monsoon-related uncertainties, could limit the pace of growth in FY2027E.

Fleet operator profitability remains highly sensitive to diesel price movements. Kotak Equities estimates that fleet operators would need to raise freight rates by around 5-6% to fully offset the impact of recent increases in diesel prices.

“Since March 2026, freight rates have increased by about 2%. Fleet operators would need an additional 3-4% increase in freight rates to completely neutralize the inflationary impact,” the brokerage noted.

CV Stock Picks

Amid easing geopolitical tensions in the Middle East after the US-Iran peace deal announcement, Kotak Equities expects the M&HCV industry to maintain its growth trajectory, albeit at a slower pace.

The brokerage believes Tata Motors is well positioned to outperform industry growth, supported by its refreshed next-generation truck portfolio featuring higher power output of up to 320 horsepower and improved fuel efficiency, resulting in a better total cost of ownership for fleet operators. Additional strengths include the company's Fleet Edge connected vehicle platform, which helps reduce downtime, and its strong execution capabilities.

According to Kotak Equities, Tata Motors has gained 100-300 basis points of market share across several segments over the past few months due to these initiatives.

The brokerage has raised its FY2027-29 consolidated EBITDA estimates for Tata Motors by 1-5%, while maintaining its earnings estimates for Ashok Leyland over the same period.

Kotak Equities believes that the US-Iran peace deal removes uncertainty surrounding fuel prices and provides a supportive backdrop for commercial vehicle demand.

Following the recent correction in stock prices, the brokerage sees an attractive risk-reward profile in Tata Motors and has upgraded the stock to ‘Buy’ from ‘Add’, while raising its target price to ₹450 per share from ₹430 earlier.

It has also upgraded Ashok Leyland shares to ‘Add’ from ‘Reduce’, while maintaining an unchanged target price of ₹170 per share.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.