Whalesbook
Auto Sector Poised for Growth Post-GST 2.0
Brokerage firm Elara Capital has maintained its optimistic stance on the automotive sector, naming Maruti Suzuki, Mahindra and Mahindra, Eicher Motors, and TVS Motor Company as its top recommendations for 2026. The firm asserts that robust growth momentum continues unabated.
Elara noted a significant uptick in growth across all automotive segments after the implementation of GST 2.0 reforms. This led to an acceleration in retail sales, with passenger vehicles and two-wheelers seeing growth rates climb to 18% and 17% respectively between September and December. This marks a substantial increase from the 4% and 3% recorded in the preceding April-August period.
Commercial Vehicles and Tractors Show Sharp Gains
The positive trend extends to commercial vehicles and tractors. Medium and heavy commercial vehicles posted 11% growth, light commercial vehicles saw 19% expansion, and tractors achieved 23.2% growth in the September-December quarter. These figures contrast sharply with the more modest 2%, 2%, and 11% growth respectively in the April-August period.
Elevated FY26 Estimates
In light of this accelerated performance, Elara Capital has revised its growth projections upwards for the fiscal year 2026. Passenger vehicles are now expected to grow by 8%, two-wheelers by 9%, medium and heavy commercial vehicles by 9%, light commercial vehicles by 11%, and tractors by a notable 19%.
Earnings Outlook Brightens
The brokerage has also upgraded its earnings estimates for auto original equipment manufacturers (OEMs) for the FY26 to FY28 period by 1% to 21%, excluding TMPV. This reflects increased confidence in the sector's profitability going forward.
Royal Enfield Momentum
Elara highlighted the sustained strong retail momentum for Royal Enfield, a brand under Eicher Motors. Market share gains are anticipated to continue through FY26 to FY28. The recent GST reduction has notably revived volumes for the Classic 350 model, which had previously lagged.
Prior to the GST cut, Royal Enfield reported robust volume growth of 18% year-on-year and EBITDA growth of 8% year-on-year between Q3FY25 and Q1FY26. For the second half of FY26, Elara forecasts EBITDA growth to reach 21%, outpacing volume growth projected at 20%. This EBITDA growth outperformance over volume growth is expected to persist into FY27 and FY28.