Bajaj Auto and TVS Motor shares rose by over 2% following a positive outlook from Kotak Institutional Equities for the June quarter. While the brokerage expects strong growth for two-wheeler manufacturers, it has cautioned about potential margin pressure for tyre companies and certain passenger vehicle makers due to rising commodity costs.
Shares of major Indian two-wheeler manufacturers saw positive movement on the National Stock Exchange this Monday after a sectoral report highlighted favorable earnings prospects for the first quarter of fiscal year 2027. Bajaj Auto shares climbed 2.07% to reach ₹9,988, while TVS Motor saw a 2.06% increase, closing at ₹3,702.10. The market reaction followed a preview from Kotak Institutional Equities, which identified two-wheeler original equipment manufacturers (OEMs) and diversified auto ancillary companies as likely outperformers in the upcoming results season.
Earnings Outlook and Growth Drivers
The brokerage anticipates a broad 17% year-on-year revenue growth for the auto companies under its coverage. A key driver for this sentiment is the expected jump in profitability for two-wheeler leaders. Bajaj Auto’s earnings before interest, tax, depreciation, and amortization (EBITDA) is projected to grow by 40% compared to the same quarter last year, while TVS Motor is forecasted to see a 32% rise in EBITDA. Other players like Eicher Motors and Maruti Suzuki are also expected to report growth, though at more moderate rates of 27% and 7% respectively, reflecting a mixed trend across different vehicle segments.
Sector Challenges and Margin Risks
While the two-wheeler segment shows promise, the report points to significant pressure for other areas of the auto industry. Tyre manufacturers such as Apollo Tyres, CEAT, and MRF are facing potential margin strain due to the elevated cost of natural rubber and crude-oil-linked materials. Investors may track whether these companies can pass on costs or if profitability will remain subdued in the immediate term. Similarly, the brokerage flagged risks for specific passenger vehicle manufacturers, projecting a 31% year-on-year decline in EBITDA for Hyundai Motor India. Jaguar Land Rover is also expected to face a 32% drop in EBITDA, influenced by rising raw material expenses, operating deleverage, and unfavorable foreign exchange movements.
Strategic Monitorables for Investors
Looking ahead, the recovery in profit margins will be a key factor to watch across the industry. The brokerage suggests that relief in margins may only begin from the September quarter, contingent on a moderation in rubber and crude oil prices. As the earnings season progresses, investors may focus on management commentary regarding demand sustainability in rural markets for two-wheelers, as well as the impact of commodity price volatility on the operating margins of tyre and passenger vehicle companies. Detailed results will provide a clearer picture of whether these projections align with actual sales performance and cost-management efforts.