SUV and EV Demand Drives Sales, But Faces Cost Pressures
Mahindra & Mahindra (M&M) reported a 21% year-on-year increase in total auto sales for Q4 FY26, reaching 301,455 units. This growth was driven by its SUV lineup, which jumped 23.3% to 183,800 units, led by models like the XUV7XO and Thar. Tata Motors Passenger Vehicles also showed strong sales, with total vehicle sales up 37% year-on-year to 201,368 units. Its electric vehicle (EV) sales climbed 69% to 27,000 units, alongside new petrol variants of Harrier and Safari. Hyundai Motor India posted its highest quarterly domestic sales at 166,578 units, an 8.5% rise, supported by the Verna and Exter models. Overall sales grew 8.7% to 208,275 units, boosted by a 9.4% increase in exports. Maruti Suzuki India's total volumes rose 11.8% to 676,209 units, primarily driven by a 61.2% surge in exports. Domestic small car sales, however, declined 4%, suggesting caution among middle-class buyers.
Rising Costs Squeeze Auto Sector Margins
Despite the sales growth, the automotive sector faces significant pressure from rising raw material costs. Aluminium prices on the LME increased about 20% year-on-year to $3,200 per tonne in Q4 FY26, while steel prices rose nearly 10%. To combat this, Maruti Suzuki and Hyundai Motor India plan price increases of up to 2% starting April 2026, following earlier hikes in January. This cost pressure has already hurt profits. Maruti Suzuki's operating profit margin dropped 170 basis points year-on-year to 11% in Q3 FY26. M&M's operating profit margin, however, remained stable at 14.7% in the same quarter. Analysts expect input cost inflation for commodities to remain a key concern through FY26-27, potentially reducing margins further.
Global Risks and Slower Growth Ahead
Global geopolitical tensions, including the Iran-USA/Israel conflict, have created consumer uncertainty, potentially slowing demand for large discretionary purchases like vehicles. This aligns with forecasts for slower auto sector growth in FY2026-27, with overall volume expected to rise only 3-6% after a strong previous year. Utility vehicle (UV) and multi-purpose vehicle (MPV) segments continue to dominate, making up over 65% of industry sales in FY25, a significant shift from earlier years.
Stock Performance Diverges Amid Mixed Outlooks
Investor sentiment reflected these differing performance factors and underlying risks. M&M's stock rose 2.5% to ₹3,029, with a market capitalization around ₹3.77 trillion. Tata Motors Passenger Vehicles gained 2.4% to ₹303.4, while its parent, Tata Motors Ltd., had a market cap of about ₹1.46 trillion as of March 2026. Maruti Suzuki India also rose 1.6% to ₹12,500, with a market cap of roughly ₹3.87 trillion. In contrast, Hyundai Motor India fell 3.2% to ₹1,720.5, despite reporting record domestic sales. Hyundai's stock movement seems to reflect concerns about slower growth and execution risks from its new product plans, even though some analysts maintain a 'Buy' rating with price targets suggesting significant upside. Tata Motors Passenger Vehicles trades at a P/E ratio of 18.6, lower than M&M's 21.77-26.33, Maruti Suzuki's 25.9-26.7, and Hyundai's 23.9-27.58 range. This lower valuation for Tata Motors likely reflects investor hopes for a turnaround in its UK operations.
JLR Challenges and Tariff Relief Bring Certainty
Jaguar Land Rover (JLR), a key part of Tata Motors, remains under scrutiny. JLR's Q4 FY25 wholesale volumes rose 6.7% year-on-year to 111,413 units, though performance was impacted by factors like a cyber incident in December 2025. JLR had temporarily halted shipments to the US in April 2025 due to tariffs. However, a US-UK trade deal announced in May 2025, which reduced tariffs on UK auto exports to the US, has added certainty for the sector. Tata Motors group ended FY25 with a net positive auto cash position of ₹1,000 crore.
Analysts Offer Mixed Views on Auto Sector Future
Analysts offer mixed views. ICICI Securities initiated coverage on Hyundai Motor India with a 'Buy' rating and a price target of ₹2,150, citing its strong new product plans. However, other reports suggest a more cautious outlook, with some analysts recommending 'sell or reduce' ratings for Hyundai Motor India due to high valuations and revised downward revenue estimates. Maruti Suzuki has a 'Hold' rating with a price target of ₹11,710. For the overall sector, projections indicate modest domestic sales growth of 3-4% for FY26, along with strong export growth of up to 20%. EVs are expected to contribute notably, though from a low base. Successful new product launches and effective cost management will be key to managing the expected slowdown and competition in the coming fiscal years.