Motilal Oswal says Q2 saw demand revival in commercial vehicles and two-wheelers, PV remains subdued ahead of India Auto Inc.’s results

After a subdued start to the year, OEMs in the automobile industry have posted a 12.9% year-on-year growth in the second quarter of the fiscal year, according to a note by Motilal Oswal. Their analysis shows that two-wheelers and commercial vehicles experienced robust growth in demand, posting 15% and 12% growth in volumes, respectively, whereas passenger vehicles logged a 3% year-on-year growth.

Among the listed two-wheeler OEMs, except for Bajaj Auto —which registered a 6% growth—the other three listed players saw healthy double-digit growth. Eicher Motors -owned Royal Enfield registered a 43% growth, TVS registered a 23% growth, and Hero MotoCorp registered an 11% growth.

In passenger vehicles, Tata Motors outperformed peers with 11% year-on-year growth. The growth in Mahindra and Mahindra’s utility vehicles was slower at 7%, as the company intentionally reduced dispatches to dealers due to the lack of clarity on cess compensation, according to Motilal Oswal. Moreover, while Maruti Suzuki saw a modest 2% year-over-year growth, Hyundai Motor India’s volumes declined 1% year-over-year in the second quarter. Discounts have increased sequentially in the second quarter for passenger vehicles, according to channel checks done by the brokerage firm.

In the commercial vehicles segment, Tata Motors was the key growth driver with 13% growth, while Ashok Leyland and Volvo Eicher Commercial Vehicles saw single-digit growth at 8% and 5% respectively. Meanwhile, the tractor segment posted the highest growth in the auto sector, as the two listed companies delivered a robust 31% year-on-year growth in the second quarter.

On the back of a healthy recovery in volumes, auto OEM companies, except for Tata Motors, are expected to deliver an Ebitda growth of 11% from the year-ago period, and a 13% growth in PAT, according to Motilal Oswal. The aggregate Ebitda margin for auto OEMs is estimated to rise marginally by 20 basis points year-on-year to 13.2%.

In the second quarter, major margin gains are expected for TVS (130 basis points), Tata Motors Commercial Vehicles (190 basis points), Volvo Eicher Commercial Vehicles (160 basis points), and Escorts Kubota (330 basis points). On the other hand, Maruti Suzuki is expected to experience a margin contraction of 150 basis points year-over-year, and Tata Motors Passenger Vehicles Limited is expected to see a margin contraction of 120 basis points. For auto ancillaries, Motilal Oswal expects OEMs to post about 9% growth in revenue and a much slower 3% growth in both Ebitda and PAT growth.

Excluding Tata Motors, Motilal Oswal expects auto OEMs to post 15% year-on-year earnings growth. The brokerage firm also highlights that, excluding Tata Motors, all other listed OEMs are expected to post positive earnings growth. TVS—with 49% growth—Eicher Motors—with 31% growth—Escorts with 22% growth—and Hero MotoCorp with 20% growth—are expected to outperform their OEM peers in the second quarter.

Tata Motors, according to Motilal Oswal, is the only OEM expected to post earnings decline in the second quarter. Meanwhile, Maruti Suzuki (8%), Hyundai Motor (8%), Bajaj Auto (9%) and Ashok Leyland (+7%) are expected to post single-digit growth. 

The ancillary companies covered by Motilal should deliver modest 3% year-over-year earnings growth in PAT in the second quarter. The key earnings growth drivers include Apollo Tyres (23% growth), Craftsman Automation (40% growth), and Endurance (21% growth). Major laggards are expected to be Sona Comstar (11% decline), Amara Raja (14% decline), Bharat Forge (13% decline) and Samvardhana Motherson (15% decline).

The GST Council has provided a much-needed booster shot to the auto sector by reducing the tax rates on the majority of auto segments, reads the note from Motilal Oswal. “These timely rate cuts, coupled with other sectoral tailwinds like normal monsoon boosting rural sentiment, a near-100 basis points reduction in interest rates in CY25 and income tax benefits, are expected to revive demand for the auto sector from this festive season.”

The ongoing festive season, according to Motilal Oswal, has started on a strong note across segments, with most OEMs reporting a robust revival in demand following the GST rate cuts and positive rural sentiment. Notably, demand for entry-level vehicles has recovered from its lows, albeit with high discounts. 

Demand is likely to remain strong after the festive season, as the marriage season is expected to start in November 2025. “Once demand is restored, we expect discounts to trend lower gradually. On the back of a pickup in demand and a much better earnings growth, we expect the sector to get re-rated,” the note adds.