Q3FY26 auto sector preview: Festive demand, GST cuts to lift earnings

Festive-led demand, GST rationalisation, easing rates and operating leverage are expected to drive strong revenue and profit growth for auto OEMs and ancillaries in Q3FY26

The Indian automobile and auto ancillary sector is expected to deliver a strong set of Q3FY26 results, aided by festive-led demand, the impact of GST rationalisation on select vehicle categories, easing interest rates and improving rural sentiment. Across brokerages, revenue growth for the auto OEM and ancillaries universe is expected in the range of 18–32 per cent year-on-year, while profit after tax (PAT) growth is estimated between 15–35 per cent year-on-year, supported by volume recovery, favourable mix and operating leverage, albeit partially offset by higher input costs and discounting.

 

Passenger vehicle volumes delivered a record-breaking performance in Q3FY26, with sales hitting an all-time high of 1.27 million units, up 20.6 per cent year-on-year, making it the strongest Q3 on record and a key driver of calendar-year volumes, according to Society of Indian Automobile Manufacturers (Siam) data. Exports also scaled new highs, with PV shipments rising 11.7 per cent year-on-year to 2,25,000 units in Q3FY26, supported by steady demand across the Middle East, Africa and Latin America. Two-wheelers mirrored this strength, recording their highest-ever Q3 volumes of 5.70 million units, up 16.9 per cent year-on-year and crossing the five-million mark for the first time.

 

Kotak Institutional Equities expects OEM revenues to increase by 5 per cent year-on-year, but excluding Tata Motors, revenue growth could be 25 per cent. The brokerage said there is low single-digit improvement in average selling prices due to a favourable mix in the PV and two-wheeler segments and favourable forex, partly offset by a decline in Jaguar Land Rover’s production volumes.

 

“We expect the earnings before interest, taxes, depreciation, and amortisation (Ebitda) margin (excluding Tata Motors) to increase by 90 basis points year-on-year, led by operating leverage benefits and a richer product mix, partly offset by higher discounts and commodity headwinds. As a result, we expect Ebitda to increase 33 per cent year-on-year in Q3FY26E (excluding Tata Motors),” the analysts said.

 

JLR is expected to report a weak print, with a 41 per cent year-on-year revenue decline due to the impact of US tariffs and production challenges stemming from a cyberattack. There may also be a one-time impact on employee costs due to revisions in labour laws, which has not been factored in, the brokerage added.

 

Deven Choksey Research estimates a 9 per cent decline in Tata Motors’ PV revenues owing to JLR challenges, while Ebitda is estimated to be down 5.4 per cent year-on-year, with PAT at ₹445 crore reflecting a 17.6 per cent year-on-year drop. The analyst expects volume growth of 6 per cent, driven by GST 2.0 and the new Sierra launch.

 

“Upcoming quarters are expected to see profitability uplift from normalised JLR operations, EV and CNG penetration, and cost efficiencies,” the analyst said.

 

Maruti Suzuki India’s Ebitda is likely to increase 38 per cent year-on-year in Q3, owing to a 34 per cent rise in revenues driven by volume growth, favourable average selling prices, supportive forex movements and improved utilisation levels, Kotak Institutional Equities said.

 

Input costs, however, are likely to rise marginally on a quarter-on-quarter basis, analysts at Motilal Oswal noted. Precious metal prices are higher but are likely to be partially offset by cooling steel prices. The impact is expected to be mitigated by operating leverage benefits and moderation in discounts. Centrum analysts also cautioned about a slight decline in gross margins due to higher input costs. According to Centrum, aggregate Ebitda is expected to rise 31.7 per cent year-on-year, largely led by Maruti Suzuki India.

 

Brokerages maintain a positive outlook for growth across automotive segments. Nuvama analysts said improved affordability, a healthy product pipeline, adequate financing availability and the implementation of the Pay Commission for government employees would support strong domestic volume growth over FY25–28, with a 7 per cent compound annual growth rate (Cagr) across two-wheelers, 7 per cent for MHCVs and 5 per cent for passenger vehicles.

 

In contrast, tractor volumes are likely to grow sharply by 16 per cent in FY26, followed by moderation to 2 per cent in FY27, reflecting a high base and the expiry of Maharashtra state subsidies, the analysts forecast.

 

For two-wheelers, Kotak analysts expect Bajaj Auto’s Ebitda to increase 24 per cent year-on-year, mainly due to favourable forex and a richer product mix. Hero MotoCorp’s Ebitda margin is expected to increase by 60 basis points year-on-year in Q3, driven by operating leverage benefits, while TVS Motor’s Ebitda is likely to increase 47 per cent year-on-year due to operating leverage, richer product mix and higher PLI accruals.

 

In the commercial vehicle space, Eicher Motors’ consolidated Ebitda is expected to improve 22 per cent year-on-year due to 21 per cent year-on-year volume growth, partly offset by higher marketing and advertising spends and an inferior product and geographical mix. Kotak analysts forecast Ashok Leyland to report a 24 per cent quarter-on-quarter Ebitda rise, while Ebitda of Tata Motors’ domestic CV business is likely to rise 44 per cent quarter-on-quarter in Q3FY26.

 

As for ancillaries, Nuvama estimates revenue growth of 13 per cent year-on-year. Tyre maker Ceat’s revenue is likely to grow on the back of domestic demand, while Ebitda margins are expected to expand on lower input costs and better scale. Uno Minda’s revenue growth is likely to be supported by strong performance in seating, casting and other segments such as sensors and EV parts, as well as switches, analysts said.