Automobiles – Jul-Sep’26 Earnings Preview – Elevated RM prices to Cap Earnings Growth
Published on 08 Oct 2026
Q2FY27 dispatches were driven by strong retail demand and festive stocking even as the industry faced persistent commodity costs, disruption in logistics and chip supply chain issues. EV penetration kept reaching new highs led by new launches and higher fuel costs. This combined with price hikes, weaker INR helping OEMs with diversified exports, we expect revenue growth of our coverage in the 20s. Price increases still lag RM inflation seen in this CY, and any further hikes will erase all benefits received by consumers from GST 2.0 rate rationalization. Gross margins for most OEs are expected to be impacted as the commodity costs are passed with a lag of 1-2 quarters along with hedging in place. We expect margins to decline by 270-370bps for PVs and change by +50 to -180bps YoY for 2Ws. QoQ margins are expected to be largely flattish (except MM and EIM). Given a higher base in H2 and higher prices we expect volumes to moderate going ahead, with margins impacted by lower operating leverage partially offset by cooling off in some commodities (or a slower increase in costs). Top picks amongst our coverage is M&M. We roll forward our valuation multiples to Sep’28 EPS from Mar’28.
