Auto Sector Q4 Results Review: Revenue Gains Boosted by Volume and Pricing Strategies, Profit Margins Exceed Expectations
Auto Companies Report Strong Q4 FY26 Performance
The automobile sector reported robust operating performance in the fourth quarter of Fiscal Year 26 (FY26), driven by cuts in the Goods & Services Tax (GST). Despite commodity headwinds, profitability exceeded estimates, according to analysts.
Key Highlights
| Segment | Q4 FY26 Volume Growth (YoY) |
|---|---|
| Two-Wheelers | 22% |
| Passenger Vehicles (PV) | 22% |
| Commercial Vehicles (CV) | 22% |
| Tractors | 22% (partly due to subsidy in Maharashtra) |
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The Original Equipment Manufacturers (OEMs) reported a 22% year-on-year (YoY) volume growth in Q4 FY26, led by strong performance in the two-wheelers, passenger vehicles, and commercial vehicles segments, along with tractors. Revenue growth was driven by volumes and price hikes, with aggregate revenue of auto OEMs, excluding Tata Motors Passenger Vehicles, growing 24.1% YoY in the March quarter.
The revenue growth was supported by price hikes across most OEMs to offset the impact of commodity headwinds and lower discounts across OEMs. However, Tata Motors PV's luxury car subsidiary, Jaguar Land Rover (JLR), saw a sharp YoY decline in volumes during the quarter due to weakening global demand and tariff-related impact.
Operational Performance
At the operational front, EBITDA of the auto OEMs, excluding Tata Motors PV, grew 26.1% YoY, driven by strong performance of two-wheeler OEMs, Mahindra & Mahindra (M&M) and Escorts Kubota, partly offset by Hyundai Motor India's weak operating performance. As a result, aggregate EBITDA margin increased 30 basis points (bps) YoY to 15.7%. Tata Motors PV's EBITDA declined 6.4% YoY, owing to multiple headwinds for the JLR business.
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Profitability Trends
Profitability trends were ahead of expectations, driven by cost control measures, despite commodity headwinds. Kotak Equities expects demand trends across most segments to remain steady in the near term, but profitability trends are likely to worsen during the first half of FY27.
Top Picks
Kotak Equities remains selective in the automobile sector, with top picks including Mahindra & Mahindra and TVS Motor Company.
Investor Takeaway
Investors should expect continued revenue growth in the auto sector driven by volume and pricing strategies.
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