Q2 auto sector preview: OEMs expected to deliver strong earnings growth

The auto sector is expected to register a modest 5% year-on-year earnings growth in Q2 FY26, building on a flat base from Q2 FY25.

In Q2 FY26, wholesale volumes saw strong growth across most segments. Two-wheelers rose 16% quarter-on-quarter (QoQ) and 11% year-on-year (YoY), and three-wheelers surged 41% QoQ (up 22% YoY). The passenger vehicles increased 5% QoQ (up 3% YoY), light commercial vehicles grew 9% QoQ (up 9% YoY), and medium & heavy commercial vehicles (MHCV) climbed 11% QoQ (up 11% YoY).

In contrast, tractor wholesale volumes fell 5% QoQ but rose 31% YoY. Analysts at HSBC Global Investment Research expect operating leverage to be positive across OEMs except M&M (tractors) on a quarterly basis.

Further, passenger vehicle (PV) retail discounts were largely flat during July and August, barring a few instances for Mahindra & Mahindra (M&M). “Inventory is broadly low now for the industry, as retail growth in Q2 FY26 was higher than wholesale dispatches,” HSBC said in a report.

“With a decent Q2 FY26 and likely a very strong Q3 FY26, sustainability of growth in Q4 FY26 will be key for stocks in the near term,” it added.

Industry experts expect auto OEMs to deliver stronger results this quarter following a subdued Q1. Two-wheelers and commercial vehicles (CVs) saw a healthy revival in volumes, while passenger vehicle (PV) demand remained muted.

Amid the healthy recovery in volumes, auto OEM firms are expected to deliver 11%-14% growth in EBITDA/PAT.

Raw material prices showed a mixed trend in Q2. Precious metals saw a double-digit increase, while aluminium and copper recorded mid-single-digit gains. In contrast, rubber prices fell sharply in double digits, and steel and lead declined in mid-single digits.

The decline in key input costs like rubber, steel, and lead is likely to ease margin pressures and improve profitability for auto ancillary firms.

Furthermore, the US dollar and the euro strengthened sequentially, while the Japanese yen weakened against the Indian rupee. This currency movement is expected to have a marginal impact on USD-denominated importers while providing some support to exporters.

September retail sales

Tata Motors and Maruti Suzuki saw a year-on-year increase in their retail sales market share last month, according to the latest passenger vehicle registration data for September. Hyundai Motor India and Toyota Kirloskar Motor, on the other hand, saw a year-on-year dip in their respective market share last month.

Tata Motors saw its market share improve to 13.75% last month as compared to the same period last year when it sold 32,586 units, accounting for 11.52% market share in the domestic passenger vehicle segment.

As per the data, Maruti Suzuki India retailed a total of 123,242 units in September, grabbing a market share of 41.17%. It had retailed 115,530 units in September 2024 with a market share of 40.83%.

Overall, passenger vehicle retail sales last month stood at 299,369 units, registering an increase of 6% as against 282,945 units in September last year.

Mahindra & Mahindra retailed 37,659 passenger vehicles last month, recording a market share of 12.58%. It sold 35,863 units in the year-ago period with a market share of 12.67%.