Auto Stocks Surge as Kotak Backs Bajaj, TVS: Q1 Earnings Preview Points to Strong Performance for 2W Players

Auto Stocks Surge as Kotak Backs Bajaj, TVS: Q1 Earnings Preview Points to Strong Performance for 2W Players​

Shares across the automobile sector traded higher on Monday after Kotak Institutional Equities released a detailed preview of the upcoming earnings season. The report highlighted significant opportunities within two-wheeler manufacturers and diversified auto ancillary companies.

Bajaj Auto saw shares climb 2.07% to Rs 9,988 on the NSE. TVS Motor gained 2.06%, reaching Rs 3,702.10. Apollo Tyres advanced 2.01% to Rs 457.50, while Ashok Leyland rose 1.70% to Rs 167.14.

The bullish trend was also seen in CEAT, which added 0.97% to Rs 3,836.20, and Maruti Suzuki, which rose 0.27% at Rs 14,405. These movements reflect the market's positive reception to Kotak's sectoral outlook.

Sectoral Mixed Bag Expected for Auto Stocks in Q1FY27​

Kotak maintains a view of a mixed quarter for the broader auto sector during the first quarter of fiscal year 27 (Q1FY27). The brokerage notes that while two-wheeler original equipment manufacturers (OEMs) and diversified auto ancillary companies are poised to perform strongly, other segments may face headwinds.

Specific concerns were raised regarding Hyundai Motor India and Tata Motors. Furthermore, tyre companies are expected to deal with pressure due to rising commodity costs, as outlined in the institutional preview.

Kotak projects that revenues across their covered auto stocks will increase by 17% year-on-year (yoy) during Q1FY27. This growth projection highlights the uneven performance anticipated across different subsectors of the industry.

Strong Performance Predicted for Two-Wheeler and Component Players​

The report provided bullish expectations for key players in the two-wheeler and component manufacturing segments. Kotak expects Bajaj Auto's EBITDA to rise by 40% year-on-year. TVS Motor is projected to see a 32% increase in its EBITDA.

Other companies with strong outlook include Eicher Motors, expected to grow EBITDA by 27%. Maruti Suzuki’s EBITDA is also predicted to increase by 7%. Mahindra & Mahindra is forecast for 7% EBITDA growth, supported by robust automotive and tractor volumes.

Challenges Ahead for Hyundai and Tyre Manufacturers​

In contrast to the positivity seen in the two-wheeler segment, Kotak anticipates challenges for certain large players. Hyundai Motor India is expected to report a significant 31% year-on-year decline in EBITDA.

Jaguar Land Rover's outlook is also cautioned by the brokerage, with its EBITDA expected to fall 32%. This projected slump is attributed to operating deleverage, raw material headwinds, and unfavorable foreign exchange movements.

Input Cost Pressures on Tyre Companies​

Among component makers, Kotak expects firms such as Bharat Forge, Endurance Technologies, Uno Minda, and Sona Comstar to post healthy growth. These are the beneficiaries of a diversified auto sector trend.

Tyre manufacturers, specifically Apollo Tyres, CEAT, and MRF, are expected to face margin pressure. This is due to elevated costs linked to rubber and crude inputs, according to the analysts' assessment.

Margin Improvement Hinges on Global Commodity Trends​

Kotak added a note of optimism regarding future margins for the tyre industry. The brokerage indicated that easing crude oil prices and softer rubber prices towards the end of June are anticipated to help improve margins sequentially starting from the September quarter onward.