Amid a sharp recovery in sales, a richer product mix, and stable commodity inflation, analysts expect a strong performance from auto OEMs in the December quarter, projecting most companies to post double-digit net profit growth.

Following GST rationalisation, demand has picked up across segments and appears to have remained intact even after the festive season. More importantly, demand for entry-level vehicles across both two-wheelers (2Ws) and passenger vehicles (PVs) has seen a pickup, making these models more affordable for budget-conscious buyers.

Further, wholesale was strong in December as companies continued to push demand with healthy discounts to sustain growth momentum, helping the sector close the quarter with robust sales growth.

Brokerage sees strong earnings momentum for auto OEMs

Motilal Oswal expects its auto OEM coverage universe (excluding JLR) to post 27% YoY growth in net profit, noting that all companies (excluding JLR) are likely to clock healthy double-digit earnings growth, with the lowest growth seen at 13% for Hyundai Motor and the highest at 62% for TVS Motor Company.

The brokerage noted that while input costs may rise slightly on a QoQ basis due to higher precious metal prices, this impact is expected to be partially offset by easing steel prices, operating leverage benefits, and moderation in discounts.

It estimates that the aggregate EBITDA margin for its OEM coverage universe is likely to rise marginally by 30 basis points YoY to 13.5%.

“The key is that none of the auto OEMs are expected to see any meaningful margin decline on a YoY basis. As a result, we expect OEM companies (ex-JLR) under our coverage to record a strong 27% growth each in EBITDA and PAT,” the brokerage said.

Axis Direct projects revenue, EBITDA, and PAT for its OEM coverage universe to grow by 26%, 30%, and 28% YoY, respectively, driven by GST cuts, stable commodity inflation, and favourable regulatory norms.

The brokerage expects YoY EBITDA margins to improve due to a richer product mix (higher exports) and price hikes taken over the past year, which it expects to be partly offset by higher discounts and advertisement expenses.

As a result, Axis estimates its coverage universe to report stable to slightly improving margin trends YoY on an aggregate basis, supported by a richer product mix and price hikes implemented over the past year.

On a sequential basis, it estimates that revenue, EBITDA, and PAT growth for Q3FY26 are expected to rise by 11.5%, 16.0%, and 17.3%, respectively, along with an expansion of over 56 basis points in EBITDA margin.

Meanwhile, Choice Institutional Equities also expects a strong performance, with OEMs under its coverage (excluding Tata Motors) projected to deliver aggregate revenue, EBITDA, and PAT growth of 25.4%, 23.6%, and 24.1% YoY, respectively.

The growth is driven by a surge in demand, supported by GST rate changes and post-festive season momentum.

Brokerages’ top auto picks

Brokerages, in their review reports, also shared their stock preferences. Axis Securities remains bullish on Maruti Suzuki, Eicher Motors, and Bajaj Auto.

Motilal Oswal has also favoured Maruti Suzuki as its top pick among auto OEMs, citing the company’s new launches and strong export momentum, which are expected to drive healthy earnings growth. It has also preferred Mahindra & Mahindra, supported by an uptrend in tractor demand and robust growth in the utility vehicle segment.

Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.