Auto and tyre stocks: Sales are booming, but costs are biting. Motilal Oswal's 13 Buy, Sell and Neutral calls

According to Motilal Oswal Financial Services (MOFSL) in its India Strategy 2QFY27 Preview, vehicle demand among the makers it covers grew 19.1% over last year in the July to September quarter. Two-wheelers rose 19%, passenger vehicles 25% and commercial vehicles 37%. Tractors fell 4%, which MOFSL blames on a high base from last year and a patchy monsoon. MOFSL points to strong retail registrations on the Vahan portal as proof that buying was healthy. Within commercial vehicles, TMCV led with 42% growth, followed by VECV at 31% and Ashok Leyland at 28%. In passenger vehicles, TMPV and Maruti beat the industry, while Hyundai lagged.

MOFSL expects auto makers' revenue to grow 31%, but profit margins to stay flat at 9.8% because prices of key raw materials have been rising since late 2025. Price hikes help, but MOFSL says they will not fully cover such a sharp rise. Total profit for the group is expected to jump about 65%, but this comes mostly from JLR turning from a loss last year to a profit. Leave out TMPV and growth is only about 4%. Auto parts makers are expected to grow revenue about 21% but profit only about 4%, and MOFSL says mass-market tyre makers will see the sharpest margin squeeze. Its top auto picks are MSIL, TVSL and MM, and its top parts picks are TENNIND, SPR and HFL (tickers as given in the report).

MOFSL rates Bajaj Auto a Buy with a target price of ₹12,162 against a current price of ₹10,070, which implies about 21% upside. Total volumes grew 20%, led by a 41% jump in exports, and exports now make up 50% of sales, up from 43% a year ago. MOFSL expects realisations to improve about 5% and margins to hold steady at 20.9%, because strong exports, better three-wheeler sales and operating leverage should offset higher commodity costs. It forecasts earnings growth of about 27.9%.

TVS Motor is rated Buy with a target of ₹4,817 against ₹4,021, about 20% upside. MOFSL says TVS beat its peers with 27% volume growth, helped by scooters up 23%, motorcycles up 24% and three-wheelers up 47%. Exports rose 35%. Higher export and electric vehicle mix should lift average selling prices about 8%, and price hikes should largely cover raw material inflation. MOFSL expects earnings to grow 46%, the strongest among large vehicle makers in the report, and has nudged its FY27 and FY28 earnings estimates up by 4% and 5%.

Hero MotoCorp is a Buy with a ₹6,150 target against ₹5,173, about 19% upside. Volumes grew about 11% as last year's base normalised, but MOFSL expects margins to slip 40 basis points from the previous quarter to 12.9% because of a higher electric vehicle mix, only small price hikes and commodity costs. Profit is expected to grow just 2.4%. Eicher Motors is Neutral with a ₹7,096 target against ₹6,950, only 2% upside. Royal Enfield volumes grew 16% and margins should hold near 24%, with profit up about 14%, but MOFSL sees little room for the price to rise further.

Maruti is rated Buy with a target of ₹14,404 against ₹11,400, about 26% upside, and is one of MOFSL's top picks. Volumes grew about 27% on strong demand and new capacity, and revenue is expected to rise about 28%. Yet MOFSL expects profit to fall about 19% because margins are lower, and it has cut its FY27 and FY28 earnings estimates by 5% and 16%. That makes this a call on recovery and demand, not on this quarter's earnings. Exports share also dropped 250 basis points from the previous quarter to 16.2%.

Hyundai is rated Buy with a ₹2,334 target against ₹2,025, about 15% upside. Volumes grew about 15% but exports fell 7%, and MOFSL expects profit to decline about 22%. (The report's Hyundai section says "4Q", which looks like a typo for 2Q.) Tata Motors PV, or TMPV, is the only major vehicle maker with a Sell: its ₹252 target is 10% below the ₹280 price. India passenger vehicle sales grew 48% on new launches like the Sierra and Punch EV, but margins are expected to shrink 160 basis points. At JLR, revenue should rise about 27%, yet MOFSL expects margins of 6.3%, down 180 basis points from the prior quarter, and TMPV profit about 50% lower than the previous quarter.

M&M gets a Buy with a ₹3,750 target against ₹2,851, the highest upside in the report at about 32%. Utility vehicles grew 19%, while tractors fell 5.6% over a high base. MOFSL expects auto margins to hold at 7.1% but tractor margins to drop 250 basis points to 16% because of higher steel and rubber costs, leaving overall earnings flat. Escorts is Neutral with a ₹2,640 target, slightly below its ₹2,665 price. Tractor volumes were flat, revenue should rise about 12%, margins should fall 120 basis points to 10%, and profit should dip 2.4%.

Tata Motors CV, or TMCV, is Neutral with a ₹422 target against ₹415, only 2% upside. India commercial vehicle volumes grew 43%, with light vehicles up 53.1%, and earnings are expected to rise about 26%. TMCV has taken a net price hike of 2.5% since July, but MOFSL still sees margins falling 120 basis points to 10.5%. Ashok Leyland is a Buy with a ₹180 target against ₹151, about 19% upside. Volumes grew about 32%, ahead of the industry. A 1% price hike helps, but margins are expected to fall 90 basis points to 9.2%, so earnings growth is just 2.1%.

Apollo Tyres is a Buy with a ₹472 target against ₹405, about 16% upside. MOFSL expects Indian revenue to grow 17% on healthy demand, but consolidated margins are forecast to fall 330 basis points to 11.6%. Demand in Europe is weak, though the weaker rupee helps. Balkrishna Industries is Neutral with a ₹1,979 target, 5% below its ₹2,082 price. Volumes should grow 22% and revenue 34.2%, but margins are expected to drop 400 basis points to 17.5% because of higher input and freight costs and spending on new segments. MOFSL has cut its FY27 earnings estimate by 17%.

CEAT is a Buy with a ₹3,820 target against ₹3,287, about 16% upside, even though MOFSL expects profit to fall about 69%. Margins are forecast to drop 510 basis points on raw material pressure, and demand may have weakened late in the quarter after repeated price hikes. The Buy rating suggests MOFSL sees these costs as temporary. It has also cut its FY27 earnings estimate by 32%. MRF is rated Sell with a ₹1,06,123 target, 14% below its ₹1,23,045 price. Revenue is expected to grow 12% and margin to improve 40 basis points from the previous quarter to 11.8%, but MOFSL sees the stock as already priced too high.

MOFSL's calls in this report: Buy on Bajaj Auto, Hero MotoCorp, TVS Motor, Maruti Suzuki, Hyundai, M&M, Ashok Leyland, Apollo Tyres and CEAT. Neutral on Eicher, Escorts, Tata Motors CV and Balkrishna Industries. Sell on Tata Motors PV and MRF. Three patterns stand out. Exporters like Bajaj and TVS are best protected from cost pressure. Many Buy-rated companies still face falling profits, so the ratings rest on valuation and recovery more than on this quarter. And almost every earnings estimate was trimmed. These are one brokerage's views and can be wrong. This is general information, not personal financial advice, so consider speaking to a registered adviser before investing.

Source: Motilal Oswal Financial Services, India Strategy 2QFY27 Preview (automobiles and tyres section). Prices and targets are as quoted in the report and will have changed since.