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Auto: Robust results, healthy medium term growth outlook, capacity expansion rules the roster!!

ICICIdirect Research 13 Feb 2026 DISCLAIMER

It was a result heavy week on the Auto side.
Volume growth across OEMs was above 20% supported by tailwinds from GST rationalization and uptick in demand sentiments.
Going forward companies indicated continued strong demand across segments and are seeing GST cut as a structural tailwind rather than a short-term boost, especially for the CV space.
Auto ancillaries like tyre players have also been seeing positive demand momentum on both OE and replacement side and therefore are in the midst of a significant capacity-expansion cycle, with leading players committing sizeable capital expenditure to capture future demand prospects and strengthen their market positioning.
Corporate mood was also buoyed by recently announced US-India and EU-India trade deals, with dark clouds of global uncertainty finally fading away.
 
Mahindra & Mahindra: Outperformance Continues, long term portfolio stock!!
M&M reported healthy Q3FY26. On standalone basis, top-line for the quarter came in at ₹38,517 crore (up ~26% YoY) with automotive segment volumes growing ~23% YoY at 3.02 lakh units and tractor sales volume at 1.49 lakh units (up ~23% YoY).
M&M leads the SUV segment with a revenue market share of 24.1% in Q3FY26. M&M also retains its market leadership in tractor space with market share as of Q3FY26 end at 44%.
Automotive segment EBIT margins improved ~30 bps QoQ at 9.5%, while Farm Equipment segment margins were healthy at 20.2% (up 50 bps QoQ).
Capacity expansion and debottlenecking remain a focus, with incremental production planned through FY27–FY28 across existing plants and new greenfield investments (committed ₹15,000 crores to expand capacity by 5 lakh units in auto segment & 1 lakh units in Tractor segment).
We continue to have a positive view on M&M and have retained a BUY rating with a target price of ₹ 4,500 (SOTP 14x FY28E standalone EV/EBITDA; 20% hold co. discount to investments, ₹616/share value accrued for its Electric PV arm).
 
Eicher Motors: margins surprise positively, announces capacity expansion!!
On the consolidated basis, total operating income for the quarter came in at ₹6,114 crore (up 23% YoY) amid healthy Royal Enfield sales volume at 3.29 lakh units (up ~21% YoY).
Margin performance on the standalone basis (Royal Enfield franchise) came above expectations at 26.6% (up 170 bps QoQ). Margins improved due to operating leverage, pricing and value engineering though commodity pressure persists.
VECV reported its best-ever Q3 with ~24% volume growth, improving margins and strong performance in trucks, parts and exports, with a positive medium-term outlook driven by infrastructure and manufacturing push
The company approved a ₹958 crore brownfield capex to expand Royal Enfield capacity to 20 lakh units from the current 14.5 lakh units mainly to meet strong 350cc demand, while overall outlook remains positive with focus on growth, profitability, brand building and long-term scale benefits.
We continue to have a positive view on Eicher Motors and have retained BUY rating with a target price of ₹ 9,100 (SOTP based on FY28; 35x PE to Royal Enfield and 25x to CV business)
 
Ashok Leyland: healthy all-round performance, replacement demand at play!!  
On a Standalone operating income for Q3FY26 came in at ₹ 11,534 crore, up ~22% YoY amidst 24% growth in volumes to ~58k units.
Share of M&HCV in total volume mix for the quarter stood at 65% up 200 bps QoQ.
EBITDA for the quarter came in at ₹ 1,535 crore with margins at 13.3%, up 120 bps QoQ.
Management believes a replacement cycle is underway given elevated fleet age (~10+ years), improving freight demand and strong order visibility from bulk buyers.
The stock however has run up quiet fast in the recent past (up 77% in last 6M), capturing much of the upsides. We therefore assign HOLD rating & value ALL at SOTP based TP of ₹225 (15x on FY28E EV/EBITDA, 2.5x P/B for long term investments
 
Tyre Makers Accelerate Capacity Expansion with Strong Capex Push
In Q3FY26, tyre manufacturers benefitted from nearly flat input costs and stronger demand across OEMs and Replacement. The companies are optimistic about demand in the medium term and therefore are committing capex for capacity expansion.
Largely gross margins (at ~40%) and EBITDA margins (~14-15%) were stable for most of the tyre platers but for MRF which reported expansion in margins.
CEAT has announced capex of about ₹1,314 crore to add roughly 35 lakh tyres, expected to be operational by H1FY28. 
Apollo Tyres is undertaking the most aggressive expansion, with planned capex of about ₹5,810 crore aimed at adding nearly 50 lakh units by the end of FY29
JK Tyres has announced capex of ₹1,130 crore to expand capacity by about 13.3 lakh units, targeted for completion by Q2FY28
Looking at the demand scenario, GST reforms, & focus on cash flow generation, our top pick from the tyre space is Apollo tyres (APOTYR), wherein we have a BUY rating on the stock with a target price of ₹ 600, valuing the company at 8x on avg. of FY27-28E EV/EBITDA.

View our research recommendation on CEAT Ltd Also explore more on Research page

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