NewsStocksKotak Stays Cautious On Auto Sector Despite CV Growth, Upgrades Ashok Leyland And Tata Motors TargetsKotak Stays Cautious On Auto Sector Despite CV Growth, Upgrades Ashok Leyland And Tata Motors Targets
Kotak Institutional Equities has maintained a cautious outlook on the Automobiles and Components sector, despite raising FY26 volume and earnings estimates. The brokerage expects strong M&HCV truck demand through H2 FY26, forecasting 8% YoY growth. LCV segment is predicted to outperform M&HCVs with 7-8% CAGR over FY25-28. Bus segment is expected to grow at 6.50% CAGR. Target prices for Ashok Leyland and Tata Motors CV have been raised to ₹165 and ₹425 respectively, while maintaining overall cautious ratings.
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Kotak Institutional Equities has maintained a cautious stance on the Automobiles and Components sector despite near-term trends in commercial vehicles continuing to strengthen. While the brokerage has raised its volume and earnings assumptions for FY26 based on improving demand indicators, it has largely left the medium-term outlook unchanged.
Rating Updates and Target Price Revisions
The brokerage has made selective adjustments to its coverage while maintaining overall cautious ratings:
| Company | Rating | New Target Price | Previous Target | Change |
|---|---|---|---|---|
| Ashok Leyland | Reduce | ₹165 | ₹140 | ₹25 |
| Tata Motors CV | Add | ₹425 | ₹350 | ₹75 |
Strong FY26 Outlook For M&HCV Trucks
Kotak expects medium and heavy commercial vehicle (M&HCV) truck demand to remain strong through the second half of FY26, driven by multiple factors. E-commerce-led freight movement and steady infrastructure spending are providing the primary momentum for the segment.
Demand is being supported by a sharp pickup in intermediate commercial vehicles, haulage trucks and multi-axle vehicles, along with a recovery in tipper demand aided by seasonal construction and mining activity. Improving fleet utilisation and stable freight rates are also contributing to the positive momentum.
| Parameter | FY26 Estimate | Long-term Outlook |
|---|---|---|
| M&HCV Truck Volume Growth | 8% YoY | 4-5% CAGR (FY26-28) |
| Growth Trajectory | Strong through H2 FY26 | Moderate thereafter |
Bus Segment Benefits From Affordability Improvements
The M&HCV bus segment is expected to show steady growth, with Kotak forecasting 6.50% CAGR over FY25-28. This growth is supported by lower acquisition costs following GST cuts, particularly benefiting internal combustion engine buses. While electrification remains the long-term structural trend, improved affordability is likely to enable state transport undertakings to accelerate fleet additions in the near term.
LCV Segment To Outperform Heavy Vehicles
The light commercial vehicle (LCV) segment is positioned to outperform M&HCVs over FY25-28, with Kotak forecasting 7-8% CAGR growth. The demand recovery has been aided by GST-related affordability gains and is expected to remain strong due to several factors:
- Declining acquisition costs for small fleet operators
- Rising e-commerce penetration
- Growing last-mile connectivity needs
Margin Outlook and Pricing Dynamics
Pricing across M&HCV and LCV segments remains steady, with original equipment manufacturers focused on improving net realisations. While operating leverage should support margins, Kotak cautions that adverse product mix could present challenges. Incremental growth coming from margin-dilutive intermediate commercial vehicles, along with commodity inflation, could partially offset margin gains in the near term.
Kotak has raised its FY26-28 EPS estimates for both Ashok Leyland and Tata Motors' commercial vehicle business, driven by higher volume assumptions and improved margin outlook. Despite these upward revisions, the brokerage has retained its ratings, underscoring its view that while near-term demand is robust, medium-term growth expectations remain measured.
Conclusion
Despite raising FY26 volume estimates, Kotak Institutional Equities maintains a cautious stance on the automobiles sector. The brokerage has upgraded its target price for Ashok Leyland to ₹165 and Tata Motors CV to ₹425, reflecting the near-term positive momentum in the commercial vehicle segment.
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