Kotak Stays Cautious On Automobiles & Components Despite Near-Term CV Momentum — Check Target Prices

Kotak Institutional Equities has maintained a cautious stance on Automobiles and Components sector. This is despite near-term trends in the commercial vehicles (CVs) continuing to strengthen. While the brokerage has raised its volume and earnings assumptions for FY26 on the back of improving demand indicators, it has largely left the medium-term outlook unchanged.

Kotak has retained a Reduce rating on Ashok Leyland, while raising its target to Rs 165 from Rs 140 earlier. It has also maintained an Add rating on Tata Motors’ commercial vehicle business, increasing the target price to Rs 425 from Rs 350.

The brokerage expects medium and heavy commercial vehicle (M&HCV) truck demand to remain strong through the second half of FY26, driven by a combination of e-commerce-led freight movement and steady infrastructure spending.

Demand is being supported by a sharp pickup in intermediate commercial vehicles (ICVs), 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 momentum. As a result, Kotak has raised its FY26 M&HCV truck volume growth estimate to 8% year-on-year. However, it continues to expect growth to moderate thereafter, maintaining a 4–5% CAGR outlook for FY26–28.

Kotak expects M&HCV bus volumes to grow at a 6.5% CAGR over FY25–28, supported by lower acquisition costs following GST cuts, particularly for internal combustion engine (ICE) buses.

While electrification remains the long-term structural trend, improved affordability is likely to enable state transport undertakings (STUs) to accelerate fleet additions in the near term.

The light commercial vehicle (LCV) segment is expected to outperform M&HCVs over FY25–28, with Kotak forecasting 7–8% CAGR growth.

Demand recovery has been aided by GST-related affordability gains and is expected to remain strong due to declining acquisition costs for small fleet operators, rising e-commerce penetration, and growing last-mile connectivity needs.

Pricing across M&HCV and LCV segments remains steady, with OEMs focused on improving net realisations. While operating leverage should support margins, Kotak cautions that adverse product mix, with incremental growth coming from margin-dilutive ICV, along with commodity inflation, could partially offset these gains in the near term.

Kotak has raised its FY26–28 EPS estimates for both Ashok Leyland and Tata Motors’ CV business, driven by higher volume assumptions and improved margin outlook. Despite this, the brokerage has retained its ratings, underscoring its view that while near-term demand is robust, medium-term growth expectations remain measured.