Inside the Auto Sector's Record Q3: Why GST Cuts And First-Car' Buyers Are Redefining Growth

Quarter three would probably go down in history as a historic quarter for the auto sector. The GST Rate cuts helped boost demand significantly, especially for buyers who were on the sidelines. Segments like entry-level cars and two-wheelers, light and smaller trucks and tractors have all got a key fillip.  

Rahul Bharati, Executive Director of Maruti Suzuki, told NDTV Profit post-quarter three earnings, he is seeing ‘more helmets on the tables'. This signifies the number of two-wheeler owners who are upgrading to buying their first car.

In Q3, we saw volume-led growth across segments, with mid 20% growth seen across major companies. Demand post GST Rate cuts is structural and ‘here to stay' has been the key message from automakers.

What has been interesting to see has also been the next line of capacity increase announcements by multiple companies, showing structural demand trends. Eicher Motors announced new capex and said they will invest Rs. 958 crores to increase Royal Enfield capacity. 

Capacity is expected to reach 20 Lakh vehicles per year over the next 8 quarters. Apart from that, VECV, the commercial vehicle arm of Eicher, would also look to increase capacity in its Bhopal plant. M&M, Maruti Announced New Capacity Addition as well.  

Mahindra announced 15,000 crore capex in Nagpur, to Set Up its Largest Integrated Auto & Tractor Manufacturing Facility in Maharashtra. Maruti is looking to add 5 Lakh Capacity in 2026

Commodity cost pressure has impacted margins and companies will start passing on the same has been the other key takeaway from quarter three as well. Copper, aluminium has been rising to new highs and automakers will have to pass on the same to avoid margins compression.

Finally, the biggest takeaway has been that FY27 could be a year of moderation in growth in second half given the strong base. Brokerage firm Morgan Stanley in a report for Mahindra and Mahindra said that FY27 could see moderation in tractor and SUV growth. While they Maintained Overweight rating but Cut target price to Rs 4358 from Rs 4407 earlier.

Brokerages On Automakers

The auto sector has also seen a run-up in key stocks since October. Hence, valuations have also inched up. The valuation presented below shows the picture for the next year. But brokerages continue to maintain their positive view across stocks. 

Citi maintains Buy on Ashok Leyland today with TP of Rs 205 post results and said that current demand trends indicate the start of a replacement upcycle.

Similarly, most brokerages maintained buy on M&M as well post results yesterday, with brokerage firm Jefferies expecting M&M's core EPS to rise 30% YoY in FY26, followed by 15% CAGR over FY25-28. They maintained a Buy rating with a target price of Rs 4500.

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