India auto growth outlook strengthened, Nomura raises FY27F forecasts
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India auto growth outlook strengthened, Nomura raises FY27F forecasts
Nomura believes India’s auto demand remains resilient and has raised PV, 2W, MHCV and tractor sales forecasts, emphasizing that companies with stronger vehicle-cycle dynamics, higher EV exposure and stronger component-upgrading capability are more likely to outperform.
- Raised PV FY27F/FY28F sales growth forecast to 13%/6%; SUV mix in 1QFY27 rose 130 bps year-over-year to 67.2%.
- Raised 2W FY27F/FY28F industry growth forecast to 8.5%/6.6%, MHCV to 8%/5%, and tractors to 5%/5%.
- EV penetration is expected to continue rising: PV from 3.9% in FY26 to 8.8% in FY28F and 12.7% in FY30F; 2W from 6.6% in FY26 to 11.3% in FY28F and 19.6% in FY30F.
- The report maintains Mahindra and Mahindra and Ather as preferred OEMs, and prefers suppliers such as SONACOM and UNOMINDA.
Report interpretation
Overview
The report focuses on India’s auto and auto parts industry. Its core conclusion is that demand momentum is stronger than previously expected and Nomura has raised FY27F sales forecasts in multiple segments. Dealer interviews suggest that demand remains strong despite higher fuel prices and some vehicle price increases; EV demand remains robust, and the report believes there is still a 20%-30% supply gap due to capacity constraints.
Core views
The report says growth expectations for PV, 2W, MHCV and tractors have all been revised up. PV is supported by improved government employee incomes from pay commission revisions, an SUV mix upgrade, and a supportive model cycle ahead; 2W and EV-related demand remain strong; CV companies have broadly passed through costs through price hikes in July. In 2HFY27F, the high base effect may cause growth in most categories to moderate to flat or low single digits, so OEMs and parts suppliers with stronger vehicle-cycle exposure, higher EV mix, stronger tech partnerships, and stronger localization capability have relative advantages.
Analysis framework
The report combines dealer interviews, segment-level sales-forecast assumptions, EV penetration forecasts, SUV mix changes, raw material cost indices and OEM price increases to assess sector sentiment and relative company performance. At the stock level, it also discloses ratings for some companies, current price levels, target-price valuation methods, and downside risks.
Methodology notes
segment-level forecast upgrade
Demand strength and future growth trajectory in the India auto sector are assessed through revisions to sales-growth forecasts across subsegments including PV, 2W, MHCV and tractors.
EV penetration trajectory
By tracking changes in EV penetration for PV and 2W from FY26 to FY28F and FY30F, the report evaluates electrification trends and implications for traditional ICE share.
raw material inflation and pricing pass-through
The report compares raw-material cost inflation for PVs, CVs and 2Ws, and evaluates the ability of different OEMs to pass through cost pressure via price hikes.
relative rating and target price
Nomura’s equity rating framework is based on relative performance over the next 12 months; target prices are estimated by analysts using methods such as EV/Sales, P/E, SOTP, and EV/EBITDA.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Mahindra and Mahindra (MM IN)one of the preferred OEMs, Buy rating
- Strengths
- It has strong PV and tractor exposure; the report says it can pass through a large portion of costs, applies SOTP valuation, and gives a target price of INR 4,580.
- Weaknesses
- Unlisted subsidiaries are loss-making and capital spending may weigh on return metrics.
- Comparison
- It may benefit relatively in PV/SUV cycles and cost pass-through.
- Risks
- Weak monsoon conditions could affect tractor demand, and increasing investment by loss-making subsidiaries could pressure share performance.
- Ather Energy (ATHERENE IN)one of the preferred 2W/EV names, Buy rating
- Strengths
- It benefits from strong 2W EV demand and rising electrification, with valuation at 5.5x EV/Sales and a target price of INR 1,470.
- Weaknesses
- Competitors include Ola, TVS, Bajaj and Hero, and recovery in traditional players’ demand could dilute share.
- Comparison
- Compared with ICE-dominant peers, it has a higher EV exposure.
- Risks
- Subsidy policy volatility, changes in PME-drive support, and rare-earth magnet supply constraints may affect output and margins.
- Hyundai Motor India (HYUNDAI IN)Buy-rated OEM
- Strengths
- It benefits from India PV demand and the rising SUV mix; valued at 25x FY28F EPS with a target price of INR 2,407.
- Weaknesses
- In the short term, it may face market-share pressure while trying to maintain earnings growth.
- Comparison
- Competition should be monitored, especially if discount pressure rises and platform sharing affects competitiveness.
- Risks
- Rising competition, market-share pressure from Kia model-sharing, and inability to meet CAFE targets.
- Sona BLW Precision Forgings (SONACOMS IN)one of the preferred suppliers, Buy rating
- Strengths
- It benefits from higher EV content in components, with about 36% of FY25 revenue from BEV and a target price of INR 720.
- Weaknesses
- Around 55% of revenue comes from outside India, making it more exposed to the global auto cycle.
- Comparison
- It has relatively high EV revenue exposure among electrification-related component suppliers.
- Risks
- Weakness in the global auto industry or a technology-driven slowdown in electrification trends.
- Uno Minda (UNOMINDA IN)preferred supplier stock, Buy rating
- Strengths
- It benefits from higher-endization and expansion in new businesses such as sensors, actuators and controllers, and has technology partnerships; target price is INR 1,494.
- Weaknesses
- Some businesses depend on JVs and technology partners, and customer acceptance of new businesses is still to be validated.
- Comparison
- It has opportunities in the high-endization and localization trend in auto components.
- Risks
- JV or technology partner relationships could break, and new-business commercialization may underperform expectations.
Key data
- PV sales growth forecastFY27F/FY28F: 13%/6% y-yThe report says PV sales growth forecasts have been raised; FY28F is expected to remain on a healthy growth path despite the high base in FY27F.
- 2W industry growth forecastFY27F/FY28F: 8.5%/6.6%, previously 7.4%/6.2%2W forecasts were raised, reflecting continued improvement in demand and EV penetration.
- MHCV industry growth forecastFY27F/FY28F: 8%/5%, previously 5%/5%MHCV growth expectations have been raised.
- Tractor industry growth forecastFY27F/FY28F: 5%/5%, previously 0%/5%The report also notes monsoon rainfall is still 14% below normal, but improved versus 38% below normal as of July 1.
- PV EV penetration forecastFY26: 3.9%; FY28F: 8.8%; FY30F: 12.7%This reflects continued year-on-year growth in EV penetration for PVs.
- 2W EV penetration forecastFY26: 6.6%; FY28F: 11.3%; FY30F: 19.6%The increase in EV penetration is more pronounced in 2W.
- SUV mix1QFY27 SUV mix at 67.2%, up 130 bps year-on-year; 1QFY26 was 66.2%The report argues SUV share is affected by supply constraints from M&M, TMPV and Hyundai, but says it should continue to rise in 2QFY27 and in the coming years.
- Raw material cost inflationPVs/CVs/2Ws: 3.1%/3.8%/4.6%The report sees cost pressure having eased from peak levels, but not fully passed through; margins depend on further pricing power.
- Key stock ratings and pricesATHERENE IN INR 1,226 Buy; HYUNDAI IN INR 1,985 Buy; MM IN INR 3,129 Buy; SONACOMS IN INR 669 Buy; UNOMINDA IN INR 1,166 BuyPrice dates are all 2026-07-10; sector rating disclosed in the table is N/A.
- Disclosed target priceAther INR 1,470; Hyundai Motor India INR 2,407; M&M INR 4,580; SONACOMS INR 720; UNOMINDA INR 1,494Target price methodologies include EV/Sales, FY28F EPS multiple, SOTP, and EV/EBITDA, among others.
Impact & implications
If the report’s thesis plays out, companies in the India auto value chain with strong vehicle-cycle exposure, higher EV exposure, stronger cost pass-through ability, and higher-end component opportunities are more likely to outperform; conversely, companies with high ICE exposure, insufficient pass-through, or dependence on subsidies and imported key materials face relative risk. Demand slowing in 2HFY27F implies stock selection becomes more dependent on structural advantages rather than pure sector beta.
Risks
- In 2HFY27F, demand may slow to flat or low single-digit growth due to a high base.
- Raw material costs have eased from peak levels but are not fully passed through; PV competition is still intense and pricing power is challenged.
- If EV electrification accelerates, OEMs with high ICE shares may lose market share.
- Subsidy policy volatility may affect margins for EV names such as Ather.
- Rare-earth magnet supply constraints could impact EV output and costs.
- Weak monsoon conditions could affect tractor demand.
- A weaker global auto cycle could pressure suppliers with high overseas revenue exposure such as SONACOMS.
- JV or technology-partner changes could affect UNOMINDA’s expansion in new businesses.
What to watch
- Whether SUV mix continues to rise from 2QFY27 onward.
- Whether high-base effects lead to demand cooling across segments in FY27F H2.
- Whether subsequent price hikes by PVs, CVs and 2Ws are sufficient to offset raw material cost pressure.
- Whether PV and 2W EV penetration continues to rise along the FY28F and FY30F forecast paths.
- Risks to the realization of target prices and future rating changes for Ather, Hyundai, M&M, SONACOMS, and UNOMINDA.
- Whether monsoon recovery can support tractor demand.