Auto ancillaries to outpace OEMs, says Elara; check key drivers, top picks

Elara identified four factors critical for auto ancillary companies to outperform OEMs: product expansion, segment expansion, geographic expansion and inorganic initiatives

Uno Minda, Gabriel India, Minda Corporation and Sona BLW Precision Forgings remained the top picks in the auto ancillary space by Elara Capital, which remains constructive on two-wheeler (2W) and passenger vehicle (PV)–linked ancillaries, supported by GST-related tailwinds and a strong festive season.

 

Analysing Q2 performance of 57 listed auto ancillaries, Elara Capital reported revenue growth of 9.1 per cent Y-o-Y, lagging the 16 per cent Y-o-Y growth posted by listed OEMs. Two-wheeler and three-wheeler production rose 11 per cent and 18 per cent, respectively, driven by positive sentiment on GST 2.0 reforms, while PV production grew 4 per cent in Q2. Commercial vehicles (CVs) recorded 11 per cent production growth.

 

Demand for 2W production remains stable, with the brokerage forecasting 9 per cent growth in FY26E, while PV production is likely to expand 6 per cent. “MHCV is likely to grow 4 per cent and tractors at 12 per cent. Global demand commentary on PV has been muted, due to tariff headwinds and subdued demand while the North America Class 8 truck retail growth outlook is set to contract by 14 per cent YoY in CY25E, due to weak freight market and high interest rates,” said the brokerage in its report. 

 

Suspension and braking players delivered the strongest revenue growth in Q2 at 13 per cent Y-o-Y, followed by lighting and multiproduct component manufacturers at 12 per cent. Craftsman Automation (up 65 per cent), Pricol (51 per cent), Lumax Auto (37 per cent), India Nippon Electricals (30 per cent) and Sandhar Technologies (29 per cent) led on Y-o-Y revenue gains.

 

On the earnings before interest, taxes, depreciation, and amortisation (Ebitda) front, Suprajit Engineering (58 per cent), Craftsman Automation (57 per cent), Pricol (53 per cent), Lumax Auto (51 per cent) and Lumax Industries (45 per cent) emerged as top performers.  CATCH STOCK MARKET LIVE UPDATES TODAY

Margin pressures intensify

Elara, however, alos pointed out that 32 of the 57 companies under review saw Y-o-Y contraction in Ebitda margins. Battery makers faced headwinds from elevated lead prices, while forging companies were weighed down by weak CV export demand.

 

Ramkrishna Forgings, Precision Camshafts, MM Forgings, Balkrishna Industries and PPAP Automotive reported the steepest margin erosion. Bearings and tyre manufacturers were comparatively better placed, supported by stronger revenue traction and benign raw material costs.

Key triggers for outperformance

That said, Elara continues to remain upbeat on the auto ancillary companies while expecting them to outperform the OEMs. The brokerage has identified four factors to drive auto ancillaries in outpacing the OEMs: product expansion, segment expansion, geographic expansion and inorganic initiatives. “Within this framework, our top picks in the ancillaries remain Uno Minda, Gabriel India, Minda Corp and Sona BLW,” it said.

 

The brokerage added that the Nifty Auto Index’s valuation premium to the Nifty50 remains near median levels, with the improving volume outlook offering scope for further outperformance. 

(Disclaimer: The views and investment tips expressed by the brokerage in this article are their own and not those of the website or its management. Business Standard advises users to check with certified experts before taking any investment decisions.)