Auto ancillary sector revenue grew 12.5% in FY26 on volume gains and improved product mix: Elara Capital
New Delhi, June 29
In FY26, revenue for auto ancillaries grew 12.5 per cent year-on-year, led by healthy volume growth across segments and an improved product mix. According to a research report by Elara Capital, this top-line expansion was accompanied by a 13.3 per cent growth in absolute EBITDA, although the aggregate operating margin remained flat at 13.6 per cent.
The report noted that out of the 59 listed auto component manufacturers analyzed in the study, 25 firms reported a contraction in their operating margins.
Across segments, the suspension braking and multiproduct categories led the revenue expansion, registering year-on-year growth of 16 per cent and 15 per cent, respectively. In terms of profitability, tyres, lighting, and suspension segments outperformed with a 17 per cent EBITDA growth, whereas forgings and batteries posted a degrowth of 4 per cent and 1 per cent, respectively.
"Demand outlook for FY27 is broadly constructive, led by healthy momentum across 2W, PV, CV, tractors and replacement markets in India," the report stated. "Expect EV-linked businesses, electronics/content-rich products and defence/aerospace to outgrow, while global/export demand to be mixed with Europe remaining weak and North America showing improving trends."
However, operational challenges persist as input costs rise. The report identified commodity inflation as a prominent near-term headwind, with most component manufacturers facing a margin drag in the first quarter of financial year 2026-27 from higher costs of copper, aluminum, steel, rubber, crude-linked inputs, freight, and energy.
While pass-through mechanisms are largely operational across the industry, recovery typically comes with a lag of one quarter to six months, maintaining near-term pressure on margins despite recent price hikes.
In terms of capital allocation, the aggregate capex intensity stood at 5.9 per cent of sales during the year, while free cash flow generation remained stable at 4.7 per cent.
For the upcoming fiscal, the report expects passenger vehicles to expand by 7 per cent and two-wheelers by 8 per cent.
The firm concluded that "there are four key reasons for any auto ancillary to outperform OEMs: product expansion, segment expansion, geographic expansion, inorganic expansion."
— ANI
Reader Comments
As someone working in the auto sector, I can confirm the shift towards electronics and content-rich products is real. EV component demand is picking up, but the global export picture remains uncertain — Europe weakness is hurting many suppliers. Need more focus on domestic defence and aerospace opportunities. 🇮🇳
Flat margins at 13.6% while revenue grows 12.5% means costs are eating into profits. The report says 25 of 59 firms saw margin contraction — that's a big red flag for investors. Commodity inflation in copper, aluminum, steel — everything is shooting up. Let's see if pass-through mechanisms really work.
Interesting data from Elara Capital. The suspension braking and multiproduct categories leading growth makes sense — safety norms are tightening globally. But I'm watching the battery and forgings segments with degrowth — that's a warning for EV transition speed. India's replacement market is a hidden gem though.
The point about "four key reasons to outperform OEMs" is spot on. Indian auto ancillaries that diversify into defence and aerospace will be the real winners. But the 5.9% capex intensity seems low for a growing sector — need more investment in R&D for EV and electronics. Otherwise, China will eat our lunch.
Finally some good news for the auto sector! My family runs a small component unit supplying to two-wheeler OEMs — we've seen 15% volume growth this year. But margins are paper thin, and the one-quarter lag in passing on raw material costs is killing us. Hope the government does something about copper and steel prices. 🙏