4 days ago
Auto ancillary stocks shift into top gear, but caution lights on
Auto ancillary companies have generated higher
investor interest
over the past month amid buoyancy in the broader market. However, investors need to be cautious since the sector may face pressure due to muted demand for commercial and passenger vehicle (CV and PV) demand. Of the 22per cent increase posted by the ET-auto ancillaries index in the past three months, 13% was in one month, reflecting improved traction in these stocks.
For a sample of 22 auto component companies, half have posted year-on-year revenue growth in the March quarter in double-digits. However, only eight of them have recorded double-digit growth in net profit. While seven companies posted double-digit growth in operating profit before depreciation and amortization, operating margin expanded for 8 companies.
The two-wheeler companies reported a slower volume growth in the second half of FY25 after a strong growth in the first six months according to Motilal Oswal Financial Services (MOFSL). Tractors was the only segment that witnessed a strong demand recovery.
The automobiles sector saw earnings downgrades for FY26 as margin may take a hit amid rising input costs and tepid growth visibility. 'The recent appreciation of the rupee against the dollar is a key monitorable for exports-focused companies. Given these factors, FY26 is expected to be a year of modest earnings growth for most companies under our coverage,' said MOFSL.
The margin outlook for global original equipment manufacturers (OEM) adds to the uncertainty. According to Elara Capital, top international auto makers including Mercedes-Benz, Porsche and Ford have either downgraded or suspended guidance for 2025, citing tariff risks, market share loss in China, and margin headwinds. This may impact Indian auto parts suppliers with global linkages like Bharat Forge, Sona BLW.
