India’s auto component industry has grown strongly over the past decade, but the next phase may be far more selective, with growth likely to be led by suppliers that can add more value to every vehicle rather than those merely riding the volume cycle.
A new report by Equirus Securities says India’s auto ancillary sector grew nearly three times over FY16-26, supported by rising vehicle content, exports, premiumisation and localisation. However, the report argues that the sector’s headline growth masks sharp differences across segments and companies.
The brokerage firm said the sector delivered an 11 per cent revenue CAGR over FY16-26. However, Electricals and Lighting compounded at 17 per cent, while Batteries grew at only 8 per cent. Body & Glass, Electricals & Lighting and diversified ancillary companies emerged stronger, while tyres and batteries lagged the broader universe.
The central message from the report is that India’s auto ancillary story is moving beyond vehicle-volume growth. Companies that can increase content per vehicle, diversify across products and customers, expand exports and convert themes such as electric vehicles, premiumisation, electronics and new mobility into earnings are likely to lead the next cycle.
Growth Story Splits
The report says the past decade was not one uniform auto ancillary story, but several different stories moving at different speeds. Companies with multiple growth levers–acquisitions, new products, new geographies and new customers–consistently outperformed companies dependent on a single OEM, product or geography.
This distinction becomes important as the industry enters FY27. Vehicle demand remains relevant, but the report suggests that exposure to a fast-growing vehicle segment alone may not be enough. Suppliers that have widened their revenue base and increased wallet share with OEMs are likely to be better placed through cycles.
Equirus says the consistent differentiator was not OEM mix or market share, but the breadth of the revenue base. Companies that deployed several levers at the same time outperformed single-lever peers through every cycle of the past decade.
This has important implications for investors and companies. It means the sector may no longer be valued as a broad auto proxy. Instead, the market is likely to distinguish between component makers that are becoming broader mobility suppliers and those that remain linked to one product cycle.
Content Per Vehicle Becomes The Core Driver
The strongest structural trend in the sector has been the rise in content per vehicle. Over the past decade, higher SUV penetration, richer feature content, rising electronics, more aluminium use and stricter technology requirements increased the value of components going into each vehicle. This helped several companies grow faster than underlying vehicle volumes.
However, Equirus makes a key distinction between structural content and regulatory content.
Structural content comes from consumer preference and technology shifts such as premiumisation, EV adoption, connected vehicles, digital clusters, lighting, sensors and comfort features. These can compound over several years. Regulatory content, such as emission norms or mandatory safety features, usually creates a one-time jump and then normalises once compliance is achieved.
For FY27-30, EV adoption is expected to create new content categories such as battery management systems, charging electronics and digital displays. These product pools did not exist meaningfully in the earlier part of the decade and are less dependent on the traditional vehicle-volume cycle.
This is why Electricals & Lighting remains one of the report’s high-conviction areas. The segment benefits from premiumisation, higher electronics intensity and EV-related component growth.
Not All Segments Are Equal
The report identifies Body & Glass as one of the most attractive areas in the auto ancillary universe. It expects the segment to deliver 30 per cent PAT CAGR over FY26-28, making it an attractive growth opportunity.
Electricals & Lighting and Suspension & Chassis are also viewed positively. Electricals & Lighting is expected to benefit from EV content and premiumisation, while Suspension & Chassis is seen as relatively EV-agnostic and supported by recovering free cash flow.
Forgings remain interesting, but Equirus says stock selection will be important because the segment is internally divided. Some companies could benefit from exports, defence, aerospace and global ICE supply-chain shifts, while others may already have much of the future opportunity priced in.
Powertrain & Engine is seen as a monitor category. The report says the segment has an ICE export opportunity, but valuations are expensive relative to the growth on offer.
Tyres are viewed more as a tactical opportunity than a structural long-term compounder. The investment case depends heavily on commodity cost normalisation, rubber prices and pricing discipline.
Batteries are the weakest segment call in the report. Equirus says the segment faces structural displacement risks as the industry transitions from lead-acid batteries to lithium-ion technologies. While companies are investing in the transition, the economics of Li-ion at scale are still unproven.
Valuation Premium Faces Earnings Test
Auto ancillary companies have often traded at a premium to OEMs because of perceived growth optionality. The report says this premium is based on the belief that component makers can grow through exports, new products, EV and premiumisation content, new OEM customers, acquisitions and non-auto adjacencies.
But Equirus warns that the premium is not universally justified.
The report says only a select group of companies has justified higher multiples through consistent execution. It points to companies that have combined customer diversification, product expansion and geographic penetration to reduce dependence on any one OEM or segment.
The market has also rewarded narratives such as EVs, aerospace, defence and sunroofs. However, the report says FY27 estimate revisions are now separating companies that are converting stories into earnings from those where the market has already paid for future growth.
This is one of the sharpest warnings in the report. The next phase may not be about identifying themes alone. It will be about identifying companies where those themes translate into order wins, margins, cash flows and earnings upgrades.
Strong Balance Sheets Provide Firepower
The sector enters FY27 with one of its strongest balance-sheet positions in a decade.
Equirus says Net Debt-to-EBITDA for the sector declined to 0.18 times in FY26 from 0.49 times in FY22. This gives auto component makers room to invest in EV localisation, electronics, exports, aerospace, defence and adjacent product categories.
Working capital efficiency has also improved, supporting cash generation and debt reduction. This puts the sector in a better position to fund the next leg of growth without taking on excessive financial risk.
The balance-sheet improvement is significant because the next growth cycle will require fresh investments. Companies will need to invest in new tooling, testing capabilities, R&D, EV components, electronics, software-linked parts and export capacity. Those with cleaner balance sheets will have more flexibility to pursue these opportunities.
ICE Export Window
While electrification is a long-term risk for internal-combustion-engine-linked suppliers, Equirus also highlights a contrarian opportunity.
As OEMs and Tier-1 suppliers in Europe, the US, Japan and South Korea redirect capital towards EV platforms, investments in traditional ICE component manufacturing are being reduced. However, global demand for ICE vehicles, replacement parts and aftermarket components is likely to remain substantial for several years.
This could create an opening for Indian suppliers in forgings, castings, gears, crankshafts, axles, drivetrain parts and other manufacturing-intensive components.
The report argues that India is well placed to capture this opportunity because of its manufacturing capabilities, improved balance sheets, R&D investments and cost competitiveness. A weakening rupee over the long term and supply-chain diversification away from China could also support Indian exporters.
This means ICE-focused companies cannot be dismissed outright. The key question is whether they can convert global supply-chain changes into exports while managing the domestic transition towards EVs.
Next Phase Will Be More Selective
The auto ancillary sector has benefited from a strong post-COVID recovery, rising content per vehicle, improving exports and healthier balance sheets. But the report suggests the easy phase of broad-based re-rating may be behind the sector.
Companies that simply ride the vehicle-volume cycle may find it harder to sustain premium valuations. Those that can increase content per vehicle, add new products, diversify customers, build exports and deliver earnings upgrades are likely to stand out.
For India’s auto component makers, the next decade may not be decided by how many vehicles are sold alone. It may be decided by how much more technology, content and value suppliers can put into every vehicle.