India's auto-component sector has moved into the fast lane, handily outpacing original equipment manufacturers (OEMs) in operational performance and driving a sector-wide rerating in equity markets, according to a report by global brokerage Jefferies. During the April-June quarter of current fiscal, auto ancillary companies delivered higher EBIT growth compared to their OEM counterparts.
The operating leverage has triggered a meaningful upward revision in consensus earnings estimates, cementing stronger growth expectations for the remainder of the calendar year. The auto component makers demonstrated better capability to translate top-line growth to EBIT, delivering 19% YoY EBIT growth in the June quarter compared to 10% for OEMs, EBIT growth for OEMs was particularly pulled down by 15% decline for OEMs of passenger vehicles.
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Outrunning The Benchmark
Most auto-comps outperformed the Nifty Auto index CYTD, as per Jefferies. Out of the set of 20 auto-component companies, 16 have outperformed the Nifty Auto Index (-1%) CYTD. Sansera Engineering and Sona BLW Precision Forgings have delivered the highest 60-130% stock returns, followed by 25-50% returns in Craftsman Automation, Motherson Sumi, Belrise, among others. Conversely, among top laggards, MRF and others are down 10-25% CYTD.
A combination of resilient earnings delivery and broad valuation reratings has allowed the majority of auto-component stocks to outperform the headline Nifty Auto Index on a calendar year-to-date (CYTD) basis. Market appetite has remained firm as component suppliers leverage domestic volume gains alongside structural export diversification. Stronger earnings and valuation re-rating have resulted in most auto-comp stocks outperforming Nifty Auto Index CYTD.
Jefferies noted that the sector's current valuations sit above historical long-term averages. However, Jefferies views premiums as supported by robust forward momentum, sticky order books, and an expanding operational footprint across global and domestic markets. Deconstructing the stock performance of auto-component companies shows that the strong CYTD returns have been driven by a combination of better one-year forward earnings outlook (roll-over + revisions) and PE expansion.
Among the best performing auto-comps CYTD, multiple expansion accounted for 60-75% of stock returns for Sansera Engineering and Sona BLW Precision Forgings. In contrast, the strong performance of Motherson Sumi and Craftsman Automation was almost entirely driven by better one-year forward earnings outlook, according to the brokerage.
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Top Picks: Precision Plays
Among component suppliers, Jefferies highlighted Bharat Forge and Sona BLW Precision Forgings (Sona Comstar) as its preferred ideas within the space. Both players remain positioned to capture market share through high-content product transitions, expanding electric powertrain programs, and deeper penetration into international supply chains. In its report, Jefferies added that it also has 'buy' calls on Belrise, Motherson Sumi, and Uno Minda.
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