Auto Ancillary Stocks Shine as Sector Gains Momentum

India's automotive sector is accelerating into 2026, building on a strong foundation laid in 2025. Total auto retail sales reached 28.16 million units last year, marking a significant 7.7% year-on-year increase. This broad-based expansion across passenger vehicles, two-wheelers, and commercial vehicles was propelled by recovering demand and supportive government tax measures.

Sector Tailwinds Boost Ancillary Performance

The positive industry momentum is clearly reflected in market behavior, with auto ancillary segments, particularly those focused on 2- and 3-wheelers, demonstrating notable relative strength. These suppliers are outperforming broader markets, signaling heightened investor interest across the entire automotive value chain. Legendary investor Peter Lynch's philosophy of "selling the bullets" resonates here, drawing attention to the critical role of suppliers in an upcycle.

Spotlight on Key Auto Ancillary Players

Shriram Pistons & Rings Ltd is expanding beyond its core ICE components into EV motors and precision parts through subsidiaries. The company aims for ICE-agnostic diversification, scaling its EV powertrain business and exploring hydrogen-ICE and hybrid technologies, while maintaining strong relationships with major OEMs like Maruti Suzuki and Tata Motors. Its revenue grew due to higher volumes and acquisitions, with operating margins stabilizing above 23% and profit growth outpacing revenue.

Fiem Industries Ltd, a specialist in automotive lighting and mirrors, derives nearly 97% of its revenue from the two-wheeler segment. It is actively growing its four-wheeler vertical and enhancing its electronics and premium lighting capabilities. Fiem secured new orders from Mahindra and is pursuing deals with Mercedes-Benz, aiming to scale its four-wheeler business and innovate with advanced lighting systems. Revenue growth was driven by strong two-wheeler volumes, with operating margins around 13-14% supported by a shift towards higher-realization LED solutions.

Sandhar Technologies Ltd operates a vertically integrated business focusing on safety-critical components like locks, mirrors, and operator cabins. While two-wheelers remain its core, it also serves passenger vehicles and construction equipment, with growing EV component offerings. The company is consolidating operations into four verticals and aims to turnaround overseas subsidiaries. Strategic objectives include scaling EV revenues and expanding aluminium die-casting capacity, supported by a proposed QIP for acquisitions. Revenue growth has been strong, though margins faced temporary headwinds from new plant costs and overseas operations.

Automotive Axles Ltd, a joint venture between the Kalyani Group and Meritor Inc., is a key tier-1 supplier of axles and brakes, primarily for medium and heavy commercial vehicles (M&HCVs). It is transitioning to a direct-to-OEM sales model and investing in capacity enhancement and automation. Growth priorities include addressing product gaps in the bus segment and securing EV application approvals. While revenue moderated due to M&HCV cycle softness and product mix shifts, operating margins remained resilient around 11-12% due to automation and productivity improvements. The company is moving towards a net debt-free position.

Investor Outlook

Auto ancillary stocks often lead OEMs in an upcycle, benefiting from increased volumes and better product mix. However, success varies by segment and execution. Investors are advised to monitor industry shifts, company fundamentals, corporate governance, and valuations, aligning investment decisions with their risk appetite.