India’s Auto‑Component Industry Poised for Profit Surge, Says Jefferies

Even though sales growth has been a bit sluggish, the Indian auto‑component space looks set to keep its earnings engine humming, according to a fresh note from Jefferies. The brokerage highlighted that component makers have been pulling ahead of the big‑ticket original equipment manufacturers (OEMs) when it comes to operating profit.

Take a look at the numbers: in the June quarter, a basket of 20 leading component firms posted roughly a 21% rise in revenue year‑on‑year (Motherson excluded), while the OEM camp, minus Jaguar Land Rover, logged a 29% jump. The real surprise, however, was on the profit side – component makers saw earnings before interest and tax (EBIT) climb about 19% YoY, dwarfing the OEMs’ modest 10% gain.

Why the gap? Passenger‑vehicle makers, a big part of the OEM story, struggled, dragging their EBIT down by 15% YoY. In contrast, the component sector managed to hold its EBIT margins steady, despite a sharp uptick in commodity prices. OEM margins fell by 1.5 percentage points, with the passenger‑car segment alone shedding 2.5 points.

Jefferies also points out a shift in market sentiment. Of the 20 component firms they track, nine received FY27 consensus EPS upgrades of more than 3% in the September quarter, while only five were downgraded. That’s a stark turnaround from the June quarter, when just one company earned a similar upgrade and a dozen saw cuts.

Valuations, yes – they’re hovering above long‑term averages. But the analysts argue the growth story still shines through. The ability to turn modest revenue gains into solid profit, while keeping margins intact amid rising input costs, is the engine that could power the sector forward.

In short, stronger earnings growth, stubbornly resilient margins and an expanding footprint are the three pillars Jefferies believes will keep India’s auto‑component firms in the spotlight. (ANI)