Jefferies sees stronger earnings momentum for Indian auto-component makers
Jefferies says improving EBIT growth, resilient margins and a sharp pickup in FY27 estimate upgrades are strengthening the outlook for India’s auto-component sector despite elevated valuations and commodity-cost risks.
What happened
Indian auto-component sector · Jefferies expects India’s auto-component sector to sustain earnings momentum as stronger EBIT growth, resilient margins and
Key facts
- 20 leading Indian auto-component companies analysed
- 21% year-on-year aggregate revenue growth in June quarter, excluding Motherson
- 29% revenue growth for auto OEMs, excluding JLR
- 19% year-on-year aggregate EBIT growth for component companies
- 10% EBIT growth for OEMs
- 15% year-on-year decline in passenger-vehicle EBIT
- 1.5 percentage-point OEM margin decline
- 2.5 percentage-point passenger-vehicle margin decline
- 9 companies received FY27 consensus EPS upgrades above 3% in September quarter
- 5 companies faced FY27 EPS downgrades
- June quarter: 1 upgrade above 3% and 12 downgrades
Why this matters
Broadening earnings momentum may create opportunities to pursue technology, capacity or consolidation deals with suppliers benefiting from improving demand and estimate revisions.
What to watch
- Monthly Indian passenger vehicle, two-wheeler, commercial vehicle and tractor wholesale/retail trends.
- Quarterly order-book growth, export sales, utilisation levels, EBIT-margin commentary and management guidance.
- Further FY27 consensus EPS revisions and the breadth of upgrades across large-, mid- and small-cap suppliers.
- Steel, aluminium, copper, rubber, freight and energy-price movements, plus evidence of customer pass-through.
- OEM production schedules, inventory levels, dealer discounts and demand signals in key export markets.
- Rupee movement and global auto-demand conditions affecting export-oriented component manufacturers.
- Capex announcements, new platform wins and localisation mandates from OEMs.
- Increase screening for component makers with recurring FY27 estimate upgrades, expanding EBIT margins and manageable valuations relative to their own history.
- Prioritise suppliers with pricing-pass-through clauses, diversified OEM/customer exposure, strong aftermarket revenue and low net debt.
- Track high-content categories including EV components, electronics, safety, HVAC, precision engineering and premium-vehicle supply chains.
- Expect OEMs to seek greater localisation and supplier consolidation, benefiting scaled vendors with engineering capabilities and reliable delivery records.
- Watch for capex acceleration and working-capital needs; stronger order books may improve revenue visibility but can pressure free cash flow before new capacity ramps.