The automotive ancillary sector is witnessing significant momentum as broad-based vehicle demand improvements create favorable tailwinds for component suppliers. This expansion spans passenger vehicles, two-wheelers, and commercial vehicles, supported by improving demand conditions and government tax relief measures. Auto ancillary segments, particularly 2- and 3-wheeler ancillaries, are demonstrating strong relative strength and outperforming other industries, signaling rising investor interest across the auto supply chain.

Shriram Pistons & Rings: Diversified Engineering Excellence

Shriram Pistons & Rings operates as a diversified engineering business and ranks among India's leading manufacturers of pistons, piston rings, pins, and engine valves. The company's core portfolio serves the internal combustion engine (ICE) segment, while recent strategic moves have expanded its presence into EV motors, controllers, and precision injection-moulded components through subsidiaries such as SPR EMFI and SPR TGPEL.

The company's growth strategy centers on scaling up the EV powertrain business with commercial production at the Coimbatore motor plant and executing phase-III expansion at the SEL Pithampur facility. Management has highlighted an active M&A pipeline to drive non-linear growth in adjacent engineering domains, while investing in next-generation technologies including components for hydrogen-ICE, hybrid powertrains, and ethanol-blended fuels.

Shriram Pistons' revenue growth over FY23-25 resulted from higher production volumes and consolidation of acquired subsidiaries. Operating margins improved in 2023-24 and stabilized above 23.00%, supported by favorable sales mix shifts toward higher-margin, value-added products and increased aftermarket contribution. The company maintains a net debt-free position with healthy operating cash flows.

Fiem Industries: Two-Wheeler Lighting Specialist

Fiem Industries specializes in automotive lighting systems, signalling equipment, and rear-view mirrors. The company's product portfolio encompasses LED and conventional headlamps, tail lamps, blinkers, and precision electronic components such as canisters and bank-angle sensors.

Fiem's growth strategy focuses on scaling its four-wheeler vertical while strengthening in-house electronics and premium lighting capabilities. The company has secured new orders from Mahindra for higher-value components and is pursuing deals with Mercedes-Benz and Force Motors. Key initiatives include evaluating a dedicated four-wheeler manufacturing plant and setting up a Pune warehouse for just-in-time OEM supplies.

Revenue growth over FY23-25 was driven by strong two-wheeler production volumes, which grew around 11.00% in FY25. Operating margins remained stable, supported by operating leverage and gradual shift toward LED lighting solutions. Operating cash flows strengthened in FY25, partly supported by ₹50 crore in insurance recoveries, though this has moderated due to a ₹100 crore capex plan for FY26.

Sandhar Technologies: Vertically Integrated Operations

Sandhar Technologies operates a vertically integrated auto ancillary business specializing in safety-critical components. The product portfolio spans lock and mirror assemblies, operator cabins for off-highway vehicles, aluminium die-casting, and sheet-metal components. The company maintains strong tier-1 OEM relationships with Hero MotoCorp, TVS Motors, Honda, Bajaj Auto, and Royal Enfield.

Sandhar's organizational focus involves consolidating operations into four verticals to improve execution and scalability. A key near-term objective is the turnaround of overseas subsidiaries, with management targeting financial neutrality by the end of FY26. The company aims to scale EV-related revenues and expand aluminium die-casting capacity following the Sundaram-Clayton acquisition.

Strong revenue growth from FY23-25 resulted from capacity ramp-ups in aluminium die-casting and sheet-metal operations. In H1FY26, the Sundaram-Clayton aluminium business contributed over ₹198 crore, though at a lower EBITDA margin of around 5.00%. Operating margins improved steadily to 11.00%, supported by scale benefits and richer product mix.

Automotive Axles: Commercial Vehicle Focus

Automotive Axles operates as a joint venture between the Kalyani Group and Meritor Inc., USA, functioning as a vertically integrated tier-1 supplier of axles and brakes. The company's portfolio includes drive axles, non-drive axles, front steer axles, and drum and disc braking systems, with strong focus on medium and heavy commercial vehicles.

The company is transitioning toward a direct-to-OEM sales model, moving away from routing sales through Meritor HVS. Growth priorities include addressing product gaps in the bus segment, particularly 15-metre coach axles, and securing approvals for EV applications such as electric tractor-trailers and tippers.

Revenue moderated in FY25 and H1FY26 due to softer M&HCV cycle and unfavorable product mix. Despite lower revenues, operating margins remained resilient around 11-12%, supported by automation initiatives and productivity improvements. The company achieved net debt-free status, completing term-loan repayments in FY25.

Investment Considerations

Auto ancillary stocks often move ahead of OEMs in an upcycle, benefiting from rising volumes, better product mix, and operating leverage. However, outcomes vary by segment, execution, and balance-sheet strength. These four companies demonstrate diverse approaches to capitalize on evolving automotive trends while managing sector-specific challenges. Investors should evaluate company fundamentals, corporate governance, and valuations as key factors when conducting due diligence before making investment decisions.

The auto ancillary sector is witnessing renewed interest following recent GST rate rationalization measures that have provided a boost to the broader automotive industry. The auto sector has emerged as one of the best-performing segments on the street, supported by encouraging December sales figures that indicate sustained demand momentum.

Market Dynamics and Sector Performance

The positive performance of the auto sector naturally creates opportunities for auto ancillary companies, as these businesses are closely linked to the fortunes of original equipment manufacturers. The GST rate adjustments have helped improve the overall cost structure and competitiveness of the automotive value chain.

December sales numbers across the auto sector have demonstrated resilience, contributing to the sector's strong performance on the stock exchanges. This performance has created a ripple effect that extends to companies operating in the auto ancillary space.

Evolving Industry Landscape

The current market environment presents a different scenario compared to two-three years ago, when identifying winning companies in the auto ancillary space was relatively straightforward. Today's market shows a clear division between companies based on their ability to adapt to changing industry requirements and technological shifts.

The distinction between traditional auto ancillary companies and those focused on electric vehicle components has become increasingly important for investors seeking to identify potential winners in this space. Companies that have successfully transitioned or positioned themselves for the evolving automotive landscape may be better placed to capitalize on emerging opportunities.

Investment Considerations

The auto ancillary sector's performance correlation with the broader auto industry remains strong, but individual company performance now depends more heavily on specific adaptation strategies and market positioning. The sector's evolution requires careful analysis of each company's technological capabilities and strategic direction.