Auto-component firms outpace OEMs in profit growth; outlook brightens
Auto-component makers beat OEMs in Q1 profit growth. Earnings upgrades are rising, signaling a stronger sector outlook.
India's auto-component industry is showing signs of stronger earnings momentum, even as valuations trade above historical averages. A brokerage analysis of 20 leading component makers found that these firms outpaced vehicle original equipment manufacturers (OEMs) in operating profit growth during the June quarter, despite recording slower revenue expansion.
Aggregate revenue for the component companies grew 21 per cent year-on-year (excluding Motherson), compared with 29 per cent growth for OEMs (excluding JLR). However, the component makers delivered a 19 per cent rise in aggregate EBIT, against just 10 per cent growth for OEMs. The divergence was stark in passenger vehicles, where OEM EBIT fell 15 per cent year-on-year.
A key highlight was margin resilience. Despite a sharp increase in commodity prices, aggregate EBIT margins for component firms stayed broadly flat year-on-year. In contrast, OEM margins slipped 1.5 percentage points, dragged down by a 2.5 percentage-point decline in the passenger vehicle segment.
The report also points to a notable improvement in earnings expectations. In the September quarter, nine of the 20 companies covered saw their FY27 consensus EPS estimates upgraded by more than 3 per cent, while only five faced downgrades. This marks a sharp reversal from the June quarter, when just one company received a similar upgrade and 12 saw downgrades.
This shift in consensus suggests market expectations are turning more constructive. The brokerage attributes the improved outlook to stronger growth prospects and an expanding business footprint for component makers. Their ability to convert revenue into operating profit while holding margins steady, despite input cost pressures, could support earnings in the coming quarters.