This expansion was broad-based—passenger vehicles, two-wheelers, and commercial vehicles—supported by improving demand conditions.
In addition, government tax relief measures added another layer of support.
These fundamental improvements are now visible in market behaviour as well. Auto ancillary segments, particularly 2- and 3-wheeler ancillaries, are showing strong relative strength and are outperforming other industries, signalling rising investor interest across the auto supply chain.
Legendary investor Peter Lynch famously highlighted that in such cycles, it often makes sense to “buy the companies that sell the bullets”, pointing investors towards suppliers and proxies rather than only the final manufacturers.
In this editorial, we discuss auto ancillary stocks, focusing on their business, fundamentals, and key growth drivers to evaluate whether these companies deserve a place on your watchlist.
Shriram Pistons & Rings Ltd
The first company on our list is Shriram Pistons & Rings. It’s a diversified engineering business, among the leading manufacturers of pistons, piston rings, pins, and engine valves in India.
Its core portfolio caters to 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 supplies to a wide range of end-markets, including passenger vehicles, commercial vehicles, tractors, off-highway equipment, railways, and marine. It has strong relationships with Maruti Suzuki, Tata Motors, Cummins, and Caterpillar.
Growth plans
From a growth perspective, Shriram Pistons is pursuing an ICE-agnostic diversification strategy aimed at building a multi-product engineering franchise.
Key initiatives include scaling up the EV powertrain business with commercial production at the Coimbatore motor plant and executing the phase-III expansion at the SEL Pithampur facility.
The management has highlighted an active M&A pipeline to drive non-linear growth in adjacent engineering domains.
The company is also investing in next-generation technologies—components for hydrogen-ICE, hybrid powertrains, and ethanol-blended fuels, to stay relevant across evolving propulsion platforms.
Shriram Pistons’ revenue growth over FY23-25 was mainly because of higher production volumes and the consolidation of acquired subsidiaries such as SPR Takahata and SPR TGPEL, which expanded the addressable customer base.
Operating margins improved in 2023-24 and stabilized above 23%, supported by a favourable sales mix shift toward higher-margin, value-added products, increased aftermarket contribution, and ongoing cost-optimization and automation initiatives that helped absorb inflationary pressures.
At the bottom line, profit growth outpaced revenue growth, reflecting operating leverage and tighter cost controls, with net margins expanding to the mid-teens. Operating cash flows remained healthy. The group is net debt-free.
Fiem Industries Ltd
The second company in our list is Fiem Industries Ltd (Fiem), a specialized auto ancillary business focused on automotive lighting systems, signalling equipment, and rear-view mirrors.
Its product portfolio spans LED and conventional headlamps, tail lamps, blinkers, and precision electronic components such as canisters and bank-angle sensors.
Fiem derives nearly 97% of its revenue from the two-wheeler segment. It’s gradually expanding its presence in three-wheelers and passenger vehicles.
The company has strong tier-1 OEM relationships with more than 50 customers, including Honda, TVS, Yamaha, Suzuki, Royal Enfield, and Mahindra. This gives it a deep integration across India’s two-wheeler supply chain.
Growth plans
From a growth standpoint, Fiem’s strategy outlined in its Q2 FY26 earnings call is centred 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, setting up a Pune warehouse for just-in-time OEM supplies, and accelerating innovation in CAN-based lighting animations, ambient lighting, and adaptive lighting systems through its Gurugram R&D centre.
Fiem’s revenue growth over FY23-25 was primarily because of strong two-wheeler production volumes, which grew around 11% in FY25, along with higher offtake from TVS, Yamaha, and Royal Enfield.
Operating margins remained stable in the 13-14% range, supported by operating leverage and a gradual shift toward LED lighting solutions, which offer higher realizations. The LED contribution increased from 52% in FY24 to nearly 64% by Q2 FY26, improving the overall sales mix.
At the bottom line, profit growth outpaced revenue growth, aided by better cost absorption and efficiency gains from in-house electronics manufacturing and localization. The operating cash flows strengthened in FY25, partly supported by ₹50 crore in insurance recoveries related to the Rai plant fire.
This, however, has moderated as the company progressed with a ₹100 crore capex plan for FY26, aimed at capacity expansion and advanced testing infrastructure to support future growth in premium and four-wheeler segments.
Sandhar Technologies Ltd
The third stock in our list is Sandhar Technologies Ltd, which operates a vertically integrated auto ancillary business, specializing in the manufacture and assembly of safety-critical components.
Its product portfolio spans lock and mirror assemblies, operator cabins for off-highway vehicles (OHVs), aluminium die-casting, and sheet-metal components.
While the two-wheeler segment remains the core revenue contributor, Sandhar also caters to passenger vehicles, commercial vehicles, and construction equipment.
The company has strong tier-1 OEM relationships with leading customers such as Hero MotoCorp, TVS Motors, Honda, Bajaj Auto, and Royal Enfield. It has recently expanded into EV components, including chargers and motor controllers.
Growth plans
From a strategic standpoint, Sandhar’s organizational focus is consolidating operations into four verticals, such as Aluminium, Sheet Metal, Proprietary Automotive, and Construction Equipment, to improve execution and scalability.
A key near-term objective is the turnaround of overseas subsidiaries in Romania, Spain, and Mexico, with management targeting financial neutrality by the end of FY26.
On the growth front, STL aims to scale EV-related revenues to ₹15 crore in FY26 and expand aluminium die-casting capacity following the Sundaram-Clayton acquisition.
The company continues to evaluate inorganic growth opportunities, supported by a proposed ₹500 crore QIP to strengthen its balance sheet for strategic acquisitions.
STL’s strong revenue from FY23-25 was because of capacity ramp-ups in aluminium die-casting and sheet-metal operations, along with incremental contributions from acquisitions.
In H1FY26, the Sundaram-Clayton aluminium business contributed over ₹1,98 crore, though at a lower Ebitda margin of around 5%, which diluted consolidated margins in the near term.
Despite this, operating margins improved steadily to 11%, supported by scale benefits and a richer product mix, including higher-value smart locking systems and advanced vision components.
At the profitability level, profit margins expanded consistently, but margins in FY26 faced temporary headwinds from new plant setup costs in Pune and South India and translation losses from overseas subsidiaries, where efficiency initiatives are underway.
Operating cash flows fell as working capital requirements increased to support higher volumes and evolving customer payment terms, while a ₹300 crore capex program for FY26 has absorbed cash. The management expects cash-flow intensity to ease as major expansion phases near completion.
Automotive Axles Ltd
The fourth stock in our list is Automotive Axles Ltd. It operates as a joint venture between the Kalyani Group and Meritor Inc., USA. It functions as a vertically integrated tier-1 supplier of axle and brakes.
The company’s product portfolio includes drive axles, non-drive axles, front steer axles, and drum and disc braking systems, with a strong focus on the medium and heavy commercial vehicle (M&HCV) segment.
In addition, Automotive Axles caters to defence and off-highway applications.
The company has deep OEM integration and derives a significant share of business from Ashok Leyland (around 60-70%), along with other key customers such as Tata Motors, Mahindra & Mahindra, and Daimler India, making it a critical supplier in India’s CV ecosystem.
Growth plans
The company highlights a shift towards a direct-to-OEM sales model, moving away from routing sales through Meritor HVS. This transition is expected to support Ebitda improvement over time.
The company has outlined a ₹120 crore capex programme focused on capacity enhancement, replacement of ageing equipment, and the rollout of Industry 4.0 automation at its Mysuru facility.
Growth priorities also 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. The management is also emphasising cost optimization to navigate cyclical softness in the CV market.
Automotive Axles revenue moderated in FY25 and H1FY26 due to a softer M&HCV cycle and an unfavourable product mix.
A higher share of tractor-trailers reduced axles and brakes per vehicle compared with multi-axle trucks, while monsoon-led weakness in tipper demand impacted higher-margin volumes.
Despite lower revenues, operating margins remained resilient around 11-12%, supported by automation initiatives, TPM practices, and productivity improvements. Also, commodity price deflation, with about a 3.5% impact, was largely passed through to OEMs via pricing mechanisms.
At the profitability level, PAT stayed broadly stable, aided in H1FY26 by one-time income items, including writebacks of excess provisions and foreign exchange gains.
Operating cash flows were volatile across periods, reflecting working-capital movements and inventory adjustments, but improved meaningfully as the company progressed toward a net debt-free position, completing term-loan repayments in FY25.
Ongoing cash deployment is largely directed toward phase-1 automation upgrades at the Mysuru plant, aligned with Automotive Axles’ long-term efficiency and margin-stability objectives.
Conclusion
Top 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. Investors should always track industry-level shifts, business fundamentals, and align decisions with their own risk appetite.
Investors should evaluate the company’s fundamentals, corporate governance, and valuations of the stock as key factors when conducting due diligence before making investment decisions.
Happy Investing.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com.
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