Powertrain-Agnostic Firms Drive Mcap Gains In Auto Ancillaries

AUTOMOBILES HAVE UNDERGONE a transformational shift over the past decade. Carmakers have gone from offering bare necessities to cars that work like gadgets: screens have replaced buttons, LEDs have become bigger, seats have ventilation, airbags are mandatory and sunroofs and all other bells and whistles are in demand. This has come as a boon for auto component makers.

While some auto ancillary promoters have moved up the pecking order in Fortune India rich list, owners of tyre companies have slipped. Promoters whose companies get a majority of their revenues from powertrain-agnostic components have seen a jump in fortunes.

The transition to electric vehicles is driving up the value of kits that auto parts makers sell to OEMs; EVs have bigger LED lamps and added features. “Our kit value is increasing. In lighting, kits used to be priced in hundreds, now it is more than ₹5,000, sometimes more than ₹10,000,” says Nirmal K. Minda, chairman and managing director, Uno Minda.

Samvardhana Motherson International, India’s largest auto component exporter, is also capitalising on premiumisation. “With demand for high-end features in both internal combustion (vehicles) and EVs set to grow, our products such as ambient lighting solutions, illuminated grilles and logos, flush door handles, slim air vents and advanced charging systems position us well to capitalise on this opportunity,” says its annual report. Over 95% of the company’s portfolio is powertrain-agnostic. “We are well-positioned to benefit from automotive megatrends of premiumisation, SUVs and transition to zero-emission vehicles,” says chairman Vivek Chaand Sehgal.

Uno Minda has also seen a jump in kit value of switches as car buyers opt for feature-packed models. With over 50% market share in automotive switches in the domestic market, it now plans to make sunroofs in India. Another trend that has benefitted the company is rise in popularity of alloy wheels. When Uno Minda entered the segment, 13-14% cars had alloy wheels. Seven years later, the number is 40%, still below the global penetration of 95%.

Government’s focus on safety has also benefitted the company. “Airbag sales have increased. OEMs were pushing us to increase capacity, which we did. Government, sooner or later, might implement a cut-off date (for six airbags). We are expanding airbag capacity in southern region with Toyota,” says Minda.

EVs & CNG Focus

When the transition to EVs began, Uno Minda diversified into EV components for two and three-wheelers. It makes battery management systems, motors, onboard chargers and controllers, some of which are supplied to TVS Motor and Bajaj Auto. It now plans to localise components for EVs and has signed a technical licence agreement with Starcharge Energy to make wall-mounted home chargers. There is a huge opportunity for localisation of chargers, says Minda. The Gurugram-based auto parts maker has partnered with China’s Suzhou lnovance Automotive Co. to make EV drivetrain for passenger vehicles.

The company has also decided to ride the boom in CNG car sales by making components such as pressure regulators, cylinder valves and injectors for OEMs. “Two years back, our annual revenue from CNG components was ₹100 crore. Last quarter, it was more than ₹100 crore,” says chief financial officer Sunil Bohra.

The auto ancillary major is now looking to make components for hydrogen-powered vehicles. “Our partner Westport is known for its hydrogen components. We plan to localise the products in coming years,” says Minda, banking on India’s underpenetrated passenger car market. “China sees over 20 million annual PV sales. In India, public transport is growing but is not sufficient. A common man needs roti, kapda, makan and vahan,” says Minda. The company gets 13% revenue from exports and overseas businesses. “We are working on increasing the export pie as pricing is better overseas. We get better margins and profitability,” says Minda.

For Samvardhana Motherson, exports and overseas units account for over 80% revenues. The company’s biggest business is modules and polymer products followed by wiring harness, vision systems, integrated assemblies and emerging businesses. While global light vehicle production remained flat in Q1 FY25, emerging markets drove volume growth for Samvardhana. “In developed markets, especially Europe, delay in EV launches is impacting production,” says its investor presentation. The industry faced a sharp increase in container costs and transit time due to Red Sea crisis, leading to inventory build-up in first quarter. Samvardhana aims to operate with ‘3C10’ philosophy — no country, component or customer will contribute more than 10% revenue, says Sehgal.

To meet rising demand from OEMs, the company is establishing new plants and facilities near customers. In FY24, it announced 18 greenfield projects, primarily focused on growth in emerging markets, particularly India. Samvardhana did 11 acquisitions in FY24, including Japanese firm Yachiyo’s four-wheeler business and Germany’s Dr. Schneider. “Despite large M&A and capex investments, we have kept our net leverage ratio (net debt to Ebitda) at 1.4x,” says Sehgal.

In two-wheeler market, while demand has revived, there is still room for growth, says Anurang Jain, managing director of Endurance Technologies, which mostly supplies components to two-wheeler makers. “Two-wheeler sales in Q1FY25 stood at 5.9 million, surpassing 5.8 million in Q3 of FY21, which was after the first Covid lockdown, but falling well short of 6.8 million in Q2FY19,” says Jain.

The auto parts maker owns a 61.5% stake in Maxwell Energy, which makes battery management systems for EVs. It plans to acquire a 100% stake in Maxwell Energy in a phased manner by FY27. “Our business also benefits from addition of new product categories; we have seen success in winning orders for single channel ABS, battery management systems and driveshafts,” says Jain. He, however, says the market for EVs, both in India and Europe, has been turbulent. Also, rollback of incentives has affected volumes, he says. “Our approach is to try and win orders in all vehicle models actively pursued by OEMs, irrespective of powertrain type,” he says. Owing to transition to EVs and hybrids in Europe, Endurance expects reduction in revenues from currently serviced ICE orders.

Tyre Makers

Promoters of top tyre manufacturers have slipped in rankings this year. Net worth of Balkrishna Industries managing director Arvind Poddar rose to ₹31,884 crore even though his rank dropped. In a recent earnings call, the company’s management admitted that tyre demand is slowing and it expects ‘minor’ growth this year. Raw material cost is also biting. Balkrishna has not been able to hike prices due to weak demand. In Q1 FY25, 47% sales came from Europe, 29% from India and 14% from Americas. Tractors and agricultural machinery account for over 60% sales. “Tyre exports are expected to remain moderate in the near term because of muted demand growth in key export destinations U.S. and Europe. Further, supply chain issues arising from Red Sea crisis have raised freight costs and transit times,” says Nithya Debbadi, assistant vice president and sector head, ICRA.

K.M. Mammen of MRF and Onkar Kanwar of Apollo Tyres also saw a decline in their rankings, though their networth jumped. Domestic tyre volume growth is expected to moderate to 4-6% in FY25 from an estimated 6-8% in FY24 due to high base and subdued growth in the commercial vehicle segment, according to ICRA. High natural rubber prices and increasing crude prices are likely to moderate tyre industry margins by 200-300 bps in FY25, says the rating agency. Auto ancillary players are now pinning hope on revival in demand for cars and commercial vehicles in second half of FY25.