Auto ancillary stocks offer strong growth play as volumes, exports pick up: SBI Securities

The auto ancillary sector is set for strong growth, supported by improving volumes, a rise in exports, and strategic diversification, said Sunny Agarwal, Head of Fundamental Research (Retail Desk) at SBI Securities.He believes the space offers a compelling investment opportunity, with select companies well-positioned to deliver a 20-25% earnings compound annual growth rate (CAGR) over the next two to three years.

Agarwal believes the auto ancillary industry is the best way to capitalise on the broader recovery in the automotive sector. “Post-GST rationalisation, we have seen that there has been a strong uptick in volumes across the auto sub-sector, whether it is a passenger vehicle, two-wheeler, three-wheeler or for that matter commercial vehicle or tractor,” he noted.

While the first half of fiscal year 2026 was subdued for commercial vehicles and tractors, Agarwal anticipates a “very robust” second half in terms of volume delivery.Auto ancillary companies cater to domestic original equipment manufacturers (OEMs) and are also gaining from international players increasingly using India as an export hub. “That is something which is giving them another leg up in terms of growth,” he said.

Furthermore, he pointed out that many firms have diversified their product offerings through organic expansion, acquisitions, or collaborations with international players.

In terms of valuation, Agarwal sees significant potential in mid-sized companies. “Most of the companies in the range of ₹5,000 to ₹15,000 crore market cap band are well-placed to deliver a kind of 20-25% earning CAGR over the period of next two to three years,” he stated.Within the auto ancillary space, Agarwal is particularly positive on tyre manufacturers. He agreed that these companies are platform-agnostic beneficiaries of auto sector growth, as both internal combustion engine (ICE) and electric vehicles (EV) require tyres.

He identified several tailwinds for the sub-sector, including stability in rubber prices after necessary price actions were taken in the first half of FY26. Additionally, lower crude oil prices are expected to reduce costs for carbon black, a key input material.

“As historically we have seen, as the auto sales volume picks up, ultimately the OEM demand obviously is likely to do well. Going forward, replacement demand also tends to do well,” Agarwal added.

Among the tyre companies, he specifically recommended CEAT to clients. “We believe among the tyre play, CEAT which is more of a two-wheeler passenger vehicle and with a strong brand presence, CEAT is one of the stocks which we are recommending to our clients,” he concluded.

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