Goldman Sachs initiates coverage on Sansera Engineering, 3 other auto ancillary stocks with upside of up to 28%. Here’s why

Goldman Sachs says these manufacturers are undergoing a product mix shift that could make their business models more resilient to industry cycles while expanding into larger profit pools by leveraging their core manufacturing capabilities.

Contrary to its belief, the market continues to view many of these companies as cyclical auto parts manufacturers with limited pricing power and recurring capital expenditure requirements.

The brokerage expects the Indian auto parts industry, supported by the transition towards precision machining, to post revenue growth of 7% in FY27E, 12% in FY28E and 10% in FY29E. EBITDA is projected to grow 7% in FY27E, 26% in FY28E and 14% in FY29E over the same period.

Also read: Auto components industry expected to grow 8-10% in FY27: ACMA

Here’s why brokerage is bullish

Sansera Engineering – Goldman Sachs initiated coverage on Sansera Engineering with a Buy rating and a target price of Rs 4,130 (28% upside). It said the company’s transition into aerospace, defence and semiconductors is expected to support higher margins and better realisations. The brokerage highlighted that semiconductor wafer fabrication equipment manufacturers require precision engineering suppliers, while the wafer fabrication equipment manufacturing supply chain in Southeast Asia presents an opportunity.

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It added that production-linked incentive (PLI) benefits are not yet reflected in its projections and could provide additional upside. Goldman Sachs also expects the aerospace, defence and semiconductor businesses, along with exports, to provide a strong tailwind to corporate EBITDA margins, while domestic two-wheeler parts outsourcing offers incremental upside.
Craftsman Automation – The brokerage also initiated Craftsman Automation with a target price of Rs 11,600 (27.4% upside). It believes the company’s engine block business is well positioned to benefit from the global data centre build-out. Goldman Sachs also expects aluminium content per vehicle to increase with the transition to electric vehicles, while describing the “local for global” engine parts opportunity as an additional growth driver. It further noted that the ongoing turnaround in Sunbeam should support profitability and return on equity.Read more: Revenue of auto ancillary firms grew at 11% CAGR during 2016-26: Report

Bharat Forge – It also initiated Bharat Forge with a Neutral rating and a target price of Rs 2,120 (3.1% downside). The brokerage said the expected defence growth and the commercial vehicle upcycle are already reflected in the stock price. It expects a commercial vehicle upcycle in North America and Europe over the next two years, while noting that overseas manufacturing operations in Europe and the US continue to struggle and are being wound down. Goldman Sachs expects defence revenue to grow threefold and contribute 22% to consolidated revenue.

Goldman Sachs initiated coverage on Samvardhana Motherson with a Neutral rating and a target price of Rs 148 (2% downside).

Auto ancillaries in FY26

Auto ancillary companies reported a 12.5% YoY increase in revenue in FY26, driven by healthy volume growth across segments and an improved product mix. According to Elara Capital, absolute EBITDA grew 13.3% YoY, while the aggregate operating margin remained unchanged at 13.6%.

Among segments, suspension braking and multiproduct companies led revenue growth with increases of 16% and 15%, respectively. On the profitability front, the tyres, lighting and suspension segments recorded the strongest performance, with EBITDA rising 17%. In contrast, the forgings and batteries segments reported EBITDA declines of 4% and 1%, respectively.

Looking ahead to FY27, Elara Capital expects the passenger vehicle segment to grow 7%, while two-wheeler volumes are projected to increase 8%.

The brokerage said four key drivers can help an auto ancillary company outperform OEMs: product expansion, segment expansion, geographic expansion and inorganic expansion.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)