In recent years, the auto auxiliary stocks have experienced significant volume increase as India's vehicle sector has recovered strongly from the pandemic-induced slowdown. A number of factors, including increased economic growth and personal earnings, contributed to the automotive sector's recovery by increasing demand for commercial vehicles (CVs).

SUV demand surged as a result of a number of factors, including a notable shift from public to private transportation and a growing desire for premiumization. Notably, India saw the largest-ever domestic passenger car sales in FY24.

Strong demand for 200cc bikes and an increase in two-wheeler sales were caused by the rural market's recovery, which in turn strengthened demand for auto parts. Auto part volume has also increased due to rise in aftermarket sales and exports.

In this context, the stocks of this industry have experienced significant growth; one such company is Shriram Pistons & Rings. The shares have increased in value by 157% in the past year, from ₹802.95 to the present value of ₹2067 per.  The shares have increased by 512% during the previous two years, and they have returned an astounding 654% during the last four years.

Following the revelation of the business's Q4 and FY24 results, which met analyst expectations, the shares of the company surged by more than 5% last week. For the whole fiscal year (FY24), revenue from operations climbed by 14.5% YoY to ₹3351 crore, while revenue in Q4 jumped by 12.6% YoY to ₹802 crore.

Growth narrative to go on

Expectations for sustained outperformance in comparison to the vehicle industry as a whole were emphasized by the management. These expectations were fueled by stronger customer penetration and stable growth in the aftermarket and export areas.

For FY25E, they have projected a robust 5-7% rise in the two-wheeler (2W) and passenger vehicle (PV) segments. Commercial vehicles (CVs) are predicted to be stable, with an expected upswing beginning in the third quarter following the elections.

Over ₹700 million was invested by SPRL in building its Coimbatore factory, while over Rs. 800 million was invested in its Pithampur plant, which is scheduled to start production in March 2024. New order wins support these new units, said Emkay Global Financial Services.

Due to customer order wins, the new EV powertrain-focused facilities at Pithampur and Coimbatore are now being completely filled. Over the next several years, the EV powertrain business (EMFI) is anticipated to experience considerable development as the firm works with many OEMs in a variety of sectors.

With two agreements in progress, SPRL is continuing its aggressive expansion strategy through mergers and acquisitions. The notable increases in margin observed in recent times can be attributed to a variety of sustainable measures taken to enhance productivity, efficiency, capacity utilization, and cost efforts, including the adoption of renewable power sources.

With more than 1,200 touchpoints in India and a global presence spanning 45 countries, SPRL has a vast aftermarket reach that includes an extensive maintenance network. The brokerage emphasizes that this network will help the EV industry flourish.

Optimistic view for the future

As international OEMs look to reduce the risk in their supply chains in the wake of recent disruptions, India stands to gain a lot. Growth is being driven by positive domestic trends, such as the increasing premiumization of all product groups.

The industry is also being strengthened by the government's quest for stronger rules in order to bring it into line with international standards. Examples of these laws include the switch from BS4 to BS6, which allows 100% FDI into the auto components business under the automated route.

The push towards electric vehicles (EVs) is coming from the government's 'Make in India' emphasis on a number of programs and initiatives, such as FAME II and the PLI Scheme. Growing numbers of people are predicted to enter the workforce, and the middle class is projected to increase at a compound annual growth rate (CAGR) of 7-8% in India.

The sector's share of the national GDP has increased significantly from 2.7% in 1992–1993 to around 7.1% now. Furthermore, India has substantial cost advantages over Europe and Latin America, allowing automakers to save up to 25% on operations. The labor-intensive car and auto component sectors also benefit from the nation's big, skilled, and semi-skilled workforce.

Regarding electric vehicles, the government's emphasis on cutting emissions is moving in the direction of electric vehicles. By 2030, India might be the world leader in shared mobility, opening doors for electric and driverless cars.

Industry projections suggest that the market for EV-based components would grow from an expected ₹140–150 billion in FY25 to ₹640–680 billion by 2030. The government wants 30% of new cars sold in India to be electric by 2030. It is anticipated that the 'Make In India' campaign, bolstered by PLI initiatives, will greatly accelerate the EV transition in important areas.

The electric vehicle (EV) business is growing, but there are still many obstacles to overcome and a long way to go. Internal combustion (IC) engines will keep developing in tandem with the growing automobile industry in the meantime.