Auto ancillary revenue +12.5% in FY26 but input costs squeeze supply chains

For supply chain and logistics professionals, the auto ancillary sector’s 12.5% revenue jump masks mounting operational pressures. While volume gains signal robust manufacturing demand, a surge in commodity and freight costs is compressing margins and testing procurement strategies across 59 listed firms.

India's auto ancillary sector recorded a 12.5% year-on-year revenue increase in FY26, driven by robust volume growth across vehicle segments and a richer product mix. The findings, published by Elara Capital in a June 2026 report analyzing 59 listed component manufacturers, underscore a sector thriving on domestic demand but bracing for near-term margin pressure from rising commodity costs. The top-line expansion was matched by a 13.3% rise in absolute EBITDA, yet the aggregate operating margin stayed flat at 13.6%, revealing a profitability squeeze for a large swath of the industry. Notably, 25 of the 59 companies—or 42% of the sample—reported a contraction in their operating margins, signaling that the gains were unevenly distributed.

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On the profitability front, tyres, lighting, and suspension segments outperformed with a 17% EBITDA boost, while forgings and batteries suffered declines of 4% and 1%, respectively, likely due to input cost sensitivity and competitive pressures.

Segment-level data highlights where the momentum is strongest. Suspension braking and multiproduct categories led revenue growth with increases of 16% and 15%, respectively, benefiting from higher vehicle content and a shift toward premium features. On the profitability front, tyres, lighting, and suspension segments outperformed with a 17% EBITDA boost, while forgings and batteries suffered declines of 4% and 1%, respectively, likely due to input cost sensitivity and competitive pressures. The divergence suggests that suppliers with differentiated technology or critical safety components are better positioned to maintain pricing power.

Looking ahead to FY27, the demand outlook remains constructive across two-wheelers, passenger vehicles, commercial vehicles, tractors, and the replacement market in India. The report identifies electric-vehicle-linked businesses, electronics-heavy products, and defense/aerospace as growth areas poised to outpace the broader sector. However, global dynamics present a mixed picture: export demand is soft in Europe but showing improvement in North America, adding a layer of complexity for ancillaries with international exposure.

The most pressing challenge is commodity inflation. Elara Capital warns that most component manufacturers will face margin drag in the first quarter of FY27 from elevated costs of copper, aluminum, steel, rubber, crude-linked inputs, freight, and energy. While the industry largely operates with pass-through mechanisms, price adjustments typically lag by one to six months. This delay means that even where manufacturers have already implemented price hikes, the benefit will take time to flow through, maintaining near-term pressure on profitability. Rising freight costs add a logistics dimension to the squeeze, particularly for export-oriented firms.