New Delhi

Strategic diversification and the growing premiumisation of vehicles have emerged as the primary engines of growth for India's auto ancillary industry over the past decade, enabling the sector to triple its revenues despite varying performances across different segments, according to a report by Equirus Securities.

The report said the listed auto ancillary universe recorded a revenue compound annual growth rate (CAGR) of 11 per cent between FY16 and FY26, with total revenues expanding three times to nearly Rs 5 trillion during the period.

However, the report noted that the sector's progress was far from uniform.

"India's listed auto ancillary sector grew revenues 3x over FY16-26, but the decade was not one story -- it was fifty-two stories running simultaneously," it said.

According to the analysis, companies that diversified their business models consistently outperformed those dependent on a single growth trigger.

"Diversification beat volume, every time," the report stated, adding that the strongest performers had multiple growth drivers operating simultaneously.

The study found that businesses expanding through acquisitions, launching new products, entering new markets and broadening their customer base delivered superior results compared with peers relying primarily on production volumes.

"The fastest-growing auto ancillary companies over FY16-FY26 have largely been those that successfully diversified through acquisitions and new product additions, enabling them to expand wallet share with OEMs and enter adjacent segments," the report noted.

The increasing premiumisation of vehicles also contributed significantly to the sector's expansion. Rising consumer preference for technologically advanced and feature-rich vehicles boosted the value of components installed in each vehicle.

"Premiumisation, emission-led content increases, and rising vehicle electronics have further driven content growth per vehicle, supporting sustained revenue expansion," the report said.

It identified increasing content per vehicle as one of the most influential trends shaping the industry over the last decade.

"The sector's most powerful single dynamic over the decade was the steady rise in content per vehicle -- the value of ancillary components in each car or two-wheeler sold, independent of whether volumes grew or fell," it observed.

Among various segments, Electricals and Lighting emerged as the fastest-growing category, posting a 17 per cent revenue CAGR during FY16-26. In comparison, the Batteries segment expanded at a slower pace of 8 per cent.

The report further distinguished between structural and temporary drivers of content growth.

"Content that grows because of genuine consumer preference -- SUV mix, premium lighting, digital instrument clusters and connected car features -- is structural and compounds," it said.

By contrast, growth linked to regulatory mandates such as airbags, anti-lock braking systems (ABS), tyre pressure monitoring systems (TPMS) and emission-related technologies tends to be one-off in nature.

Looking ahead, Equirus Securities believes the increasing adoption of electric vehicles (EVs) could unlock fresh opportunities for ancillary manufacturers by introducing entirely new product categories.

According to the report, EVs are creating demand for components such as battery management systems, charging electronics and digital instrument clusters that did not exist a decade ago and are less dependent on fluctuations in overall automobile sales.

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It concluded that companies focusing on diversification while capitalising on long-term trends such as premiumisation and electrification are likely to remain better positioned for sustained growth during FY27-FY30.