Series 14 – Why Auto Ancillaries and not OEMs in ITUS Portfolio

In today’s discussion, we will delve into the prominent auto ancillary companies that constitute a significant part (18%) of our portfolio. This overview will provide you with a comprehensive snapshot of their core operations and offerings –

1. Bosch – Bosch is a leading supplier of automotive parts, including fuel injection systems, brakes, electrical drives, sensors, software, and more. They also develop advanced driver assistance systems (ADAS) and autonomous driving technologies.
2. Balkrishna Industries Limited– BKT primarily focuses on the production of off-highway tires for various sectors, including agriculture, construction, industrial, earthmoving, and mining and has a significant global presence and exports its tires to over 160 countries worldwide. The company has established a strong distribution network
3. Racl Geartech– Raunaq Automotive is an expertise in manufacturing of premium quality Transmission Gears, Shafts, Engine Timing Gears and Sprockets for automotive sector.
4. Suprajit Engineering– Suprajit Engineering is a leading supplier of automotive cables to OEMs and aftermarket customers worldwide. The company’s products are used in a variety of vehicles, including cars, trucks, buses, and motorcycles. Suprajit Engineering also manufactures halogen lamps for the automotive and industrial markets

Now, the idea of writing about it came from the inquiries we received from our partners on our investment rationale that favors auto-ancillaries over direct investments in automobile original equipment manufacturers (OEMs). So why do we invest in auto-ancillaries and not the OEM’s –

Diversification: Auto ancillary companies supply their products to multiple auto manufacturers, providing exposure to a broader range of customers and diversifying investments across the industry.

Stability: Demand for auto components and parts remains relatively stable even during periods of low vehicle sales, reducing the risk exposed to cyclicality and volatility compared to auto manufacturers.

Industry Growth: Auto ancillary companies benefit from industry opportunities and growth, as their success is not solely dependent on the performance of a single auto company or branch.

Competitive Advantage: Many auto ancillary companies develop proprietary technologies or have long-standing relationships with auto manufacturers, giving them a competitive advantage and pricing power in their segment.

Industry Leadership: Auto ancillary companies often emerge as industry leaders in their respective segments due to their technological advancements, strong relationships, and market position, further enhancing their growth potential.

The below chart below offers a glimpse into the diverse automotive component manufacturing in India and the size of the industry. According to the data from ACMA (Automotive Component Manufactures Association of India), automotive ancillary industry contributes to 2.3% of India’s GDP.

I hope these insights are helpful in understanding the compositions of our portfolio within the Auto-Ancillary theme, you may take these information to your clients as well.

 

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