India's precision machining and auto parts sector is entering a transformation cycle, with Goldman Sachs favoring Sansera and Craftsman

Overview

This report is Goldman Sachs' initiation of industry and stock coverage on India's precision machining and auto parts sector. The core view is that Indian auto parts companies are transitioning from traditional cyclical auto parts manufacturing toward supply-chain roles with higher precision, higher technology content, and broader end markets, including semiconductor wafer fabrication equipment, defense, data center power generation, EV components, aerospace, and industrial technology. The report argues that this transformation, combined with India's protected domestic market, low labor costs, global supply-chain de-risking, and the demand cycle driven by the 8th Pay Commission, could accelerate industry earnings growth.

Core views

Goldman Sachs believes companies that perform better in content growth per vehicle, reinvestment in R&D and capex, powertrain neutrality, capital allocation, margin stability, and new-growth adjacencies will be more attractive investments. The report favors Sansera Engineering and Craftsman Automation: the former benefits from growth engines in semiconductors and aerospace, while the latter, as an engine block specialist, benefits from global data center buildout. Samvardhana Motherson and Bharat Forge are rated Neutral because, while they do have diversification directions, their core addressable markets are growing more slowly or valuations already adequately reflect the upside.

Analysis framework

The report combines industry growth models, global peer comparisons, product and geographic mix analysis, valuation methodology comparisons, and interviews conducted in collaboration with Goldman Sachs' global analysts. Analytical dimensions include the Indian components industry's growth elasticity relative to OEMs, R&D and capex intensity, localization opportunities in EV and ICE, protection from import tariffs, cost competitiveness versus China/the U.S./Japan/Europe/South Korea, and the evolution of auto parts markets in China, Japan, South Korea, Europe, and the U.S.

Methodology notes

• Stock selection frameworkIndia Precision Machining + Auto Parts Stock Selection Framework

  Content growth, business reinvestment, powertrain neutrality, capital allocation optionality, margin stability, new-growth adjacent businesses

  This framework is used to identify Indian precision machining and auto parts companies with stronger structural growth potential amid powertrain evolution and industrial supply-chain expansion.

• Industry modelIndia Auto Components Industry Revenue + EBITDA Model

  FY26E to FY30E revenue and EBITDA CAGR forecasts

  The model treats electrification, the 8th Pay Commission, exports, the global relocation of ICE manufacturing, and adjacent opportunities in defense/consumer durables/semiconductors/aerospace as the industry's growth drivers.

• Valuation methodsSOTP P/E and P/E Methodology

  Sum-of-the-parts P/E and P/E valuation

  The report uses SOTP P/E for SAMIL, Bharat Forge, and Sansera, and P/E valuation for Craftsman Automation and Uno Minda, and provides 12-month target prices.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Sansera Engineering (SASE.BO)

  Buy-rated, pivoting toward precision machining opportunities in semiconductors and aerospace

  Strengths

  FY26E to FY29E revenue, EBITDA, and EPS CAGRs of about 20%, 27%, and 33%, respectively; business reinvestment intensity of about 15%; net debt/EBITDA of about 0.6x; high margin stability.

  Weaknesses

  Relatively low powertrain-neutral exposure; still needs to prove the scalability of new-growth adjacent businesses.

  Comparison

  Among the covered companies, Sansera stands out for growth and new-business adjacency, with target upside of about +28%.

  Risks

  Semiconductor, aerospace, and defense orders ramping more slowly than expected; capex returns below expectations; downturn in the automotive cycle.

• Craftsman Automation (CRAF.BO)

  Buy-rated, an engine block specialist benefiting from global data center buildout

  Strengths

  FY26E to FY29E revenue, EBITDA, and EPS CAGRs of about 17%, 25%, and 43%, respectively; business reinvestment intensity of about 15%; data center generators and industrial storage form new-growth adjacent opportunities.

  Weaknesses

  Lower powertrain-neutral exposure and margin stability; traditional engine-related businesses still carry cyclical risk.

  Comparison

  Target upside is about +27%, and Goldman Sachs believes its data center-related business could drive a rerating opportunity.

  Risks

  Slower data center construction; weakening demand for traditional engine components; execution and capacity expansion risks.

• Samvardhana Motherson (SAMD.BO)

  Neutral-rated, with new businesses and M&A as key variables against a mature operating backdrop

  Strengths

  Product exposure spans polymers, vision systems, and wiring harnesses; high-voltage wiring harnesses, aerospace, semiconductors, and consumer electronics provide adjacent opportunities; relatively high powertrain-neutral exposure.

  Weaknesses

  Target upside is only about +2%; the core business is mature and incremental growth depends on emerging businesses and M&A.

  Comparison

  FY26E to FY29E revenue, EBITDA, and EPS CAGRs are about 13%, 14%, and 22%, respectively; growth quality is relatively steady but valuation appeal is limited.

  Risks

  M&A integration below expectations; delayed contribution from new businesses; global auto demand and customer pricing pressure.

• Bharat Forge (BFRG.BO)

  Neutral-rated, with the defense transition and global commercial vehicle upcycle already priced in

  Strengths

  Defense revenue is expected to grow by about 3x and increase its share of revenue; aerospace fan blades and precision machining offer content-growth opportunities.

  Weaknesses

  Target downside is about -3%; lower powertrain-neutral exposure and margin stability; net debt/EBITDA of about 1.7x.

  Comparison

  FY26E to FY29E revenue, EBITDA, and EPS CAGRs are about 13%, 19%, and 30%, respectively, but valuation already reflects much of the good news.

  Risks

  Defense order realization below expectations; continued pressure on overseas manufacturing in Europe and the U.S.; downturn in the commercial vehicle cycle.

• Uno Minda

  Already covered with a Buy rating and included in the industry comparison framework

  Strengths

  Content-growth opportunities in switches, alloy wheels, lighting, EV four-wheeler powertrain, sunroofs, and ADAS cameras; high powertrain-neutral exposure and strong margin stability.

  Weaknesses

  This report focuses on the newly initiated coverage basket, and Uno Minda is not the main new initiation target in this report.

  Comparison

  Target price of INR 1,440 implies about +25% upside from the current price of about INR 1,153; FY26E to FY29E revenue, EBITDA, and EPS CAGRs are about 19%, 22%, and 25%, respectively.

  Risks

  EV-related new products ramping more slowly than expected; customer concentration and automotive cycle risks.

Key data

• Indian auto parts industry revenue sizeUS$86bn to US$124bnGoldman Sachs expects industry revenue to grow from about US$86 billion to about US$124 billion from FY26E to FY30E.
• Industry revenue CAGR+10%Expected revenue CAGR from FY26E to FY30E, above roughly +8% over the past 10 years.
• Industry EBITDA CAGR+15%Expected EBITDA CAGR from FY26E to FY30E, above roughly +7% over the past 10 years.
• FY27E/FY28E/FY29E industry revenue growth+7% / +12% / +10%The report believes the industry will be supported by demand and structural opportunities after short-term disruptions.
• FY27E/FY28E/FY29E industry EBITDA growth+7% / +26% / +14%Earnings growth is expected to be driven by operating leverage and product-mix improvement.
• End-market revenue opportunity CAGR from FY26E to FY30E2W +12%; Cars +9%; CVs +11%; Tractors +9%; Others +16%Others include non-traditional automotive end markets such as defense, construction, and energy.
• Sansera Engineering rating and target priceBuy; INR 4,130; +28%Buy rating, current price about INR 3,219, with semiconductors and aerospace as the main growth drivers.
• Craftsman Automation rating and target priceBuy; INR 11,600; +27%Buy rating, current price about INR 9,099, with engine blocks and data center power generation equipment-related opportunities as the main attractions.
• Samvardhana Motherson rating and target priceNeutral; INR 148; +2%Neutral rating, current price about INR 145; new businesses and M&A are key under a mature operating base.
• Bharat Forge rating and target priceNeutral; INR 2,120; -3%Neutral rating, current price about INR 2,190; the defense transition and global commercial vehicle upcycle are already largely reflected.

Impact & implications

The investment implication of the report is that India's auto parts sector should not be valued solely as a traditional automotive cyclical sector; companies with precision machining capabilities, cross-industry supply-chain migration capabilities, and strong capital reinvestment capacity may achieve higher-quality, more structural earnings growth. At the same time, valuation differentiation matters: companies whose growth adjacencies are not yet fully priced in are more attractive, while companies with mature core businesses or upside already reflected in valuation remain Neutral.

Risks

• Indian auto demand may be affected by El Nino, the election cycle, or a slowdown in macro consumption, which could lead to slower growth from 2H FY27E to early FY28E.
• Auto parts suppliers generally have weaker bargaining power than OEMs; without proprietary products or process technology, margins may come under pressure.
• New-growth adjacent businesses such as semiconductors, aerospace, defense, and data centers require capex and capability building, and there is uncertainty around order realization and investment returns.
• Global export opportunities come with end-market volatility, regulatory risk, and FX risk.
• Competition from lower-cost regions such as China may limit the global share expansion of Indian-made components; the report notes that some parts made in India are still more expensive than those made in China.
• Valuations already sufficiently reflect transformation and cyclical-upturn expectations for some companies, resulting in limited upside or downside risk.

What to watch

• The pace of progress on the 8th Pay Commission and its impact on Indian auto demand.
• Progress in localization of Indian EV components, especially incremental opportunities after already high localization of ICE components.
• Order trends, revenue mix, and margin changes in adjacent businesses such as semiconductor equipment, aerospace, defense, data centers, and consumer electronics.
• Each company's R&D plus capex as a percentage of revenue, and whether capex can translate into new products and new customers.
• Changes in cost competitiveness between India and China, the U.S., Japan, Europe, and South Korea.
• Whether import tariffs and domestic market protection policies continue to provide a buffer for Indian auto parts companies.
• Global auto and commercial vehicle production cycles, especially European and U.S. heavy trucks, the migration of global ICE manufacturing, and changes in EV penetration.