Tenneco India IPO: Market leader with strong margins—but can it accelerate growth?

At the upper end of the ₹378–397 price band, the company’s valuation stands at around ₹16,000 crore—with no fresh issue proceeds earmarked for expansion.

Tenneco India manufactures and supplies clean air, powertrain, and suspension systems to leading OEMs and export markets. It is the largest supplier of clean air systems to Indian commercial automakers, commanding a 57% market share. The company also leads the passenger vehicle segment as the largest supplier of shock absorbers and struts, holding a 52% market share.

But where does Tenneco India stand amid the country’s fast-evolving auto ancillary landscape?

Diversified product play

Tenneco India designs and manufactures technology-intensive clean air, powertrain, and suspension systems for automakers (OEMs) and exports.

It operates two key divisions:

Clean Air & Powertrain Solutions (57.5%), and

Advanced Ride Technologies (42.5%) of FY25 revenue.

Regulatory tailwinds

The Clean Air & Powertrain Solutions segment focuses on components critical for internal combustion engine (ICE) performance, fuel efficiency, and emission control. Tighter global regulatory standards, such as BS7 and CAFE regulations, currently serve as a strong catalyst, accelerating demand for Tenneco’s highly engineered exhaust aftertreatment systems. This regulatory push increases the content per vehicle (CPV) and creates near-term growth opportunities.

The company's prior investment of ₹209.8 crore (FY19/FY20) for BS6 readiness demonstrates its ability to quickly adapt to these emission-related upgrades. However, this segment is structurally exposed to the main industry risk: the accelerating global transition toward electric vehicles (EVs) poses a gradual but significant demand risk, as its core product line primarily serves ICE and hybrid platforms.

In contrast, the Advanced Ride Technologies division is strategically aligned with future automotive trends. This segment develops versatile systems—including those for vehicle handling, comfort, and stability—that cater seamlessly to all vehicle types: ICE, hybrid, and EVs.

The segment is aligned with the premiumization trend and the growing penetration of EVs, both of which drive CPV. As consumers increasingly value advanced features, superior driving comfort, and performance, this division stands to benefit from the rising share of premium vehicles, SUVs, and EVs in the overall automotive mix.

Deep OEM relationships

The company is a market leader, in terms of revenue, across all its major product lines. It is the largest supplier of clean air solutions to Indian commercial truck OEMs (57% market share) and to off-highway vehicle OEMs (68% share). Tenneco is also among the top four suppliers to passenger vehicle OEMs (19% share), and remains the largest supplier of shock absorbers and struts to them, holding a 52% market share.

The Passenger Vehicle (PV) segment is the largest contributor at 63.9%, followed by Commercial Vehicles (CV) at 22.8%. Industrial and aftermarket segments contribute smaller portions.

Tenneco India generates nearly all its revenue within the country—about 93.6% from domestic operations—with exports contributing just 6%. Its overseas markets span Argentina, Brazil, China, several European countries, the US, Japan, and South Korea.

While the US accounts for only 1.6% of total revenue, exports to the region have continued without any price or volume cuts. The company plans to position its Indian operations as a global export hub for both the Tenneco Group and third-party OEMs to gradually lift its export share.

Tenneco’s moat lies in its sticky, decades-long OEM partnerships—with Maruti Suzuki (29 years), Tata Motors (28 years), Mahindra & Mahindra (27 years), Hyundai Motor India (18 years), and Ashok Leyland (17 years) among its key clients.

Typically, passenger and commercial vehicle OEMs begin with three- to seven-year contracts, which are then renewed over multiple product cycles, ensuring high customer retention. As of March 2025, the company services 119 customers, underscoring its deep integration into India’s auto manufacturing ecosystem.

Tenneco India benefits from access to its parent’s global R&D and proprietary technologies, enabling it to deliver modular and bespoke component solutions. It operates under a non-exclusive, non-transferable license to use the Tenneco Group’s intellectual property, in exchange for a royalty fee of 2.5% of gross revenue, valid until 1 January 2031.

This arrangement gives Tenneco India access to advanced global technology and trademarks. For instance, it leveraged the Tenneco Group’s Euro 6–compliant portfolio to swiftly introduce 45 new BS6 products between May 2019 and June 2020. However, this reliance on the parent’s intellectual property exposes it to renewal and pricing risks once the current license term expires in January 2031.

Operational footprint

The company’s relationships with top clients are deep and enduring—the average partnership length with its top 10 customers is 19 years. However, revenue dependence on a few large OEMs has increased. The top three customers contributed 46.3% to revenue in FY25, up from 36.1% in FY23, signalling a growing concentration risk even amid long-standing partnerships.

Tenneco India operates 12 manufacturing facilities—seven under Clean Air and Powertrain Solutions and five under Advanced Ride Technologies—spread across seven states and one union territory.

As of March 2025:

• Clean Air Solutions: Installed capacity of 2.58 million cold-end units (54.81% utilization) and 1.87 million hot-end units (80.57% utilisation).
• Advanced Ride Technologies: Installed capacity of 20.68 million units, with 83% utilization.

Diverse supplier base and rising localization

Steel remains the key input, accounting for over 50% of material costs. The company has a diversified vendor base of 485 suppliers, with the top 10 accounting for 30.2% of purchases in FY25, down from 42.5% in FY23—a sign of reduced supplier dependence.

Tenneco India sources 83.5% of its raw materials domestically, which shortens lead times, lowers costs, and enhances quality. The company also plans to localise production of the Tenneco Group’s patented IROX bearings, a premium product, and ceramic spark plug components, moves that could improve cost efficiency and expand OEM share in India.

How do the financials stack up?

Revenue has been largely stagnant— ₹4,890 crore in FY25 versus ₹4,827 crore in FY23—due to falling substrate prices and some OEMs shifting to lower-cost domestic suppliers. This growth lagged peers such as Sona BLW, Uno Minda, and Gabriel India.

Substrates, ceramic filters coated with platinum, palladium and rhodium, are critical in emission-control systems. While Tenneco India records substrate-related revenue and costs on a gross basis, price volatility in these metals drives sharp fluctuations in its reported margins.

In FY24, substrate costs rose 30% year-on-year, compressing margins, but fell 57.4% in FY25, leading to a sharp rebound in profitability. Ebitda surged 43% to ₹815 crore in FY25 from ₹571 crore in FY23, while margins expanded 485 bps to 16.7%, aided by lower royalty outgo and cost optimization.

These margins outperform Gabriel India (9.6%) and Uno Minda (11.2%), though still trail Sona BLW (27.5%). Profit after tax (PAT) jumped 45% to ₹553 crore in FY25 from ₹381 crore in FY23.

The balance sheet remains robust with a net cash position of ₹286 crore and strong return ratios—return on equity (RoE) at 42.6% and return on capital employed (RoCE) at 56.8%, both more than double peers.

Is the discount valuation worth a bet?

At a ₹16,000-crore market cap, Tenneco India trades at 29x earnings, a discount to peers—Gabriel (85x), Uno Minda (70x), and Sona BLW (48x). Its last private placement on 26 March 2025, priced at ₹289 per share, suggests only a modest premium.

Overall, Tenneco Clean Air India offers a balanced mix of strengths and risks. Its product leadership, deep OEM ties, and improving profitability underscore operational strength, while localisation and tighter emission norms should support growth. However, sluggish topline performance and royalty dependence could cap near-term upside.

At current valuations, the stock appears reasonably priced, reflecting its steady margins but slower revenue momentum—a key metric investors will watch going forward.

For more such analysis, read Profit Pulse.

Madhvendra has over seven years of experience in equity markets and writes detailed research articles on listed Indian companies, sectoral trends, and macroeconomic developments.

The writer does not hold the stocks discussed in this article.

The purpose of this article is only to share interesting charts, data points, and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educational purposes only.