The Indian automotive components industry is expected to see a slowdown in revenue growth, with projections of 6-8% growth over the current and next fiscal years, according to CRISIL. This comes after a strong 14% growth in the previous fiscal year, as demand for new vehicles, excluding two-wheelers, begins to ease.
Export growth is also anticipated to decelerate, following a 13% increase in fiscal 2024, due to weaker macroeconomic conditions in major global markets such as Europe and the US. However, consistent replacement demand is expected to cushion the decline and support overall growth.
Operating margins for auto component manufacturers are likely to remain stable at 12-13%, driven by better realization rates and continued cost-cutting measures. This stability is expected to persist despite the challenging market conditions, CRISIL noted.
Capital expenditure in the sector is set to rise in line with expansion plans by original equipment manufacturers (OEMs), particularly in the passenger vehicle segment, where manufacturers are boosting capacity over the next few years. This surge in capex is expected to be funded by strong cash flows, reducing the need for external borrowing and maintaining stable credit profiles.
An analysis by CRISIL Ratings covering automotive component manufacturers, which contribute approximately 35% of the sector’s revenue (Rs 7 lakh crore in FY24), shows that OEMs account for 65-70% of total revenue, with the remainder from exports and replacement demand. Within the OEM segment, passenger vehicles and two-wheelers generate nearly three-quarters of the revenue.
Anuj Sethi, Senior Director at CRISIL Ratings, mentioned, “Demand from two-wheeler OEMs is expected to grow at a double-digit pace in the current and next fiscal years, while other OEM segments may experience modest growth, limiting overall OEM revenue expansion. The replacement segment is expected to sustain a revenue growth of 8-9%, supported by strong vehicle sales in prior years.” He also noted that export revenue growth is slowing due to economic challenges in key markets like Europe and the US.
Exports currently represent about 15% of the sector’s revenue, down from 17% in fiscal 2022. While export growth is slowing, India’s increasing share of high-margin, critical components, which account for around 60% of export revenue in fiscal 2024, continues to support profitability.
The growing adoption of electric vehicles (EVs) is driving higher investments in EV-related components. Manufacturers are also engaging with the government’s Production-Linked Incentive (PLI) scheme, further boosting capex in the sector.
Poonam Upadhyay, Director at CRISIL Ratings, stated, “With EV adoption gaining momentum, companies are investing in EV component manufacturing capacities. Automotive component manufacturers rated by us are expected to invest about Rs 16,500 crore in the current and next fiscal years, marking a 25% increase from fiscal 2024. Despite higher capex, healthy balance sheets and cash flows will reduce reliance on debt, ensuring strong debt protection metrics.”
CRISIL expects debt protection metrics to remain robust, with the interest coverage ratio estimated at 8-9 times and the debt-to-EBITDA ratio projected at 1.1-1.3 times over the next two fiscal years. These figures reflect improvements from 7.5 times and 1.6 times in fiscal 2024. While the sector is set for steady growth, factors such as OEM demand, EV adoption, and the global economic environment will play a key role in shaping its future trajectory, CRISIL concluded.
