The Indian auto component industry is set to experience a revenue growth of 5-7% in the fiscal year 2025, following a robust 14% growth in FY2024, according to the latest report by ICRA. Despite the anticipated slowdown, operating margins are expected to improve by approximately 50 basis points year-on-year, driven by better operating leverage, increased content per vehicle, and value additions. However, the industry remains vulnerable to fluctuations in commodity prices and foreign exchange rates.
ICRA forecasts that the industry will incur capital expenditures ranging from Rs. 20,000 to 25,000 crore in FY2025, primarily for capacity expansion and technological advancements. This capex is expected to represent 8-10% of operating income over the medium term, with the Production Linked Incentive (PLI) scheme playing a significant role in accelerating investments in advanced technology and electric vehicle (EV) components.
“Demand from domestic original equipment manufacturers (OEMs), which accounts for over 50% of sales for the Indian auto component industry, is expected to moderate in FY2025,” stated Vinutaa S, Vice President and Sector Head – Corporate Ratings at ICRA Limited. “The growth in replacement demand is pegged at 5-7%, following a relatively weak Q1 in the current fiscal. Export growth, accounting for nearly 30% of the industry’s revenues, is likely to be subdued due to weak global macroeconomic conditions and geopolitical tensions. However, Indian ancillaries will benefit from rising supplies to new platforms as global OEMs diversify their vendor base and increase outsourcing.”
The report highlights that the moderation in revenue growth is due to the expected slowdown in the domestic OEM segment and tepid new vehicle registrations in Europe and the US. Nonetheless, factors such as rising supplies to new platforms, increased value addition, and opportunities arising from the winding up of plants in the European Union present positive prospects for Indian exporters. Additionally, the aging of vehicles and increased sales of used vehicles in global markets are expected to boost component exports for the replacement segment.
ICRA also notes the potential opportunities for Indian auto component suppliers in the EV sector, with EVs projected to account for around 25% of domestic two-wheeler sales and 15% of passenger vehicle sales by 2030. The relatively low localisation level of the EV supply chain presents manufacturing opportunities for domestic suppliers, supported by the EV policy 2024 for electric four-wheelers, which mandates domestic value addition.
The report further emphasizes the industry’s comfortable liquidity position, supported by stable cash flows and earnings, with most auto ancillary players rated by ICRA being in the investment grade. This reflects a healthy credit profile stemming from stable cash accruals and comfortable debt levels.
On the investment front, the industry is expected to maintain its capex at 8-10% of operating income over the medium term. “The incremental investments would be directed towards new products, product development for committed platforms, and the development of advanced technology and EV components,” added Vinutaa. “The PLI scheme will also contribute to accelerating capex towards advanced technology and EV components.”
