India’s auto component sector is set to see a slowdown in revenue growth, with a projected growth rate of just 6-8% for FY25 and FY26, down from the 14% growth seen in the previous fiscal, according to CRISIL. The moderation is attributed to a dip in demand for new vehicles, excluding two-wheelers, as well as global macroeconomic challenges, particularly in key markets like Europe and the US.
While export growth is expected to fall short of the 13% increase seen in FY24, steady demand in the replacement segment should help maintain overall growth. CRISIL forecasts operating profitability for auto component manufacturers to remain steady at 12-13%, aided by cost-reduction measures and improved pricing.
Capital expenditure in the sector is anticipated to rise, largely driven by expansion plans of passenger vehicle OEMs, with investments expected to be funded by healthy cash flows. This reduces reliance on external borrowing, keeping credit profiles stable.
Anuj Sethi, Senior Director at CRISIL Ratings, pointed out that two-wheeler OEMs would experience double-digit growth, while other OEM segments may see modest gains. Replacement revenue growth is expected to sustain at 8-9%, driven by strong vehicle sales in recent years.
Exports, however, have been cooling off, comprising around 15% of total sector revenue, down from 17% in FY2022. Despite this, India’s rising share of high-margin components continues to support profitability. As electric vehicle (EV) adoption accelerates, CRISIL reports increased investment in EV components, with automotive manufacturers expected to invest Rs 16,500 crore in FY25 and FY26, up 25% from FY24.
With EV adoption gaining traction, the sector is poised for steady growth despite global challenges. CRISIL forecasts strong debt protection metrics, with interest coverage estimated at 8-9 times, reflecting the sector’s financial resilience.
