Indian auto component industry’s revenues to expand by 8-10 pc in FY26

New Delhi: The revenue growth of the Indian auto component industry is projected to expand by 8-10 per cent in FY26, according to a report on Thursday.

Credit rating agency ICRA expects operating margins to remain range-bound and hover at 11-12 per cent in FY25 and FY26, supported by benefits from operating leverage, higher content per vehicle and value addition, while remaining vulnerable to any significant unfavourable movements in commodity prices and foreign exchange rates.

The disruption along the Red Sea route has resulted in a surge in ocean freight rates by 2-3 times in CY2024, compared to CY2023.

Any further sharp and sustained increase in ocean freight rates could also have a bearing on margins for auto component suppliers having significant exports/imports.

ICRA estimates the auto component industry to incur a capex of Rs 25,000-30,000 crore in FY2026 towards capacity expansion, localisation/capability development and technological advancement (including EVs), among others.

At present, only 30-40 per cent of the EV supply chain is localised. There has been substantial localisation in traction motors, control units and battery management systems over the years, while battery cells, which constitute 35-40 per cent of vehicle cost, are still entirely imported.

The relatively low localisation level gives rise to manufacturing opportunities for domestic auto component suppliers.

“The domestic auto component industry is in a transitory phase with the automotive players increasingly focusing on sustainability, innovation and global competitiveness,” said Vinutaa S, Vice President and Sector Head–Corporate Ratings, ICRA Limited.

Demand from domestic original equipment manufacturers (OEMs), which constitutes over half of the industry revenues, is estimated to grow by 7-9 per cent in FY25 and 8-10 per cent in FY26.

Further, there would be opportunities for Indian players in metal castings and forgings because of the closure of plants in the European Union (EU) due to viability issues.

The ageing of vehicles and the sale of more used vehicles in global markets would aid in exports for the replacement segment. The impact of any import tariffs on Indian auto component exports remains monitorable. Electric vehicle-linked opportunities, premiumisation of vehicles, focus on localisation, and changes in regulatory norms would support growth for auto component suppliers over the medium to long term.

–IANS