CHENNAI: India’s automotive component sector is expected to register 7–9 percent revenue growth this fiscal, mirroring last year’s performance, driven by sustained demand from two key segments — two-wheelers (2Ws) and passenger vehicles (PVs), particularly utility vehicles, which together account for nearly half of the industry’s total revenue, according to rating agency Crisil Ratings.
The aftermarket segment — sales of auto components as spares or replacements — which contributes at least 15 percent of the industry’s total revenue, is also expected to grow steadily at 5–7 percent, according to a recent report by the rating firm.
The report further notes that moderate growth in commercial vehicle and tractor sales — which collectively contribute around 17 percent of industry revenue — will provide an additional boost to overall growth.
However, weak demand for new vehicles in the US and Europe, which together represent about 60 percent of India’s auto component exports, could act as a dampener, the report cautions.
Operating margins in the sector are projected to remain stable at 12–12.5 percent this fiscal, supported by the increasing share of high-margin components such as automated driver assistance systems (ADAS) modules, infotainment systems, and advanced braking systems. A decline in input costs — particularly of steel (45–50% share in input costs), aluminium (15–20%), and plastics (10–12%) — used for structural rigidity, weight reduction, and interiors, will further support profitability. However, the imposition of new tariffs could erode margins for companies heavily reliant on US exports, Crisil warns.
Continued high capital expenditure will be funded primarily through internal accruals. Alongside tight control over working capital, this will limit dependence on external borrowing, keeping credit profiles stable.
An analysis by Crisil Ratings, covering automotive component makers that accounted for nearly 35 percent of the sector’s total revenue of approximately ₹7.9 lakh crore last fiscal, supports this outlook. However, demand trends are expected to vary across the three key segments served by component manufacturers — original equipment manufacturers (OEMs), the aftermarket, and exports.
“Demand from automotive OEMs, which contribute two-thirds of total revenue, is expected to grow 8–9 percent this fiscal, with value growth outpacing volume growth due to rising safety, emission, and electronic content, especially in PVs and 2Ws,” said Poonam Upadhyay, Director, Crisil Ratings.
“The aftermarket segment will post steady 6–7 percent growth, supported by an ageing vehicle base. Export growth, however, is expected to moderate to 7–8 percent amid weak demand for internal combustion engine vehicles and a slowdown in electric vehicle (EV) adoption across the US and Europe,” she added.
While the US contributes only about 5% to total industry revenue, it commands a significant 28 percent share of export earnings and is currently the fastest-growing export market for auto components. The proposed 25% tariff by the US could significantly impact companies with high exposure to that market.
According to Anil More, Associate Director, Crisil Ratings, high-margin, technology-intensive components now account for around 27 percent of the segment’s revenue, up from about 18 percent before the COVID-19 pandemic — a shift driven by premiumisation and stricter emission norms.
“This structural shift, along with easing input costs, will help players sustain operating margins at 12–12.5 percent this fiscal despite global headwinds. However, companies with heavy export dependence on the US may see margin compression of 125–150 basis points, given limited scope to pass on the impact of tariffs,” said More.
The sector’s credit outlook remains stable for this fiscal, supported by strong cash flows and minimal debt addition, despite continued capital expenditure of about ₹22,000 crore aimed at enhancing EV capabilities, automation, and precision manufacturing — in line with new model launches featuring more EVs.
However, as EVs currently represent only around 4 percent of passenger vehicle volumes, their revenue contribution remains marginal, limiting near-term returns from this segment.