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Informist, Tuesday, Dec. 3, 2024

MUMBAI – Revenue of the auto components sector is expected to grow by 6-8% in the financial year 2024-25 (Apr-Mar) and FY26, after clocking a growth of 14% in FY24, according to a report by CRISIL Ratings. The slowdown in demand for new vehicles, barring two-wheelers, and declining exports is expected to weigh on the top line growth of the auto components industry.

"Demand from two-wheeler OEMs (original equipment manufacturers) is expected to show double-digit growth this fiscal and the next, while other OEM segments may witness modest demand, limiting overall OEM growth," the agency's senior director Anuj Sethi was quoted as saying in the report. Automobile manufacturers typically contribute 65-70% to the total revenue of the auto components industry, and exports and replacement demand account for the balance. Among automobile manufacturers, passenger vehicle and two-wheeler makers account for close to three-fourths of the components industry's revenue.

"The (parts) replacement segment should sustain 8-9% revenue growth, bolstered by strong automobile sales from previous years. However, the challenging macroeconomic scenario in key export destinations such as Europe and the US has led to a slowdown in export revenue growth,' Sethi said. According to CRISIL Ratings, the auto components sector's exports are expected to grow at a slower rate than 13% in FY24 as the macroeconomic environment in key markets abroad remains sluggish.

Exports are vital for the auto components industry. They currently contribute 15% to total revenue, down from about 17% in FY22. Although growth in exports is slowing, India's increasing share of high-margin, critical components — accounting for around 60% of export revenue in FY24 — will support profitability, according to CRISIL Ratings. Besides, cost optimisation and moderate growth in realisation driven by premiumisation in passenger vehicles and two-wheelers, along with advanced electric vehicles components, will support the sector's profitability at 12-13% in FY25 and FY26, the rating agency said.

This analysis of automotive component makers by CRISIL Ratings is based on companies accounting for nearly 35% of sector revenue of INR 7 trillion in FY24.

Further, despite slower revenue growth, the auto components sector's capital spending is expected to rise, aligning with the trend seen in the automobile manufacturing sector, where passenger vehicle players will be adding capacity over the next 3-4 years. "With the anticipated rise in EV (electric vehicle) adoption, companies are gradually investing in capacities for EV-related components. Additionally, commitments to the PLI (production-linked incentive) scheme and increased spending by OEMs are likely to elevate capex of automotive component manufacturers," Poonam Upadhyay, director at CRISIL Ratings, said.

"Companies rated by us are expected to invest Rs 16,500 crore (INR 165 billion) each in the current and next fiscals, marking a 25% increase from fiscal 2024. Nevertheless, healthy balance sheets and cash flows will limit reliance on external borrowing, ensuring debt protection metrics remain comfortable," Upadhyay said.  End

Reported by Darshan Nakhwa 

Edited by Ashish Shirke

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