New Delhi, Apr 11 (KNN) India's auto ancillary and auto export sectors are likely to face subdued growth in the fiscal year 2024-25 due to weak demand from key markets like Europe and the United States, according to a report by India Ratings and Research (Ind-Ra).

Despite modest export revenue growth of 2.7 per cent year-on-year in the first half of FY24 and 5.2 per cent in FY23 for auto ancillaries, future prospects are expected to be impacted by macroeconomic headwinds and geopolitical issues starting from the fourth quarter of FY24 through the first half of FY25.

Along with subdued exports, a slowdown in demand from domestic commercial vehicle manufacturers could limit the auto ancillary industry's overall revenue growth to just 6-8 per cent year-on-year in FY25, the report stated.

Demand for replacement auto parts from overseas markets is projected to take a bigger hit compared to demand from original equipment manufacturers (OEMs). 

This is because OEMs are actively diversifying their supply chains away from traditional sources like China and Europe.

"Auto ancillary companies heavily reliant on the overseas replacement market could face challenges," said Shruti Saboo, Director at Ind-Ra.

India's vehicle exports declined by 12 per cent year-on-year during the first nine months of FY24, and this subdued performance is expected to continue through the fourth quarter of FY24 and first half of FY25.

Two-wheelers and three-wheelers, accounting for over 80 per cent of exported vehicles, were severely impacted as key export destinations in Africa and South Asia grappled with high inflation, limited foreign exchange availability, and currency weaknesses.

While the ongoing conflict in the Red Sea region is not anticipated to cause immediate disruptions, Ind-Ra warned that a prolonged crisis could lead to higher freight costs, making Indian auto components less competitive in price-sensitive replacement markets.

However, with Indian auto ancillaries holding a strong order book from global OEMs and tier 1 suppliers looking to diversify their supply base outside of China and Europe, exports should start recovering gradually from the second half of FY25, according to Saboo.

(KNN Bureau)