Domestic Demand To Drive Auto Components Industry Growth In FY26: Crisil Ratings

New Delhi, May 22 (KNN) India's automotive components sector is anticipated to sustain its growth momentum with an expansion of 7-9 percent in the fiscal year 2025-26. 

The analysis, conducted by Crisil Ratings, examined component manufacturers representing 35 percent of the sector's Rs 7.9 trillion revenue recorded in FY25.

The growth trajectory is primarily anchored by robust domestic demand fr0m two-wheeler and passenger vehicle segments, which collectively represent nearly half of the sector's total revenue base. 

Utility vehicles within the passenger car category are demonstrating particularly strong performance, contributing significantly to overall sector expansion. 

Additional support for sectoral growth is expected fr0m a moderate recovery in commercial vehicle and tractor sales, segments that contribute approximately 17 percent to overall industry revenue. 

The aftermarket segment, which holds a 15 percent revenue share, is projected to achieve steady growth of 5-7 percent, driven primarily by India's aging vehicle fleet requiring replacement components and maintenance services.

However, international market dynamics present notable challenges for the industry. 

Weak demand for new vehicles in the United States and European markets, which absorb approximately 60 percent of India's automotive component exports, is expected to moderate export performance to 7-8 percent growth during the current fiscal year. 

This represents a potential constraint on the sector's overall expansion despite strong domestic fundamentals.

Operating profitability is anticipated to remain within the 12-12.5 percent range, supported by an increasing proportion of high-margin, technology-intensive components. 

Advanced Driver Assistance Systems, infotainment systems, and sophisticated braking modules are gaining greater representation in the product mix, enhancing overall margin profiles. 

Trade policy developments pose specific risks to certain market participants. 

Proposed US tariffs of 25 percent on selected imports threaten to significantly impact margins for exporters with substantial exposure to that market. 

While the United States represents only 5 percent of total sector revenue, it contributes 28 percent to export earnings and remains the fastest-growing export destination for Indian component manufacturers.

Anil More, Associate Director, Crisil Ratings, noted that the share of high-margin components has increased fr0m approximately 18 percent in the pre-pandemic period to nearly 27 percent currently. 

The structural transformation, combined with declining input costs, is expected to maintain stable margins despite global headwinds. 

However, companies with significant US market exposure may experience margin compression of 125-150 basis points due to limited ability to pass through new tariff costs.

(KNN Bureau)