The Indian auto component industry is projected to see a moderation in revenue growth to 5-7 per cent for the fiscal year 2025, following a robust 14 per cent growth in FY2024, on account of slower domestic original equipment manufacturer (OEM) segment growth and subdued export demand, according to a recent report by ICRA.
Despite the moderation, operating margins are expected to improve by around 50 basis points year-on-year in FY2025 due to better operating leverage, higher content per vehicle, and value addition. However, the industry remains vulnerable to sharp fluctuations in commodity prices and foreign exchange rates, which could impact margins. This forecast is based on a sample of 46 auto ancillary companies with combined annual revenues exceeding Rs 3,00,000 crore in FY2024.
ICRA also expects the industry to invest Rs 20,000-25,000 crore in FY2025 for capacity expansion and technological advancements. This capital expenditure is likely to hover around 8-10 per cent of operating income over the medium term, with a boost from the government’s Production Linked Incentive (PLI) scheme that incentivises the production of advanced technology and electric vehicle (EV) components.
“Demand from domestic OEMs constitutes over 50 per cent of sales for the Indian auto component industry, and this segment’s growth is expected to moderate in FY2025,” said Vinutaa S, vice president and sector head at ICRA. “Replacement demand is also likely to remain stable at 5-7 per cent after a period of healthy growth, while exports could be impacted by sluggish end-user markets.”
The slowdown in revenue growth is attributed to a similar trend in the domestic OEM segment. Weak global economic conditions and geopolitical tensions are dampening new vehicle registrations in Europe and the US, impacting export opportunities.
Ancillary companies can benefit from supplying components to new platforms as global OEMs diversify their vendor base and increase outsourcing. Additionally, the ageing vehicle population and rising used car sales in overseas markets present opportunities for Indian exporters of replacement parts.
In the long run, ICRA expects factors like the increasing adoption of electric vehicles, vehicle premiumisation, focus on localisation, and evolving regulations to support stable growth for auto component suppliers.
First Published: Jul 11 2024 | 6:22 PM IST
