Expansion Likely in Auto Parts Industry Ranging from 7% to 9%

The Indian automotive components industry is navigating a complex landscape, with both challenges and opportunities on the horizon.

The US tariff increase could potentially impact margins for companies with significant exposure to that market, as they grapple with the implications of higher costs. However, the aftermarket segment, accounting for about 15% of total revenue, is forecast to grow at a steady 5-7% rate, providing a buffer against potential losses.

The industry is facing challenges due to sluggish demand for new vehicles in American and European markets, which account for approximately 60% of India's auto component exports. Despite this, the growth is mainly attributed to sustained demand from the two-wheeler and passenger vehicle segments, particularly utility vehicles.

The automotive components industry in India is projected to maintain a 7-9% revenue growth rate in the current fiscal year, buoyed by the rising demand for safety, emission, and electronic content in passenger vehicles (PVs) and two-wheelers (2Ws). This growth is expected to be driven by demand from automotive OEMs, with value outpacing volume.

The US, despite accounting for approximately 5% of the sector's total revenue, represents a significant market for Indian auto component exports, accounting for 28% of export earnings and being the fastest-growing market for Indian auto components. However, a proposed 25% tariff on Chinese-origin electric vehicles and components imported into the US could adversely affect Indian exporters.

The proposed tariff on Chinese-origin electric vehicles and components in the US could potentially impact Indian auto component exporters, many of whom heavily rely on the US region. However, lower costs for key materials like steel, aluminum, and plastics are expected to help sustain profitability.

The increasing proportion of high-margin products such as Advanced Driver Assistance System (ADAS) modules, infotainment systems, and braking components is supporting the sector's profitability. Operating margins across the sector are expected to remain stable at 12-12.5%.

While the commercial vehicle and tractor markets, contributing roughly 17% of industry revenue, are expected to see moderate sales increases, the aftermarket segment and the two-wheeler and passenger vehicle segments continue to be the main growth drivers.

The growth in demand from automobile OEMs, as stated by Abhishek Dafria at Crisil Ratings, underscores the resilience of the Indian automotive components industry in the face of global challenges. The sector's ability to adapt and innovate, coupled with its strategic focus on high-margin products, positions it well for continued growth in the coming years.