Sunday | Jun 08 2025 | 07:23:48 PM
India's auto component industry is set for a steady 7-9 per cent revenue growth in the current financial year, according to a recent analysis by Crisil Ratings. The growth, which mirrors last year’s performance, will largely be driven by strong demand from two key vehicle categories, two-wheelers (2Ws) and passenger vehicles (PVs), particularly utility vehicles. Together, these segments contribute to nearly 50 per cent of the sector’s total revenue.
While commercial vehicles (CVs) and tractors which make up around 17 per cent of the sector’s revenue are expected to see a moderate rise in sales, the aftermarket business (accounting for 15 per cent) is projected to grow at a steady pace of 5-7 per cent.
Exports Facing Global Headwinds
Despite domestic strength, the sector’s export performance may face challenges. Around 60 per cent of India’s auto component exports are directed to the US and European markets, where demand for new vehicles remains weak. This is due to a slowdown in internal combustion engine (ICE) vehicle demand and a dip in electric vehicle (EV) adoption in these regions.
The US alone accounts for just 5 per cent of India’s total revenue from auto components but contributes nearly 28 per cent to export earnings, making it a crucial market. The proposed 25 per cent tariff by the US government could pressure Indian exporters' margins, especially those heavily dependent on this market.
“Companies with high export dependence on the US may see their margins drop by 125-150 basis points due to limited ability to pass on new tariffs,” said Anil More, Associate Director, Crisil Ratings.
Stable Profitability and Shifting Product Mix
Despite export-related risks, the operating profitability of the sector is expected to remain stable at 12-12.5 per cent. This is largely due to a growing share of high-margin, tech-driven components such as Advanced Driver Assistance Systems (ADAS), infotainment units, and advanced braking systems.
Additionally, falling prices of key input materials like steel, aluminium, and plastics are expected to support profitability. These materials collectively form a large portion of the manufacturing cost like steel (45-50 per cent), aluminium (15-20 per cent), and plastics (10-12 per cent).
“The share of high-margin, technology-intensive components has increased to 27 per cent of revenue from 18 per cent before the pandemic. This shift, combined with softer raw material prices, will help maintain healthy margins,” Anil More added.
Investment and Credit Outlook
Capital expenditure in the sector is expected to remain strong, at around Rs 22,000 crore, with a focus on scaling EV production capabilities, automation, and precision manufacturing. However, most of this capex will be funded through internal cash flows, ensuring low reliance on external borrowing.
As a result, the credit outlook for the sector remains stable for FY25, backed by robust cash flows and minimal debt addition.
According to Poonam Upadhyay, Director at Crisil Ratings, “Demand from automotive OEMs, which contribute two-thirds of the total revenue, is likely to grow 8-9 per cent this year. This growth will be led by increasing value per vehicle due to enhanced safety, emission norms, and electronic content, especially in PVs and 2Ws.”
While electric vehicles continue to gain traction, their share remains small only around 4 per cent of total PV volumes, meaning their contribution to overall revenue is still limited in the near term.
India’s auto components sector remains on a stable growth path, buoyed by strong domestic demand and a shift towards premium, tech-oriented components. However, global trade uncertainties, especially US tariffs, could dampen export momentum. Industry players appear well-prepared, maintaining profitability and credit strength through focused investments and operational efficiency.
