Automotive components revenue growth to slow down to 6-8%

Press Release 3 December’ 2024

Revenue of the automotive components sector in India is expected to slow to 6-8% this fiscal and the next, after clocking ~14% last fiscal, owing to decelerating demand for new vehicles barring two-wheelers.

Additionally, exports are expected to grow at a slower rate than the 13% seen in fiscal 2024 as the macroeconomic environment in key markets abroad remain sluggish. However, steady replacement demand will support ongoing growth.

Despite slower growth, the operating profitability of auto component makers should sustain at 12-13% this fiscal and the next due to better realisations and cost reduction initiatives.

Capital spending is expected to rise, aligning with the trend seen in the automobile original equipment manufacturer (OEM) sector, where passenger vehicle (PV) players are adding capacity over the next 3-4 years. However, much of this capital expenditure (capex) will be funded through healthy cash generation, with limited reliance on debt, keeping credit profiles stable.

A CRISIL Ratings analysis of automotive component makers accounting for nearly 35% of sector revenue of ~Rs 7 lakh crore last fiscal, indicates as much.
Automobile OEMs typically contribute 65-70% to the total revenue of automotive component manufacturers, and exports and replacement demand account for the balance. Among OEMs, PV and two-wheeler segments account for close to three-fourths of the revenue.

Says Anuj Sethi, Senior Director, CRISIL Ratings, “Demand from two-wheeler OEMs is expected to show double-digit growth this fiscal and the next, while other OEM segments may witness modest demand, limiting overall OEM growth. The replacement segment should sustain 8-9% revenue growth, bolstered by strong automobile sales from previous years. However, the challenging macroeconomic scenario in key export destinations such as Europe and the US has led to a slowdown in export revenue growth.”

Exports are vital, currently constituting ~15% of total revenue, down from about 17% in fiscal 2022. Although export growth is slowing, India’s increasing share of high-margin, critical components1 — accounting for around 60% of export revenue in fiscal 2024 — will support profitability.

Besides, cost optimisation and moderate realisation growth driven by premiumisation in PV and two-wheelers, along with advanced electric vehicles (EVs) components, will support sector profitability at 12-13%. Currently, a considerable portion of EV components are imported from China and other countries.

Says Poonam Upadhyay, Director, CRISIL Ratings, “With the anticipated rise in EV adoption, companies are gradually investing in capacities for EV-related components. Additionally, commitments to the PLI2 scheme and increased spending by OEMs are likely to elevate capex of automotive component manufacturers. Companies rated by us are expected to invest ~Rs 16,500 crore each in the current and next fiscals, marking a 25% increase from fiscal 2024. Nevertheless, healthy balance sheets and cash flows will limit reliance on external borrowing, ensuring debt protection metrics remain comfortable.”