Synopsis
The Indian auto component industry is set to see revenue growth of 8-10% in FY26, supported by stable operating margins and increased domestic demand. Investment in capacity expansion and localisation is essential, with significant opportunities arising in the EV sector and metal castings due to European plant closures.Key Takeaways
- Projected revenue growth of 8-10% in FY26.
- Operating margins expected to remain at 11-12%.
- Investment of Rs 25,000-30,000 crore for capacity expansion.
- Localisation of 30-40% of the EV supply chain.
- Increasing opportunities in metal castings and forgings.
New Delhi, Feb 20 (NationPress) The revenue growth of the Indian auto component industry is anticipated to increase by 8-10 percent in FY26, according to a report released on Thursday.
Credit rating agency ICRA forecasts that operating margins will likely remain stable, ranging between 11-12 percent in FY25 and FY26. This stability is expected to stem from advantages offered by operating leverage, increased content per vehicle, and enhanced value addition, although the sector remains sensitive to any significant adverse fluctuations in commodity prices and foreign exchange rates.
The disruption along the Red Sea route has led to a dramatic rise in ocean freight costs, which have increased by 2-3 times in CY2024 compared to CY2023.
Any further sharp and sustained hikes in ocean freight rates may negatively impact margins for auto component suppliers heavily reliant on exports/imports.
ICRA estimates that the auto component industry will invest between Rs 25,000-30,000 crore in FY2026 on capacity expansion, localisation, capability enhancement, and technological innovations (including EVs), among other initiatives.
Currently, only 30-40 percent of the EV supply chain is localised. Significant localisation has occurred in traction motors, control units, and battery management systems over recent years, yet battery cells—which make up 35-40 percent of vehicle costs—are still completely imported.
This relatively low level of localisation presents substantial manufacturing opportunities for domestic auto component suppliers.
“The domestic auto component industry is undergoing a transitional phase as automotive players increasingly emphasize sustainability, innovation, and global competitiveness,” stated Vinutaa S, Vice President and Sector Head–Corporate Ratings at ICRA Limited.
Demand from domestic original equipment manufacturers (OEMs), accounting for over half of the industry's revenue, is projected to grow by 7-9 percent in FY25 and 8-10 percent in FY26.
Moreover, Indian manufacturers are expected to find opportunities in metal castings and forgings due to the closure of plants in the European Union (EU) caused by viability challenges.
The increasing age of vehicles and a rise in the sale of used vehicles in global markets will bolster exports in the replacement segment. The impact of potential import tariffs on Indian auto component exports remains a point of observation. Opportunities linked to electric vehicles, the premiumisation of vehicles, a focus on localisation, and adjustments in regulatory standards are anticipated to fuel growth for auto component suppliers in the medium to long term.
