Will India’s auto parts sector achieve 9% growth in 2025-26?

New Delhi, May 21 (NationPress) The automotive component industry in India is projected to achieve a revenue growth of 7-9 percent in the fiscal year 2025-26, fueled by continuous demand from the two-wheeler (2W) and passenger vehicle (PV) markets, which together represent almost half of the total revenue, as per a report by Crisil published on Wednesday.

A modest increase in sales of commercial vehicles and tractors, which account for 17 percent of the market, will provide additional support. The aftermarket sector, contributing 15 percent to revenue, is anticipated to grow steadily at 5-7 percent, according to the report.

However, a decline in demand for new vehicles in the U.S. and Europe, which represent approximately 60 percent of India’s exports, poses challenges.

Operating margins are projected to remain stable at 12-12.5 percent, bolstered by a rising share of high-margin products such as ADAS modules, infotainment systems, and advanced braking technologies. A decrease in input costs—especially for steel (45-50 percent of input costs), aluminum (15-20 percent), and plastics (10-12 percent)—will enhance profitability, though new tariffs may negatively impact margins for companies heavily reliant on exports to the U.S., the report states.

Ongoing capital expenditures will primarily be funded by internal accruals. This strategy, alongside stringent working capital management, will minimize reliance on external borrowing, thus maintaining stable credit profiles, according to the report.

The analysis by Crisil Ratings encompasses automotive component manufacturers that constitute nearly 35 percent of the industry’s revenue, which was approximately Rs 7.9 lakh crore in the previous financial year.

The report also emphasizes that demand trends will differ across the three main segments served by automotive component manufacturers: original equipment manufacturers (OEMs), aftermarket, and export sectors.

Poonam Upadhyay, director at Crisil Ratings, stated, “Demand from automotive OEMs, which contribute two-thirds of total revenue, is set to grow 8-9 percent this fiscal year, with value growth surpassing volume due to increasing safety, emission, and electronic content, particularly in PVs and 2Ws. The aftermarket sector is expected to see a steady growth of 6-7 percent, driven by an aging vehicle fleet. However, export growth may slow to 7-8 percent due to weak demand for internal combustion engine vehicles and a slowdown in electric vehicle (EV) adoption in the U.S. and Europe.

Although the U.S. contributes only 5 percent to total revenue, it accounts for a significant 28 percent share of export earnings and is the fastest-growing market for auto components. The planned 25 percent tariff by the U.S. could adversely impact companies heavily dependent on this market, according to the report.

The report further notes that the sector's credit outlook for this fiscal year remains stable due to robust cash flows and minimal debt growth, despite ongoing capital investments of around Rs 22,000 crore for enhancing EV capabilities, automation, and precision manufacturing—aligned with the increasing introduction of EV models. However, as EVs currently represent only 4 percent of PV volume, their revenue contribution remains limited, leading to modest returns from this vehicle segment in the near future.

Key debt metrics are predicted to stay healthy for automotive component manufacturers this fiscal, with interest coverage and debt-to-EBITDA ratios at 9 times and 1.3 times, respectively, consistent with the previous fiscal year, the report concludes.