India’s Auto Parts Sector Projected To Grow 9% In FY26: Report

Operating margins are seen stable at 12-12.5 per cent, driven by the growing share of high-margin components such as ADAS1 modules, infotainment systems, and advanced braking

The Crisil Ratings analysis is based on automotive component manufacturers, accounting for nearly 35 per cent of the sector revenue of around Rs 7.9 lakh crore last fiscal

Source : PTI

India’s automotive component sector is expected to clock 7-9 per cent revenue growth during the financial year 2025-26, driven by sustained demand momentum from the two-wheeler (2W) and passenger vehicle (PV) segments, which account for nearly half of the overall revenue, according to a Crisil report released on Wednesday.

A moderate uptick in commercial vehicles and tractor sales, which have a 17 per cent share, will provide an additional tailwind. The aftermarket segment, which accounts for a 15 per cent share in revenue, is seen growing steadily at 5-7 per cent, the report states.

However, weak demand for new vehicles in the US and Europe, which constitute around 60 per cent of India’s exports, presents headwinds.

Operating margins are seen stable at 12-12.5 per cent, driven by the growing share of high-margin components such as ADAS1 modules, infotainment systems, and advanced braking. A decline in input cost -- particularly of steel (45-50 per cent share in input costs), aluminium (15-20 per cent), and plastics (10-12 per cent) -- used for structural rigidity, reducing vehicle weight, and for interiors will support profitability. But pressure from new tariffs can dent the margins of companies exporting largely to the US, the report says.

Continuing high capital spend will be funded primarily by internal accruals. This, along with tight control over working capital, will ensure low dependence on external borrowing, keeping credit profiles stable, according to the report.

The Crisil Ratings analysis is based on automotive component manufacturers, accounting for nearly 35 per cent of the sector revenue of around Rs 7.9 lakh crore last fiscal.

The report also states that demand trends are expected to vary amongst the three key segments that automotive component players cater to, i.e., original equipment manufacturers (OEMs), aftermarket, and export segments.

Crisil Ratings director Poonam Upadhyay said, “Demand from automotive OEMs, contributing two-thirds of total revenue, is expected to grow 8-9 per cent this fiscal, with value outpacing volume on rising safety, emission and electronic content, especially in PVs and 2Ws. The aftermarket segment will log a steady 6-7 per cent growth, supported by an ageing vehicle base. Export growth, however, will moderate to 7-8 per cent amid weak demand for internal combustion engine vehicles and a deceleration in electric vehicle (EV) adoption across the US and Europe.”

The US, while contributing just 5 per cent to total revenue, commands a dominant 28 per cent share of export earnings and is the fastest-growing auto component market. The 25 per cent tariff planned by the U.S. can hurt companies heavily reliant on this geography, the report points out.

The report further highlights that the sector’s credit outlook for this fiscal is stable owing to strong cash flows and minimal debt addition, despite sustained capex of around Rs 22,000 crore for scaling EV capabilities, automation, and precision manufacturing -- in tune with model launches that increasingly feature EVs. However, with EVs forming just 4 per cent of PV volume, their revenue contribution remains marginal, keeping returns from this category of vehicles muted in the near term.

Key debt metrics are expected to remain healthy for automotive component players this fiscal, with interest coverage and debt-to-EBITDA at 9 times and 1.3 times, respectively, broadly in line with last fiscal, the report added.

(This report has been published as part of the auto-generated syndicate wire feed. Apart from the headline, no editing has been done in the copy by ABP Live.)