Auto Component Industry Capex To Hit INR 30,000 In FY26 This will be used towards capacity expansion, localisation/capability development and technological advancement (including EVs), among others.

ICRA estimates the auto component industry to incur a capex of INR 25,000-30,000 crore in FY2026 towards capacity expansion, localisation/capability development and technological advancement (including EVs), among others. ICRA expects the revenue growth of the Indian auto component industry to ease to 7-9 per cent in FY2025 and 8-10 per cent in FY2026, from the highs of ~14 per cent in FY2024. Operating margins are expected to remain range-bound and hover at ~11-12 per cent in FY2025 and FY2026, supported by benefits from operating leverage, higher content per vehicle and value addition while remaining vulnerable to any significant unfavourable movements in commodity prices and foreign exchange rates.

The disruption along the Red Sea route has resulted in a surge in ocean freight rates by two-three times in CY2024 compared to CY2023. Any further sharp and sustained increase in ocean freight rates could also have a bearing on margins for auto component suppliers having significant exports/imports.

At present, only 30-40 per cent of the EV supply chain is localised. There has been substantial localisation in traction motors, control units and battery management systems over the years, while battery cells, which constitute 35-40 per cent of vehicle cost, are still entirely imported. The relatively low localisation level gives rise to manufacturing opportunities for domestic auto component suppliers.

"The domestic auto component industry is in a transitory phase with the automotive players increasingly focusing on sustainability, innovation and global competitiveness. Demand from domestic original equipment manufacturers (OEMs), which constitutes over half of the industry revenues, is estimated to grow by 7-9 per cent in FY2025 and 8-10 per cent in FY2026. Part of the growth would stem from premiumisation of components and higher value addition. Growth in replacement demand is pegged at 5-7 per cent in FY2025 and 7-9 per cent in FY2026, driven by increase in vehicle parc, higher average age of vehicles/used car purchases, preventive maintenance and growth in organised spare parts, among other reasons," said Vinutaa S, vice president and sector head – Corporate Ratings, ICRA Limited.

"Exports, which account for close to 30% of the industry's revenues, are likely to be impacted by subdued vehicle registration growth in the target markets. However, factors like rising supplies to new platforms because of vendor diversification initiatives by global OEMs/Tier-Is and higher value addition, partly stemming from increase in outsourcing, augur well for Indian auto component suppliers," he added.

Further, there would be opportunities for Indian players in metal castings and forgings because of closure of plants in the European Union (EU) due to viability issues. Ageing of vehicles and sale of more used vehicles in global markets would aid in exports for the replacement segment. The impact of any import tariffs on Indian auto component exports remains monitorable. Electric vehicle (EV)-linked opportunities, premiumisation of vehicles, focus on localisation, and changes in regulatory norms would support growth for auto component suppliers over the medium to long term.