SME tracker: Strong demand to rev up growth for auto component SMEs

The auto component industry’s revenue is expected to increase 7-9 per cent in 2025-26 (FY26) driven by a slew of factors.

 

With the recent goods and services tax (GST) cuts lowering vehicle prices, sales are expected to rise across segments and should also lead to premiumisation, thus spurring demand from original equipment manufacturers (OEMs). 

 

The replacement and export markets will also support the industry as will a recovering economy, with a projected gross domestic product (GDP) growth of 6.5 per cent. 

 

Exports to key destinations such as North America, however, are expected to be hit by US tariffs.

 

Sales to OEMs accounted for 72 per cent of the auto-component revenues with exports accounting for 15 per cent and the balance 13 per cent accounted by the replacement market in FY25.

 

In the milieu, small and medium enterprises (SMEs), accounting for 75-80 per cent of the industry by number of units, are expected to continue building on the strong performance of FY25 when robust OEM demand and increasing exports had buoyed revenue and profits, growing in line with the auto-component sector at 7-9 per cent. 

 

The replacement segment is projected to grow 5-7 per cent in FY26, around FY25’s 6 per cent mark, driven by economic growth and an expanding vehicle population and improving mobility. 

 

Manufacturer margins are likely to climb 20-30 basis points this financial year due to operational efficiencies and correction in input costs — the raw material index is expected to rise only 1-2 per cent coupled with players able to pass on price hikes to OEMs. 

 

Margins had improved 20-30 basis points in FY25 as well due to strong demand and improved utilisation.

 

The SME players are present across eight major clusters in the country. Pune, National Capital Region, and Chennai clusters are the largest in terms of units and revenue due to high-quality products and presence of major OEMs. The cluster-wise performance of auto component manufacturers is likely to vary based on segmental expertise and exposure to the export market with the Chennai, and Ludhiana cluster projected to outperform in FY26. Chennai will perform better due to its well diversified portfolio of vehicle manufacturers while healthy tractor demand will drive demand in the Ludhiana cluster.    Crisil Intelligence