India Ratings maintains neutral outlook for auto ancillaries in FY26

India Ratings and Research (Ind-Ra) has maintained a neutral outlook for the auto ancillary sector for FY26, projecting revenue growth of 8-10 per cent year-on-year (YoY).

 

This growth is expected to be driven by several factors, including premiumisation, increasing electric vehicle penetration and rising global OEM investments in India.

 

However, the outlook for the sector is not without its challenges as muted exports, particularly from Europe, and a moderation in domestic sales growth (except for two-wheelers) could impact profitability.

 

Despite these challenges, Ind-Ra expects several factors to help sustain margins in the auto ancillary sector. Such factors include steady replacement market demand, as the demand for replacement parts from the domestic market is expected to remain steady, providing a buffer against any slowdown in new vehicle sales.

 

Improved operating leverage as auto ancillary companies are ramping up production to meet growing demand, they are expected to benefit from economies of scale and improved operating leverage.

 

With supply chain constraints easing, raw material prices are expected to remain stable, helping to control production costs. Auto ancillary companies that are investing in the development of advanced EV-related components are expected to be well-positioned for future growth.

 

The trend of consumers opting for premium vehicles with more features is also likely to continue, leading to a higher demand for auto ancillary components. The growing adoption of electric vehicles (EVs) will create new opportunities for auto ancillary companies to develop and supply EV-specific components.

 

As global original equipment manufacturers (OEMs) look to diversify their supply chains away from China, India is emerging as a key destination for investment. This is expected to benefit Indian auto ancillary companies by increasing demand for their products.