Auto components sector growth may ease to 5-7% in FY25, says ICRA

Auto components sector growth is likely to moderate to around 5-7 per cent in FY25 thanks to a possibility of moderation in domestic volume growth and a weak outlook for exports.Credit rating agency ICRA projected that its sample of 45 auto-ancillaries (with aggregate annual revenues of Rs 2.7 trillion in FY23) would grow by 9-11 perc ent in FY24, driven by healthy domestic demand. But, in the coming fiscal, this growth is likely to be relatively lower at 5-7 per cent.

Vinutaa S, Vice-President and Sector Head – Corporate Ratings, ICRA, said, "Domestic OEM demand constitutes over 50 per cent of sales for the Indian auto component industry, and this is expected to moderate in FY2025, especially for passenger and commercial vehicles.”
 

 

She added that replacement demand is expected to remain stable in FY2025, growing at 5-7 per cent. 
 

“Exports, which account for 29 percent of the industry revenues, are likely to remain weak in FY2025, impacted by expectations of low growth in end markets. However, ancillaries will benefit from supplies to new platforms as the global OEMs diversify their vendor base and increase outsourcing,” she added.
 

Over a medium to long term, however, ICRA expects electric vehicle opportunities, premiumisation of vehicles and focus on localization, changes in regulatory norms would support stable growth for the auto components suppliers aided by higher content per vehicle. Around 50-100 bps improvement is expected in FY24 reaching the pre-Covid19 levels of 11-11.5 percent. In FY25 too margins will see an improvement of 50-100 bps YoY, the agency felt.
 

On the EV front, there is significant opportunity. At present, only 30-40 percent of the EV supply chain is localised. The Indian e-2W component market potential is expected to be over Rs. 100,000 crore by 2030, while the e-PV component is expected to be another Rs. 50,000 crore at least, in terms of revenue potential for ancillaries.
 

However, the ongoing Red Sea route trouble has resulted in a surge in container rates in January (2-3times) and also earnings will remain exposed to volatilities in commodity costs. “Given that close to two-thirds of the auto component exports are to North America and Europe, and one-third of the imports are from these regions, a sharp and sustained increase in freight rates could have a bearing on margins for these players over the next few quarters,” ICRA said.