Auto parts sector to grow 7-9% in FY26, driven by 2W, PV demand: Crisil

India’s auto components industry is expected to grow 7-9 per cent in FY26, maintaining last fiscal’s pace, supported by strong domestic demand from two-wheelers (2Ws) and passenger vehicles (PVs) — especially utility vehicles — which together account for nearly half of the sector’s revenues. 

 

Crisil’s analysis covered component manufacturers accounting for 35 per cent of the sector’s Rs 7.9 trillion revenue in FY25.

 

A moderate recovery in commercial vehicles and tractor sales, which contribute around 17 per cent to overall revenue, is also expected to support growth, according to a report by Crisil Ratings.

 

The aftermarket segment, with a 15 per cent revenue share, is projected to grow steadily at 5-7 per cent, aided by an ageing vehicle fleet. However, global headwinds persist. Weak demand for new vehicles in the US and Europe — destinations for about 60 per cent of India’s auto component exports — could weigh on the sector’s export performance, which is expected to moderate to 7-8 per cent growth this year.

   

Operating profitability is likely to remain range-bound at 12-12.5 per cent, supported by a growing share of high-margin, technology-intensive components such as Advanced Driver Assistance Systems (ADAS), infotainment systems, and advanced braking modules. Input costs have also eased, particularly for steel, aluminium, and plastics, which account for over 70 per cent of raw material costs. Still, proposed US tariffs of 25 per cent on certain imports threaten to dent the margins of exporters significantly reliant on that market. The US alone makes up just 5 per cent of total sector revenue but contributes 28 per cent to export earnings and remains the fastest-growing export destination.

 

“The share of high-margin components has increased from around 18 per cent pre-Covid to nearly 27 per cent now, thanks to growing premiumisation and stricter global emission norms,” said Anil More, Associate Director, Crisil Ratings. “This structural shift and falling input costs will support stable margins despite global headwinds. However, companies with high exposure to the US may see a margin squeeze of 125-150 basis points, given limited room to pass on new tariffs.”

 

Demand from original equipment manufacturers (OEMs) — which generate two-thirds of total revenue — is expected to grow 8–9 per cent this fiscal, with value growth outpacing volumes amid rising safety, emission, and electronic content in 2Ws and PVs.

 

Capital expenditure is expected to remain high at around Rs 22,000 crore as companies invest in EV capabilities, automation, and precision manufacturing to keep pace with evolving model launches. However, electric vehicles currently constitute just 4 per cent of PV volumes, keeping their revenue contribution limited in the near term.

 

Despite these challenges, the sector’s credit outlook remains stable due to strong internal accruals, controlled working capital, and minimal reliance on external debt.