Auto Component Industry Revenue to Grow 8-10% in FY2026, ICRA Forecasts

The Indian auto component industry's revenue is expected to grow by 8-10% in fiscal year 2026, according to a report released by ICRA on February 20, 2025. This growth represents a slight increase from the projected 7-9% in FY2025, though still lower than the 14% growth recorded in FY2024.

Operating margins for auto component manufacturers are anticipated to remain stable at 11-12% through both FY2025 and FY2026, supported by operating leverage benefits, higher content per vehicle, and increased value addition. However, ICRA cautions that margins remain vulnerable to unfavorable movements in commodity prices and foreign exchange rates.

The industry is expected to invest Rs. 25,000-30,000 crore in FY2026 toward capacity expansion, localization efforts, and technological advancements, including electric vehicle components. This follows an estimated Rs. 15,000-20,000 crore investment in FY2025.

"The domestic auto component industry is in a transitory phase with automotive players increasingly focusing on sustainability, innovation and global competitiveness," said Vinutaa S, Vice President and Sector Head of Corporate Ratings at ICRA Limited. She noted that demand from domestic original equipment manufacturers, which constitutes over half of industry revenues, is projected to grow by 8-10% in FY2026.

Current disruptions along the Red Sea shipping route have resulted in ocean freight rates increasing two to three times in 2024 compared to 2023, potentially affecting margins for suppliers with significant export or import operations.

The report highlights that only 30-40% of the electric vehicle supply chain is currently localized in India. While traction motors, control units, and battery management systems have seen substantial domestic production increases, battery cells—which constitute 35-40% of vehicle cost—remain entirely imported, presenting opportunities for domestic suppliers.

Export growth faces challenges due to subdued vehicle registrations in target markets. However, Indian suppliers may benefit from vendor diversification initiatives by global manufacturers and the closure of metal casting and forging plants in the European Union due to viability issues.

Most auto component companies rated by ICRA maintain investment-grade status, with rating upgrades significantly exceeding downgrades over the past 2-3 years. The agency expects the sector's financial metrics and liquidity to remain comfortable, supported by healthy cash flow and relatively low debt funding requirements.

ICRA Limited, established in 1991 by leading financial institutions and banks, operates as an independent credit rating agency in India. The company is publicly listed, with international rating agency Moody's Investors Service as its largest shareholder.