CRISIL predicts operating profitability for auto component manufacturers to remain stable at 12-13%.
03 Dec 2024 | 2499 Views | By Autocar Professional Bureau
The Indian automotive components sector is projected to witness a deceleration in revenue growth to 6-8% in the current and next fiscal years by credit ratings agency CRISIL. This follows a robust 14% growth recorded in the previous fiscal, as demand for new vehicles, excluding two-wheelers, begins to wane.
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The Indian automotive components sector is projected to witness a deceleration in revenue growth to 6-8% in the current and next fiscal years by credit ratings agency CRISIL. This follows a robust 14% growth recorded in the previous fiscal, as demand for new vehicles, excluding two-wheelers, begins to wane.
Export growth is also likely to moderate, trailing the 13% growth seen in fiscal 2024, due to sluggish macroeconomic conditions in key international markets like Europe and the US. However, steady replacement demand is expected to provide a buffer and sustain overall growth.
Operating profitability for auto component manufacturers is anticipated to remain stable at 12-13%, aided by improved realizations and ongoing cost-reduction initiatives. This resilience is expected despite the challenging market environment, CRISIL said.
Capital expenditure in the sector is set to increase in line with the expansion plans of automobile original equipment manufacturers (OEMs), particularly in the passenger vehicle segment. These manufacturers are increasing capacity over the next 3-4 years. Importantly, this capex surge will primarily be funded through healthy cash flows, minimizing the need for external borrowing and keeping credit profiles stable, CRISIL report said.
An analysis by CRISIL Ratings, covering automotive component manufacturers accounting for approximately 35% of the sector’s revenue of Rs 7 lakh crore in FY24, highlights that OEMs contribute 65-70% of total revenue, with the remaining share coming from exports and replacement demand. Within the OEM segment, PVs and two-wheelers account for nearly three-fourths of the revenue.
Anuj Sethi, senior director at CRISIL Ratings, noted, “Demand from two-wheeler OEMs is expected to grow in double digits this fiscal and the next, while other OEM segments may see modest growth, limiting overall OEM revenue expansion. The replacement segment is likely to sustain 8-9% revenue growth, supported by strong vehicle sales in previous years.” However, export revenue growth is slowing due to macroeconomic challenges in key markets like Europe and the US, he observed.
Exports currently make up around 15% of the sector’s revenue, down from 17% in fiscal 2022. While export growth has decelerated, India’s rising share of high-margin, critical components—accounting for about 60% of export revenue in fiscal 2024—continues to support profitability.
The anticipated rise in electric vehicle (EV) adoption is prompting increased investment in EV-related components. Companies are also committing to the government’s Production-Linked Incentive (PLI) scheme, which, along with higher spending by OEMs, is driving capex in the sector.
Poonam Upadhyay, director at CRISIL Ratings, stated, “With EV adoption gaining traction, companies are investing in EV component capacities. Automotive component manufacturers rated by us are expected to invest approximately Rs 16,500 crore each in the current and next fiscal years, representing a 25% increase from fiscal 2024. Despite higher capex, healthy balance sheets and cash flows will limit reliance on debt, ensuring strong debt protection metrics.”
Debt protection metrics are expected to remain robust by CRISIL, with the interest coverage ratio estimated at 8-9 times and debt-to-EBITDA ratio forecasted at 1.1-1.3 times over the next two fiscal years. These figures reflect an improvement from 7.5 times and 1.6 times, respectively, recorded in fiscal 2024.
While the sector remains poised for steady growth, factors such as OEM demand, EV adoption trends, and the global economic landscape will play a critical role in shaping its trajectory, CRISIL said.