MUMBAI: Leading investment information and credit rating agency ICRA has said that the Indian auto component industry is projected to see a moderation in revenue growth to 5-7 per cent for the fiscal year 2025, following a robust 14 per cent growth in FY-2024, on account of slower domestic original equipment manufacturer (OEM) segment growth and subdued export demand.

According to a recent report by ICRA, despite the moderation, operating margins are expected to improve by around 50 basis points year-on-year in FY2025 due to better operating leverage, higher content per vehicle, and value addition. However, the industry remains vulnerable to sharp fluctuations in commodity prices and foreign exchange rates, which could impact margins. This forecast is based on a sample of 46 auto ancillary companies with combined annual revenues exceeding Rs 3,00,000 crore in FY-2024.

"Demand from domestic original equipment manufacturers (OEM) constitutes over 50 per cent of sales for the Indian auto component industry and the pace of growth in the segment is expected to moderate in FY2025," said Vinutaa S, Vice President and Sector Head for corporate ratings at ICRA Limited. The ageing of vehicles and increased sales of used vehicles in global markets are also expected to aid in the export of components for the replacement segment in overseas markets, according to the rating agency.

On investments by auto component suppliers, Vinutaa added, "ICRA's interaction with large auto component suppliers indicates that the industry has incurred a capex of over Rs 20,000 crore in FY2024 and is estimated to spend another Rs 20,000 to Rs 25,000 crore in FY2025."

The incremental investments would be made towards new products, product development for committed platforms, and development of advanced technology and EV components, apart from capex for capacity enhancements and upcoming regulatory changes.

ICRA said it expects auto ancillaries' capex to hover around 8-10 per cent of operating income over the medium term, with the PLI scheme also contributing to accelerating capex towards advanced technology and EV components." The EV policy 2024 for electric four-wheelers would also help generate incremental demand for component makers, because of the domestic value addition mandated, according to the ratings agency.

ICRA also expects opportunities for ancillaries in manufacturing components from other alternative fuel vehicles, as their penetration increases and expects EVs to account for around 25 per cent of domestic two-wheeler sales and 15 per cent of passenger vehicle sales by 2030.