The Indian automotive components sector is expected to witness around 10-12% growth in revenue in 2023-2024. The key factors include domestic growth buoyed by robust demand from original equipment manufacturers (OEMs) on the back of a high base of past fiscals, and steady aftermarket demand. This is despite exports continuing to remain sluggish, according to CRISIL Ratings.
Continuing demand momentum, driven by OEMs, complemented by cost-efficiency measures by auto component manufacturers should drive up operating leverage. This, along with moderation in prices of key raw materials – albeit still high compared with pre-pandemic levels – will support operating margin inch back to the pre-pandemic level at 12.0-12.5% in fiscal 2024 (~11.9% in last fiscal), said the rating agency.
The firm's report was based on an analysis of around 230 auto component players, rated by CRISIL Ratings, which account for nearly 50% of the sector revenue of Rs 4.8 lakh crore, indicates as much.
Anuj Sethi, Senior Director, CRISIL Ratings said that revenue from OEMs is expected to grow 12-14% this fiscal, backed by continued strong demand from almost all segments barring tractors which had hit an all- time high last fiscal. Improving semi-conductor availability will support supplies of passenger vehicles and premium motorcycles. Exports, the second-largest revenue contributor, will remain sluggish amid continuing headwinds in key markets in Asia, Africa and Latin America. Lastly, revenue from the aftermarket segment, which accounts for the balance, will grow at a steady 6-8%, supported by strong automotive sales in past fiscals.”
He added, amidst growth, players with high exposure to engine and transmission components – accounting for 22% of the sector’s revenue – will continue to diversify their product basket by enhancing focus on electric vehicles (EV) components.
Poonam Upadhyay, Director, CRISIL Ratings added, “With EV adoption expected to be fastest in the two- and three-wheeler segments, the auto component makers with high exposure to engine and transmission components are likely to focus at diversifying their product basket. This, along with a focus on meeting PLI2-related commitments and capacity enhancements, will push up capital spend. Players rated by CRISIL Ratings are likely to undertake capital expenditure of around Rs 17,500 crore this fiscal, up by around 20% on-year. Nevertheless, strong balance-sheets, healthy profitability, and prudent capex funding will keep credit profiles stable.”