Auto Component Margins To Fall to 10.5–11% on West Asia Conflict: Crisil

India's auto component industry is expected to face profitability pressure this fiscal, with operating margins projected to moderate to 10.5–11%, down from approximately 12% last year. According to a Crisil Ratings analysis published on June 3, the West Asia conflict is a primary driver, pushing up raw material and freight costs across domestic and export markets.

Raw materials account for nearly three-fourths of the sector's total cost, with steel and aluminium alone comprising 50–60% of input expenses. Both commodities have seen sharp price increases in recent months. Despite this, Crisil expects revenue to grow 9–11% this fiscal, which should help stabilise absolute operating profits even as margins narrow.

Demand from original equipment manufacturers (OEMs), which contribute over two-thirds of sector revenues, is expected to remain steady. New passenger vehicle model launches, infrastructure-linked commercial vehicle activity, continued premiumisation in two-wheelers, and rising EV adoption are cited as key demand drivers. The aftermarket segment also remains stable, supported by a large installed base of vehicles from prior years.

OEMs typically offer a cost pass-through mechanism, though with a lag of one to two quarters and not always in full — a structural feature that constrains how quickly component makers can recover rising input costs, according to Anuj Sethi, Senior Director, Crisil Ratings.

The conflict is also reshaping supply chain dynamics. Manufacturers are increasing buffer stocks to protect production schedules amid global uncertainty, which is likely to push inventory levels up by 15–20 days from the current 80–85 days. Larger players are expected to be better positioned to manage this working capital strain, given their scale and bargaining power with creditors.

On the capital expenditure front, Crisil-rated auto component players are expected to invest approximately ₹27,000 crore this fiscal, up around 10% year-on-year, primarily toward capacity expansion, including EV-related components. The aggregate interest coverage ratio is projected at around 7 times, with debt-to-EBITDA at 1.5–1.7 times, indicating moderate leverage and adequate balance sheet strength.

Exports are expected to grow 8–9% on-year, aided by tariff corrections in the United States, the sector's largest export destination, though longer shipping routes due to the conflict have increased lead times and logistics costs.

Crisil flagged that the duration of the West Asia conflict, the pace of normalisation in energy and freight costs, commodity price movements, and the timing of cost pass-throughs to OEMs will remain key factors to monitor over the coming quarters.