India Ratings and Research Projects Steady FY27 Growth for Auto Ancillaries

India Ratings and Research (Ind-Ra) has maintained a neutral outlook for the auto ancillary sector for FY27, supported by the likely continued benefits from structural drivers, including rising content per vehicle driven by premiumisation; the implementation of GST 2.0 driving domestic original equipment manufacturer (OEM) demand; favourable global trade agreements; the transition to electric vehicles (EVs); and an increasing order book as global OEMs diversify their supply base to India.

While these structural drivers remain intact, steady domestic demand alongside a gradual improvement in exports could lead to revenue growth of 7%–9% year-on-year in FY27, following a likely increase of 8%–10% yoy in FY26 (FY25: 9%–10% yoy). With favourable global trade agreements, exports are likely to see a gradual upside from current levels.

EBITDA Margins Expected to Improve in FY27

Ind-Ra expects EBITDA margins to remain stable in FY25–FY26 and to improve by 50 to 100 basis points in FY26–FY27. The improvement in margins in FY27 will be supported by likely stable raw material prices, better operating leverage and a richer product mix, with OEMs focusing on premiumised products. While these tailwinds have been offset by muted margin-accretive exports, the agency expects exports to rise steadily going ahead.

Steady Export Momentum Anticipated

Ind-Ra expects steady export momentum in FY27, largely driven by clearer trade visibility following progress on free trade agreements (FTAs) with the European Union (EU); a reduction in US tariffs alongside the removal of differential reciprocal tariffs, combined with India's lower cost competitiveness in power and labour relative to other Asian nations; a well-established domestic supply chain; and the convergence of Indian emission and safety norms with global standards.

The agency believes global OEMs are making efforts to diversify their manufacturing and supply bases away from China and Europe, which is translating into new orders for Indian ancillaries. However, domestic players' export growth will be affected in the near term due to underlying flat demand in the US and EU markets.

Ind-Ra has taken cognizance of ongoing geopolitical tensions affecting the global economy; however, it has not incorporated any related impact on the sector at this stage. The agency will reassess the situation and its view if tensions are not short-lived.

Capex Intensity Remains Moderate; Modular Approach Prevails

Ind-Ra expects capex intensity in FY27 to be similar to that of FY26, primarily directed towards scaling capacities with committed offtakes, investments in advanced technology, R&D, and EV-related components. The agency expects capex to be modular in nature, allowing for demand-based adjustments that could provide free cash flow (FCF) headroom to companies. Additionally, firms are exploring new product lines to deepen value addition, particularly on EVs, without substantial capex. While investments — particularly on the EV front — are underway, full-capacity commissioning will take time.

Credit Outlook Remains Stable; Upgrades Outnumber Downgrades

Ind-Ra has maintained a Stable rating outlook on its rated auto ancillaries for FY27. The agency had a Stable outlook on 88% and a Positive outlook on 3% of its rated portfolio at end-January 2026. The frequency of downgrades remained low in year-to-date FY26, while the number of upgrades increased, driven by steady overall domestic demand, stable operating margins and prudent capex spend supporting healthy balance sheets.

Ind-Ra expects this trend to remain steady in FY27, with credit metrics to hold firm given no large debt-funded capex plans and an adequate liquidity buffer. The agency expects the sector to continue to focus on reallocating capital towards high-margin, technology-led product segments. This strategic shift is likely to support the sector's long-term competitiveness and strengthen profitability.