India's Auto Component Sector Projected to Grow 7-9% in FY2025-26

India's automotive component sector is expected to grow 7-9% in the current fiscal year, according to a new report from Crisil Ratings. This growth mirrors last year's performance and will be primarily driven by sustained demand from two-wheelers (2Ws) and passenger vehicles (PVs), particularly utility vehicles, which together account for nearly half of the sector's overall revenue.

The analysis, released on May 21, 2025, indicates that a moderate uptick in commercial vehicle and tractor sales, which represent approximately 17% of the sector's share, will provide additional momentum. Meanwhile, the aftermarket segment, contributing about 15% of revenue, is projected to maintain steady growth of 5-7%.

Operating margins for auto component manufacturers are expected to remain stable at 12-12.5%, supported by the growing share of high-margin, technology-intensive components such as Advanced Driver Assistance System (ADAS) modules, infotainment systems, and advanced braking. These components now account for approximately 27% of segment revenue, up from 18% before the COVID-19 pandemic.

"Demand from automotive OEMs, contributing two-thirds of total revenue, is expected to grow 8-9% this fiscal, with value outpacing volume on rising safety, emission and electronic content, especially in PVs and 2Ws," said Poonam Upadhyay, Director at Crisil Ratings.

However, the sector faces challenges from weak demand for new vehicles in the United States and Europe, which account for about 60% of India's exports. The US market, while contributing just 5% to total revenue, represents 28% of export earnings and is currently the fastest-growing auto component market for Indian manufacturers. The planned 25% tariff by the US could significantly impact companies heavily reliant on this geography.

"Companies with high export dependence on the US market may see margins compress 125-150 basis points amid limited ability to pass on tariffs," warned Anil More, Associate Director at Crisil Ratings.

A decline in input costs—particularly steel (45-50% of input costs), aluminum (15-20%), and plastics (10-12%)—is expected to help offset some of the pressure on margins. These materials are crucial for structural rigidity, reducing vehicle weight, and interiors.

The sector's credit outlook remains stable for this fiscal year, with key debt metrics expected to remain healthy. Interest coverage and debt-to-EBITDA ratios are projected at approximately 9 times and 1.3 times, respectively, broadly in line with last fiscal year.

Despite sustained capital expenditure of around Rs 22,000 crore focused on scaling electric vehicle capabilities, automation, and precision manufacturing, the sector is expected to rely primarily on internal accruals for funding. This, coupled with tight control over working capital, should ensure low dependence on external borrowing.

India's auto component industry has been evolving rapidly in recent years, with manufacturers increasingly focusing on higher-value products in response to changing global automotive trends. However, with electric vehicles forming just about 4% of passenger vehicle volumes in India, their revenue contribution remains marginal, keeping returns from this category muted in the near term.

The Crisil Ratings analysis covered automotive component makers accounting for nearly 35% of the sector's revenue, which totaled approximately Rs 7.9 lakh crore in the previous fiscal year.