New Delhi— India’s automotive components sector is projected to post 7–9 percent revenue growth in the 2025–26 fiscal year, driven by sustained demand from the two-wheeler (2W) and passenger vehicle (PV) segments, which together account for nearly half of the industry’s revenue, according to a CRISIL Ratings report released on Wednesday.
The report notes that a modest uptick in commercial vehicle and tractor sales—segments contributing 17 percent to the sector’s revenue—will provide additional growth momentum. Meanwhile, the aftermarket segment, which represents 15 percent of overall revenue, is expected to grow steadily at 5–7 percent.
However, weak demand for new vehicles in the U.S. and Europe—markets that make up about 60 percent of India’s auto component exports—could act as a headwind.
Operating margins are projected to remain stable at 12–12.5 percent, supported by the rising share of high-margin products such as ADAS (advanced driver-assistance systems) modules, infotainment systems, and advanced braking components. Lower input costs—particularly for steel (45–50 percent of input cost), aluminum (15–20 percent), and plastics (10–12 percent)—will further support profitability. That said, new tariffs, especially those targeting exports to the U.S., could squeeze margins for companies heavily reliant on that market.
Despite continued high levels of capital expenditure, funding will primarily come from internal accruals. Coupled with tight control over working capital, this will help maintain low dependence on external borrowing, thereby keeping credit profiles stable.
The CRISIL analysis is based on a sample of component manufacturers that collectively account for about 35 percent of the sector’s ₹7.9 lakh crore revenue in the last fiscal year.
The report emphasizes that demand trends will vary across the three core segments that auto component companies serve: original equipment manufacturers (OEMs), the aftermarket, and exports.
“Demand from automotive OEMs—which contribute two-thirds of the total revenue—is expected to grow 8–9 percent this fiscal, with value growth outpacing volume due to rising safety, emissions, and electronic content, especially in PVs and 2Ws,” said Poonam Upadhyay, Director at CRISIL Ratings. “The aftermarket will see steady 6–7 percent growth, driven by an aging vehicle fleet. Export growth, however, is expected to moderate to 7–8 percent amid weaker demand for internal combustion engine vehicles and a slowdown in EV adoption in the U.S. and Europe.”
While the U.S. contributes just 5 percent to total revenue, it accounts for 28 percent of India’s export earnings and remains the fastest-growing export market. The proposed 25 percent tariff by the U.S. could significantly impact firms with high exposure to that market, the report cautioned.
CRISIL also noted that the sector’s credit outlook remains stable for FY26, supported by healthy cash flows and minimal debt, despite ongoing capital investments of around ₹22,000 crore. These investments are focused on building electric vehicle (EV) capabilities, automation, and precision manufacturing, in line with an increasing number of EV model launches. However, with EVs accounting for just 4 percent of PV volumes, revenue contributions from this segment remain limited in the near term.
Key financial indicators are expected to stay strong, with interest coverage and debt-to-EBITDA ratios forecast at 9x and 1.3x, respectively—roughly in line with the previous fiscal year. (Source: IANS)
