Revenue growth of the Indian auto component industry is expected to decline to five-seven per cent in financial year (FY) 2025 from a high of around 14 per cent in FY2024, a report said on Thursday.
Operating margins are set to improve by around 50 bps year-on-year (YoY) in FY2025, benefiting from better operating leverage, higher content and value addition per vehicle, while avoiding any sharp volatility in commodity prices and foreign exchange. Keeps in touch with. Rates, market tracker ICRA said.
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It also said the industry is likely to incur significant capital expenditure (capex) of Rs 20,000-25,000 crore in FY2025 with a focus on capacity expansion and technological advancements. Furthermore, it was estimated that electric vehicles (EVs) present a significant growth opportunity, with EV penetration expected to reach 25 percent of domestic two-wheeler sales and 15 percent of passenger vehicle sales by 2030.
It said capital expenditure is estimated to be around eight-ten per cent of operating income in the medium term, with the production linked incentive (PLI) scheme also likely to contribute to accelerating capital expenditure for advanced technology and EV components. Has been.
âDemand from domestic original equipment manufacturers (OEMs) accounts for more than 50 per cent of the Indian auto component industry sales and growth in this segment is expected to slow in FY2025. âAfter a relatively weak quarter (Q1) in the current financial year, followed by two to three years of healthy growth, the growth in replacement demand is pegged at five-seven,â Vinuta S, vice president and sector head â Corporate Ratings, ICRA, said. Said .
He said exports, which account for about 30 per cent of the industry’s revenue, are likely to be affected by slow growth in end-user markets. Still, subsidiaries will benefit from supply on new platforms as global OEMs are diversifying their vendor base and increasing outsourcing, he said.
The projected slowdown in revenue growth in FY2025 stems from the expected deceleration in the growth pace of the domestic OEM segment. On the export front, new vehicle registrations in Europe and the US are expected to remain weak over the next few quarters, impacted by the weak global macroeconomic environment and geopolitical tensions, ICRA said in the report.
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However, closure of plants in the EU due to feasibility issues will create opportunities for Indian players in metal casting and forging, it said.
In the medium to long term, ICRA expects EV-linked opportunities, premiumization of vehicles, focus on localization and changes in regulatory norms to support steady growth for auto component suppliers.
Additionally, container rates have increased by two to three times in the first half of this calendar year compared to CY2023 due to disruptions on the Red Sea route, while shipping times also increased by about two weeks, the report said Is.
Given that about two-thirds of auto component exports are to North America and Europe, and one-third of imports are from these regions, a sharp and sustained increase in freight rates could impact the margins of these players. Could. Over the next few quarters, it added.
