Auto components sector to achieve 7–9% growth in FY26

India’s auto component industry is projected to grow its revenue by 7–9%, driven mainly by two-wheeler and passenger vehicle demand. Growth in commercial vehicles and the aftermarket segment is steady, but export challenges persist due to weak US and Europe demand.

Operating margins remain stable at 12–12.5%, supported by high-margin tech products and lower input costs. US tariffs pose risks for companies reliant on exports. The sector’s credit outlook is stable, backed by strong cash flows and limited debt, despite ongoing investments in EV capabilities.

India’s auto component industry is set to grow its revenue by 7–9% this fiscal year, matching last year’s growth rate, according to a report by Crisil Ratings. The expansion will be mainly driven by strong demand in the two-wheeler (2W) and passenger vehicle (PV) segments, with utility vehicles playing a key role. Together, these segments account for nearly half of the industry’s overall revenue. Crisil noted that modest growth in the commercial vehicle and tractor segments (which contribute about 17% of total revenue) will add further momentum. Meanwhile, the aftermarket segment (15% of revenue) is expected to grow steadily at 5–7%. 

However, the report highlights that the sector is under pressure from sluggish demand in major export destinations such as the US and Europe, which together account for approximately 60% of India’s auto component exports.

Margins to be stable; US tariffs pose risk

As per the report, the Operating margins are expected to remain stable at 12–12.5%, supported by a growing share of high-margin products such as ADAS modules, infotainment systems, and advanced braking components. Declining input costs, particularly for steel (45–50% of input costs), aluminium (15–20%), and plastics (10–12%)- used for structural rigidity, reducing vehicle weight and for interiors- will also support profitability.

Anil More, Associate Director at Crisil Ratings, noted that high-margin, technology-driven components now account for roughly 27% of the sector’s revenue, up from 18% pre-Covid. This structural shift, alongside easing input costs, will help maintain operating margins despite external pressures. However, companies with high exposure to the US could see a margin reduction of 125–150 basis points due to limited ability to pass on tariffs.

The introduction of new tariffs by the Donald Trump administration poses a risk to margins, especially for companies with heavy exposure to the US, which, while accounting for only about 5% of total sector revenue, contributes a significant 28% of export earnings. It is to be noted that the US is currently the fastest-growing market for auto components, but the proposed 25% tariff could significantly impact companies that are heavily dependent on this region.

Credit outlook

According to Crisil Ratings, the automotive component sector’s credit outlook remains stable for the current fiscal, backed by strong cash flows and low debt levels, even as companies continue to invest around ₹22,000 crore in expanding EV capabilities, automation, and precision manufacturing. 

The report adds that the sustained high capital expenditure will be mainly supported by internal accruals. Along with efficient working capital management, this will limit the need for external borrowing and help preserve stable credit profiles. However, with electric vehicles making up only about 4% of passenger vehicle volumes, their revenue contribution is limited, resulting in muted returns from this segment in the short term.

Demand to fluctuate across OEMs, aftermarket, and export markets

The report covered automotive component manufacturers representing around 35% of the sector’s ₹7.9 lakh crore revenue in the previous fiscal. Demand patterns are expected to vary across the three major segments: original equipment manufacturers (OEMs), the aftermarket, and exports.

According to Poonam Upadhyay, Director at Crisil Ratings, demand from OEMs—which make up about two-thirds of sector revenue—is projected to grow 8–9%, driven by increasing safety, emissions, and electronics content, especially in 2Ws and PVs. The aftermarket segment is set for steady 6–7% growth, bolstered by an ageing vehicle population. Export growth, however, is expected to moderate to 7–8% due to weaker global demand for internal combustion engine vehicles and slower EV adoption in the US and Europe.

Looking ahead, the report stated that domestic OEM demand patterns, fluctuations in raw material and freight costs, changes in global demand, and the effect of US reciprocal tariffs on exports will be key factors to watch.