Revenue growth in the auto components industry is likely to dip to 6-8 per cent this fiscal and the next, after clocking 14 per cent last fiscal, owing to decelerating demand for new vehicles barring two-wheelers.

Additionally, exports are expected to grow at a slower rate than the 13 per cent seen in fiscal 2024 as the macroeconomic environment in key markets abroad remain sluggish. However, steady replacement demand will support ongoing growth, a report by Crisil Research said.

Despite slower growth, the operating profitability of auto component makers should sustain at 12-13 per cent this fiscal and the next due to better realisations and cost reduction initiatives.

Capital spending is expected to rise, aligning with the trend seen in the automobile original equipment manufacturer (OEM) sector, where passenger vehicle players are adding capacity over the next 3-4 years. However, much of this capital expenditure (capex) will be funded through healthy cash generation, with limited reliance on debt, keeping credit profiles stable.

A Crisil Ratings analysis of automotive component makers accounting for nearly 35 per cent of sector revenue of Rs 7 lakh crore last fiscal, indicates as much.

Automobile OEMs typically contribute 65-70 per cent to the total revenue of automotive component manufacturers, and exports and replacement demand account for the balance. Among OEMs, PV and two-wheeler segments account for close to three-fourths of the revenue.

Anuj Sethi, senior director, Crisil Ratings, said “demand from two-wheeler OEMs is expected to show double-digit growth this fiscal and the next, while other OEM segments may witness modest demand.”