ICRA forecasts robust growth for Indian auto ancillaries despite challenges

ICRA, a leading credit rating agency, projects a 9-11% growth for its sample of 45 auto ancillaries in FY2024, with aggregate annual revenues of Rs 2,70,000 crore in FY2023. This growth is primarily driven by strong domestic demand, despite facing a high base and moderate export growth. The FY2025 outlook expects a relatively lower growth of 5-7%, anticipating a slowdown in domestic volume growth and a subdued export scenario.

However, ICRA identifies several positive factors that bode well for Indian auto component suppliers. Initiatives like vendor diversification by global OEMs, increased value addition due to outsourcing, and potential aftermarket demand in overseas markets are highlighted. In the medium to long term, opportunities in electric vehicles (EVs), vehicle premiumization, focus on localization, and changes in regulatory norms are expected to support stable growth.


ICRA anticipates a YoY improvement of 50-100 bps in operating margins in FY2024, reaching pre-Covid levels of 11.0-11.5%. Further, FY2025 is expected to witness a 50-100 bps improvement on a YoY basis to 11.5-12.0%. This positive trend is attributed to operating leverage, increased content per vehicle, easing cost pressures, and supply-chain improvements.

However, ICRA cautions that earnings remain exposed to volatilities in commodity costs and foreign exchange rates. The disruption along the Red Sea route has resulted in a surge in container rates, impacting auto component exports. With two-thirds of exports directed to North America and Europe, sustained increases in freight rates could affect margins in the coming quarters.

Ms. Vinutaa S, Vice President and Sector Head – Corporate Ratings, ICRA Limited, emphasizes that domestic OEM demand, constituting over 50% of sales, is expected to moderate in FY2025, especially for passenger and commercial vehicles. Replacement demand is predicted to remain stable, growing at 5-7%, supported by factors like increased mobility, a healthy vehicle parc, and used car sales.

ICRA acknowledges the potential in the EV segment, with the EV transition process offering opportunities for local auto component suppliers. The gradual shift towards EVs is expected to impact engine and drive transmission components, influencing aftermarket demand. However, supplies to alternative applications, new products, and export opportunities are likely to offset the impact.

Investments in the sector are set to continue, with the industry expected to incur a capex of at least Rs. 20,000-25,000 crore in FY2025. The Production-Linked Incentive (PLI) scheme is also anticipated to contribute to accelerating capex towards advanced technology and EV components over the medium term.

ICRA concludes that the liquidity position across tier-I players in the industry remains comfortable, reflecting a healthy credit profile. Most auto ancillaries rated by ICRA are in the investment grade, indicating a positive credit outlook and improvement in the sector’s credit profile over the last 30-36 months.