After recording a roughly 14% increase in revenue last fiscal year, the automotive components sector is predicted to moderate its growth to 6–8% this fiscal year and the following, according to CRISIL Ratings research. It also mentioned that the declining demand for new cars, excluding two-wheelers, will be the reason.
Moreover, because of the weak macroeconomic conditions in important international markets, export growth is anticipated to be weaker than the 13% recorded in fiscal 2024… However, the paper stated that ongoing expansion will be supported by consistent replacement demand.
Due to improved realizations and cost-cutting measures, car component manufacturers’ operating profitability should maintain at 12–13% this fiscal year and the next, despite slower growth.
Over the next three to four years, capital spending is anticipated to increase in line with the trend in the automobile original equipment manufacturer (OEM) sector, where passenger vehicle (PV) players are building capacity. However, according to CRISIL Ratings, a large portion of this capital expenditure (capex) will be financed by solid cash generation with little reliance on debt, maintaining stable credit profiles.
Usually, 65–70% of the overall revenue of auto component makers comes from vehicle OEMs, with the remaining portion coming from exports and replacement demand. Nearly three-fourths of OEMs’ income comes from the PV and two-wheeler industries.
Additionally, the sector’s profitability would be supported at 12–13 percent by cost optimization and moderate realisation growth led by premiumisation in PV and two-wheelers, as well as advanced electric vehicle (EV) components. At the moment, China and other nations import a sizable amount of EV components.
With interest coverage and the debt-to-EBITDA ratio predicted to be 8–9 times and 1.1–1.3 times, respectively, in the upcoming two fiscal years, as opposed to 7.5 times and 1.6 times, respectively, in the previous fiscal year, key debt protection metrics should be comfortable. Nevertheless, CRISIL came to the conclusion that variables including OEM demand, the rate of EV adoption, and the state of the global macroeconomy will need to be closely monitored.
