Investment: Capital expenditure: The industry is projected to invest Rs 200-250 billion in FY2025 for capacity expansion and technological advancements. This investment is likely to constitute 8-10% of operating income over the medium term. Government support: The Production Linked Incentive (PLI) scheme will support the production of advanced technology and electric vehicle (EV) components. Vulnerabilities: The industry remains susceptible to fluctuations in commodity prices and foreign exchange rates, which could impact margins. Domestic OEM demand: Constitutes over 50% of sales for the Indian auto component industry. Growth in this segment is expected to moderate in FY2025. Replacement demand: Expected to remain stable at 5-7% after a period of healthy growth. Export market: Could be impacted by sluggish end-user markets in Europe and the US due to weak global economic conditions and geopolitical tensions.

Opportunities: Supply chain diversification: Ancillary companies can benefit from supplying components to new platforms as global OEMs diversify their vendor base and increase outsourcing. Replacement market: Ageing vehicle population and rising used car sales in overseas markets present opportunities for Indian exporters. Future drivers: Increasing adoption of electric vehicles, vehicle premiumisation, focus on localisation, and evolving regulations are expected to support stable growth for auto component suppliers in the long run.

This forecast by ICRA is based on a sample of 46 auto ancillary companies with combined annual revenues exceeding Rs 3,000 billion in FY2024. Despite the projected moderation in growth, the industry's investment in capacity expansion and technological advancements indicates a focus on sustaining long-term growth and resilience.

(Source: BS)