India Ratings Keeps Neutral Outlook for Auto Ancillaries in FY26

28 Jan 2025 CW Team

India Ratings and Research (Ind-Ra) has maintained a neutral outlook for the auto ancillary sector for FY26, forecasting a revenue growth of 8-10 per cent year-on-year (Y-o-Y). This growth is anticipated to be fuelled by factors such as premiumisation, rising electric vehicle penetration, and increasing global OEM investments in India.

However, the outlook is not without its challenges. Muted exports, especially from Europe, and a slowdown in domestic sales growth (except for two-wheelers) may affect profitability.

Despite these challenges, Ind-Ra expects certain factors to help sustain margins in the auto ancillary sector. One of these factors is steady demand from the replacement market, as domestic demand for replacement parts is expected to remain consistent, acting as a buffer against any decline in new vehicle sales.

Moreover, improved operating leverage is expected as auto ancillary companies scale up production to meet growing demand, benefitting from economies of scale. With supply chain constraints easing, raw material prices are likely to remain stable, helping control production costs. Companies that are investing in the development of advanced EV-related components are anticipated to be well-positioned for future growth.

The trend of consumers preferring premium vehicles with more features is also expected to continue, driving increased demand for auto ancillary components. Additionally, the growing adoption of electric vehicles (EVs) is set to create new opportunities for auto ancillary companies to develop and supply EV-specific components.

As global OEMs look to diversify their supply chains away from China, India is emerging as a key investment destination, which is expected to boost demand for products from Indian auto ancillary companies.

News source: Business Standard

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