Auto ancillary sector growth outlook positive, but near-term margin pressure likely: Report
New Delhi, July 8
India's auto bearings and ancillary sector is expected to witness strong medium-term growth, driven by robust demand across the automotive and industrial segments, although short-term profitability may face pressure from input cost volatility and transition-related expenses, according to a report by Centrum.
The report noted that the sector is benefiting from rising bearing content per vehicle, as modern vehicles require a greater number of specialised bearings. It also highlighted robust growth in automobile volumes across the passenger vehicle (PV), commercial vehicle (CV), and two-wheeler (2W) segments.
In addition, demand from the railway sector remains structurally resilient, while end-user industries such as wind energy, cement, steel, and renewables are witnessing a gradual recovery, providing further support to the sector's growth prospects. Together, these factors create positive outlook for the sector.
"The auto bearings and ancillary sector is well-positioned, led by rising bearing content per vehicle, robust auto volume improvement across PV/CV/2W, and structurally resilient Rail demand alongside gradual pickup in Wind, Cement, Steel and Renewables," the report added.
At the same time margins across most OEMs will likely decline due to higher RM costs during the quarter partially offset by higher operating leverage, it said.
Apart from this, Centrum expects the growing share of exports along with the expansion of manufacturing capacity, and greater product diversification will widen the sector's addressable market and support margin expansion over the medium term.
"Deepening export share along with new capacity and product diversification (CRB/SRB ramp-ups, transfer case and component scale-ups, premiumization), should expand addressable markets and drive margin accretion over the medium term, while near-term profitability faces pressure from one-off costs and input cost volatility," it said.
Additionally, the report said ongoing localisation of manufacturing and portfolio rationalisation are expected to support structural improvement in margins over time, providing further support to the sector's long-term growth prospects.
Centrum expressed optimism that improved operating leverage and a relatively weaker rupee would partially offset margin pressures, even as higher raw material costs driven by elevated commodity prices, rising energy costs, and supply-side headwinds are expected to weigh on profitability across most companies.
Overall, Centrum expects "the sector to deliver healthy double-digit growth over the next 2-3 years, with earnings likely to outpace revenue as margin levers play out, notwithstanding near-term risks from input costs, geopolitical uncertainty, and company-specific transition costs."
— ANI
Reader Comments
Interesting report from Centrum. The auto ancillary story is well-known in the markets - rising bearing content per vehicle makes sense with all the new SUV launches and EV adoption. But I find the "margin accretion over medium term" line a bit optimistic. We've heard this before about many B2B sectors. Realistically, with global commodity prices still volatile and our rupee weakening against dollar, input costs will keep margins under pressure. The export angle is promising though - if Indian companies can capture more global market share, that could be a game-changer. Would love to see more specific numbers on export growth projections. 🇮🇳
Bottom line - Indian auto ancillaries have a solid demand story from domestic automotive growth, railways, and industrial recovery. The near-term pain from input costs and transition expenses is real but temporary. For long-term investors, this could be a buying opportunity if prices dip. But let's be honest - none of this is new. The report basically confirms what we already see in the economy: demand is picking up but margins are being squeezed by costs. The key watchpoint is how effective these companies are at passing on costs and their localization efforts. Would appreciate more data on how much of these "elevated commodity prices" are being absorbed vs passed through to OEMs.
As someone tracking Indian industrial companies from a buy-side perspective, I find Centrum's assessment balanced. The mention of "double-digit growth over next 2-3 years with earnings outpacing revenue" is crucial - it suggests margin improvement is baked into the thesis. The railway demand angle is particularly compelling given India's massive rail modernization push (Vande Bharat, dedicated freight corridors). However, I'm cautious on the "portfolio rationalization" point - sometimes that translates to job cuts and factory closures that can hurt local communities. Let's see how sustainable this growth is when global interest rates start moving differently. I'd like to see more disclosure on how these companies are managing their supply chain risks.
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