Auto component margins may ease to 11% amid higher input costs, steady OEM demand: Crisil
New Delhi, June 3
The operating margins of India's auto component sector are expected to decline slightly this fiscal due to rising input and freight costs linked to the West Asia conflict, according to a report by Crisil.
The report said the sector's operating margins are likely to moderate by 100-150 basis points this fiscal from around 12 per cent last year, but that revenue growth might remain resilient, keeping absolute operating profits stable. It noted that ongoing geopolitical tensions are reshaping global supply chains and increasing working capital requirements for manufacturers.
"The global supply-chain uncertainty is prompting manufacturers to maintain higher buffer stocks to safeguard production schedules. This is likely to increase inventory levels by 15-20 days from the current 80-85 days," the report said.
According to Crisil, larger companies are better positioned to manage the higher inventory burden due to their stronger bargaining power and scale.
OEMs accounted for more than two-thirds of the sector's revenue in the last fiscal. The report noted that "auto component makers accounting for almost half the sector's revenue of ~Rs 9 lakh," while "exports and the aftermarket contributed 16 per cent and 12 per cent, respectively."
The report highlighted that raw materials make up nearly three-fourths of the sector's total costs. It added that "prices of steel and aluminum, which together account for 50-60 per cent of input costs, have risen sharply."
Despite cost pressures, Crisil expects demand from OEMs to remain stable and support revenue growth.
"Further, balance sheets, though not debt-free, remain at moderate levels, adequate to fund capital expenditure (capex) and working capital needs," the report said.
Crisil said OEM demand continues to remain healthy, supported by new vehicle launches, infrastructure-led commercial vehicle activity, premiumisation in the two-wheeler segment and growing adoption of electric vehicles.
"OEM demand, which regained momentum post the goods and services tax (GST) rate reduction last year, remains steady with new model launches across passenger vehicles, infrastructure-linked commercial vehicle activity, continued premiumisation in two-wheelers and rising electric vehicle adoption across segments providing the tailwind," it said.
The report also said the aftermarket segment remains stable due to the large number of vehicles sold in recent years. Exports are expected to grow 8-9 per cent year-on-year, aided by tariff corrections in the United States, India's largest export market.
"The aftermarket is stable, buoyed by large stock of vehicles sold in prior years. Exports are expected to grow 8-9% on-year, aided by tariff corrections in the United States, the largest export market, though longer shipping routes have increased lead times," the report noted.
According to Crisil, resilient revenue growth is expected to help maintain stable absolute operating profits for the sector.
— ANI
Reader Comments
Crisil ki report toh interesting hai. Margins thoda kam honge, but revenue stable rahega—that's a good sign. But inventory levels increasing by 15-20 days? That's a big concern for small manufacturers; only large players can handle that. Government should help MSMEs in this sector. Otherwise, consolidation ho jayega.
I'm curious about the impact of the US tariff corrections on exports. If shipping routes are longer, lead times will increase—could this hurt competitiveness? Also, the aftermarket segment sounds solid given the large vehicle stock. India's auto component industry is definitely a key player now.
Great to see stable OEM demand, but input costs are soaring. Steel and aluminum prices have shot up, and that directly hits margins. I hope the companies that make auto components pass on some cost to consumers, but that's tough in a competitive market. EV adoption is a positive tailwind though—keep pushing!
Honestly, this is a familiar story. Every fiscal we hear about margin pressures, but somehow the sector adapts. Crisil's numbers are fine, but let's not forget the real challenge: small component makers who supply to OEMs are squeezed the most. They can't afford higher inventory. Hope the government steps in with some support.
I work in supply chain, and the 15-20 day increase in inventory is significant. Buffer stocks are necessary now, but it's costly. Larger companies might manage, but smaller ones? They might face working capital issues. The export growth is encouraging though—8-9% is solid despite
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