New Delhi [India], February 20 (ANI): Revenue in the Indian auto component industry is expected to expand by 8-10 per cent in the upcoming financial year 2025-26, according to rating agency ICRA.

The rating in a note Thursday asserted the domestic auto component industry revenue will fall to 7-9 per cent in the current financial year 2024-25, against the highs of 14 per cent in 2023-24,

Operating margins are expected to remain range-bound and hover at 11-12 per cent in 2024-25 and 2025-26, supported by benefits from operating leverage, higher content per vehicle and value addition.

The disruption along the Red Sea route has resulted in a surge in ocean freight rates by 2-3 times in 2024 compared to 2023.

ICRA asserted that any further sharp and sustained increase in ocean freight rates could also have a bearing on margins for auto component suppliers having significant exports or imports.

ICRA estimates the auto component industry to incur a capex of Rs 25,000-30,000 crore in 2025-26 towards capacity expansion, localisation or capability development and technological advancement (including EVs), among others.

At present, only 30-40 per cent of the EV supply chain is localised.

There has been substantial localisation in traction motors, control units and battery management systems over the years, while battery cells, which constitute 35-40 per cent of vehicle cost, are still entirely imported.

'The relatively low localisation level gives rise to manufacturing opportunities for domestic auto component suppliers,' ICRA noted.

Vinutaa S, Vice President and Sector Head - Corporate Ratings, ICRA Limited, said the domestic auto component industry is in a transitory phase with the automotive players increasingly focusing on sustainability, innovation and global competitiveness.

'Demand from domestic original equipment manufacturers (OEMs), which constitutes over half of the industry revenues, is estimated to grow by 7-9 per cent in 2024-25 and 8-10 per cent in 2025-26. Part of the growth would stem from premiumisation of components and higher value addition. Growth in replacement demand is pegged at 5-7 per cent in 2024-25 and 7-9 per cent in 2025-26, driven by increase in vehicle parc, higher average age of vehicles/used car purchases, preventive maintenance and growth in organised spare parts, among other reasons,' Vinutaa S added.

Further, ICRA sees opportunities for Indian players in metal castings and forgings because of closure of plants in the European Union (EU) due to viability issues. Ageing of vehicles and sale of more used vehicles in global markets would aid in exports for the replacement segment.

The impact of any import tariffs on Indian auto component exports remains monitorable, it said in a cautionary note. (ANI)