According to a Crisil report released on Wednesday, the continuous demand momentum from the two-wheeler (2W) and passenger vehicle (PV) segments, which account for nearly half of the overall revenue, is expected to propel the automotive component sector in India to record revenue growth of 7-9 percent during the fiscal year 2025–2026.

Another tailwind will come from a modest increase in sales of tractors and commercial vehicles, which account for 17% of the market. According to the research, the aftermarket sector, which makes up 15% of total sales, is expected to expand at a steady rate of 5-7 percent.

However, there are challenges due to the low demand for new cars in the US and Europe, which account for around 60% of India’s exports.

The increasing proportion of high-margin components, including infotainment systems, sophisticated brakes, and ADAS1 modules is driving consistent operating margins of 12.5% to 12.5%. Profitability will be supported by a decrease in input costs, especially for steel (45–50% of input costs), aluminum (15–20%), and plastics (10–12%), which are utilized for structural stiffness, lowering vehicle weight, and for interiors. However, according to the research, pressure from additional tariffs may hurt the profitability of businesses who export mostly to the US.

Internal accruals will be the main source of funding for ongoing large capital expenditures. According to the research, this, in conjunction with strict management of working capital, will guarantee little reliance on outside borrowing, maintaining stable credit profiles.

Automotive component makers, who generated around 35% of the industry’s sales of approximately Rs 7.9 lakh crore in the previous fiscal year, are the basis of the Crisil Ratings research.

According to the survey, demand patterns are anticipated to differ across the three main market groups that automotive component companies serve: export, aftermarket, and original equipment manufacturers (OEMs).

“The demand from automotive OEMs, which account for two-thirds of total revenue, is expected to grow 8-9 percent this fiscal year, with value outpacing volume on rising safety, emission, and electronic content, especially in PVs and 2Ws,” said Poonam Upadhyay, director of Crisil Ratings. With the help of an aging car base, the aftermarket category will rise steadily by 6–7%. However, due to a slowdown in the US and European markets for electric vehicles (EVs) and a lackluster demand for cars with internal combustion engines, export growth will slow to 7-8 percent.

Despite only making up 5% of overall sales, the US is the market for auto components with the greatest rate of growth and has a commanding 28% share of export profits. According to the research, businesses who rely significantly on this region may suffer from the 25% tax that the United States has planned.

The report also emphasizes that, despite ongoing capital expenditures of about Rs 22,000 crore for EV capabilities, automation, and precision manufacturing—in line with model launches that increasingly feature EVs—the sector’s credit outlook for this fiscal year is stable due to robust cash flows and little debt addition. However, as EVs only make up 4% of PV volume, their income contribution is still small, which will limit the short-term profits from this vehicle type.

With interest coverage and debt-to-EBITDA at 9 times and 1.3 times, respectively, roughly in line with last fiscal, key debt metrics for automotive component companies are anticipated to stay strong this fiscal year, the research said.