Crisil Ratings in its latest report has projected a moderation in operating margins of Indian auto component sector by 100-150 basis points to 10.5-11% this fiscal (FY27) from around 12% last year. The anticipated moderation is primarily attributed to rising input prices and elevated freight costs driven by the ongoing conflict in West Asia.
According to the report, revenue growth, however, is expected to remain resilient, supported by steady demand from original equipment manufacturers (OEMs). 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.
Crisil Ratings further said that the aftermarket is stable, buoyed by large stock of vehicles sold in prior years. The rating agency is also expecting exports to grow 8-9% on-year, on the back of tariff corrections in the United States, the largest export market, though longer shipping routes have increased lead times.
It further noted that the West Asia conflict is reshaping supply-chain dynamics, with direct implications for working capital. 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 ability to stretch creditors to absorb this impact will vary, with large players better placed given their scale and bargaining power.
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