Auto parts industry will clock healthy growth for 2-3 years: Crisil

The growth prospects for the Indian auto components sector are bright over the next two-three years, according to Crisil.

A report by the rating agency said the ancillary industry will clock healthy growth steered by product changes (replacing metal with plastic or high-grade and lighter metals, increasing electronic content) and regulations (emission and safety norms).

Emerging technologies such as automated manual transmission, anti-lock braking systems, electronic control units/sensors, and advanced engine designs will also support growth.

Further, with safety becoming the main concern, the requirement for advanced driver assistance systems for lane assistance, distance control, and vehicle-to-vehicle communication, is on the rise.

For the current fiscal, the components industry is expected to grow at 12-14 per cent over a high base, on the back of demand from domestic manufacturers across vehicle segments.

While the demand for two-wheeler and passenger vehicle segments remain buoyant, higher sourcing is expected from commercial vehicle (CV) and tractor manufacturers, who have benefitted from the government’s infrastructure push and four consecutive years of good crops.

Auto component makers are estimated to have incurred higher on-year capital expenditure for a couple of years from FY2018 on account of the government’s decision to implement BS-VI norms from fiscal 2021. Many players are also investing in new technology to capitalise on the rising demand for hybrid and electric vehicles.

Domestic auto component production is projected to increase at 10-12 per cent CAGR between FY2018 and FY2023 to ₹522,300 crore, in line with the domestic automobile demand and exports. Auto component exports – the bulk of which is to the US and the euro zone – are expected to rise 8-10 per cent on-year given firm global automobile demand. Exports will also improve to countries in South-East Asia and Latin America, primarily Brazil as it recovers from recession, said the report.

“We expect imports to grow at a moderate pace of 6-8 per cent CAGR till fiscal 2023 to support domestic demand, despite the higher anti-dumping duty levied on various engine, electrical and chassis parts under the Union Budget 2018-19,” it said.