US Tariffs Cast Shadow on Indian Auto Component Sector

The Indian auto component industry braces for a challenging period as US tariffs threaten significant profit erosion, estimated at Rs2,700-4,500 crore. Revenue growth is likely to decelerate, while operating margins could contract noticeably. However, India might see medium-term gains if cost competitiveness improves.

The Indian auto component industry is grappling with new challenges, as US-imposed tariffs loom over exporters, potentially slashing earnings significantly, ICRA reports. According to the agency, these tariffs could reduce operating profits by Rs2,700-4,500 crore, a striking 10-15% decrease for exporters and 3-6% for the entire industry.

ICRA's projections suggest that revenue growth, based on a sample of 46 major players with combined revenues over Rs3 lakh crore in FY2024, will slow to 6-8% in FY2026 from an earlier 8-10%. This anticipated slowdown stems from an expected decline in US exports due to the tariff escalation.

Operating margins are forecasted to diminish by 50-100 basis points, landing at 10.5-11.5% in FY2026. Exporters may face a sharper margin contraction of 150-250 basis points. Though debt and liquidity remain steady, increased working capital needs are a concern. Suppliers aim to pass on costs, but outcomes will hinge on negotiations, criticality, and competition.

Shamsher Dewan, Senior VP and Head of Corporate Ratings at ICRA, has highlighted rising economic uncertainties, declining US vehicle sales, and tepid replacement demand as additional risks. The tariffs could impact 65% of India's export basket, yet paused reciprocal tariffs offer temporary relief. If India's cost competitiveness outpaces China's, it could gain from global sourcing shifts.

There are also early signals of opportunity, as some Indian manufacturers notice a surge of interest from US importers, pointing to possible prospects ahead. (ANI)

(With inputs from agencies.)