The demand from two-wheeler original equipment manufacturers (OEMs) in India is expected to show double-digit growth this fiscal (FY25), a report showed on Tuesday.  

The operating profitability of auto component makers should sustain at 12-13 per cent this fiscal and the next due to better realisations and cost reduction initiatives, said a Crisil Ratings report.

Capital spending is expected to rise, aligning with the trend seen in the automobile OEM sector, where passenger vehicle (PV) players are adding capacity over the next 3-4 years.

However, much of this capital expenditure (capex) will be funded through healthy cash generation, with limited reliance on debt, keeping credit profiles stable, the report maintained.

Crisil Ratings Senior Director Anuj Sethi said that demand from two-wheeler OEMs is expected to show double-digit growth this fiscal and the next, while other OEM segments may witness modest demand, limiting overall OEM growth.

"The replacement segment should sustain 8-9 per cent revenue growth, bolstered by strong automobile sales from previous years," he added.

India's increasing share of high-margin, critical components - accounting for around 60 per cent of export revenue in fiscal 2024 - will support profitability.

Besides, cost optimisation and moderate realisation growth driven by premiumisation in PV and two-wheelers, along with advanced electric vehicles (EVs) components, will support sector profitability at 12-13 per cent, the report noted.

Currently, a considerable portion of EV components are imported from China and other countries.

According to Crisil Ratings Director Poonam Upadhyay, with the anticipated rise in EV adoption, companies are gradually investing in capacities for EV-related components.

Additionally, commitments to the PLI 2 scheme and increased spending by OEMs are likely to elevate the capex of automotive component manufacturers.

“Companies rated by us are expected to invest Rs 16,500 crore each in the current and next fiscals, marking a 25 per cent increase from fiscal 2024. Nevertheless, healthy balance sheets and cash flows will limit reliance on external borrowing, ensuring debt protection metrics remain comfortable,” Upadhyay added.