The auto parts industry is accelerating ahead

We look at the factors fueling the present growth of the auto part industry

The auto parts industry is accelerating ahead

The auto parts industry had a monumental FY23. The industry's combined revenue grew about 33 per cent year-on-year to hit an all-time high of Rs 5.6 lakh crore.

The growth was secular, with auto part manufacturers with a market cap above Rs 10,000 crore witnessing double-digit revenue growth. Profitability also witnessed significant improvement as margins zoomed.

Auto component industry-top performers

The companies in the list achieved double-digit revenue growth in FY23

Company M-cap (Rs cr) Revenue growth (%) PAT growth (%) 1Y share price return (%)
Ramkrishna Forgings 10492 37.9 25.3 256.4
ZF Commercial Vehicle 24714 35.4 123.6 33.1
UNO Minda 33947 35.2 83.7 4.9
Timken India 24101 27.4 19.5 8.8
Bosch 53889 26.7 17 6.2
Cummins India 47501 25.9 31.5 43
Sona BLW Precision 34332 25.8 9.3 12
Samvardhana Motherson 64972 23.6 71.3 15.2
CIE Automotive India 19177 22.4 -103.4 85.7
Schaeffler India 47180 20.3 28 0
Price data as of August 26, 2023

Let's dig deeper and find the key reasons behind this growth.

More cars need more components

The passenger car production crossed 45 lakh units for the first time in FY23. The light vehicle segment also contributed to the growth significantly. Electric cars also hit a landmark of 10 lakh units, translating into higher demand for auto parts.

Exports on the rise

The China plus one policy has diverted much of the global demand for auto parts from China to India. As a result, Indian exports jumped 5.2 per cent year-on-year in FY23.

Premium cars in vogue

Consumer preferences for cars are changing. SUVs and other premium cars are witnessing record demand, evident in the segment's all-time sales in FY23. As SUV and premium car components carry higher margins, this shift in consumer trends has led to better margins for auto part manufacturers.

Increased aftermarket demand

The post-pandemic demand boom in the used car segment inadvertently led to higher demand for spare parts, accessories, etc., i.e., the aftermarket (according to a press release by the Society of Automotive Component Manufacturers of India). The segment grew 15 per cent year-on-year in FY23, with companies like Bosch and Uno Minda reporting a record-breaking growth of more than 20 per cent in their aftermarket sales.

What's next

Rising disposable income and an overall uptick in the economy should keep the present momentum in automobile sales alive for some time to come. In addition, despite the recent rally, automobile sales are yet to return to pre-pandemic levels. Apart from the uptick in demand, raw material prices have also started correcting, which should further accelerate the segment's growth.

However, the threat of supply chain disruptions, volatility in raw material prices and adverse macro environment remains a threat.

We would further like to add that the present upcycle should not be the sole trigger to invest. Do the due diligence before investing.

Also read: The electrifying run of wire and cable manufacturers

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