ICRA expects EV opportunities,premiumisation of vehicles, focus on localisation, improved export potential, and regulatory norms changes to translate into healthy growth for auto component suppliers over the medium to long term.

The  rating agency expects YoY improvement of 100-150 bps in operating margins in FY2024 with the same returning to pre-Covid levels of 11-11.5%.

ICRA projects its sample of 44 auto ancillaries with aggregate annual revenues of over Rs 2,50,000 crore to grow by 5-8% in FY2024, driven by healthy domestic demand, despite a high base and weak export environment. ICRA expects EV opportunities,premiumisation of vehicles, focus on localisation, improved export potential, and regulatory norms changes to translate into healthy growth for auto component suppliers over the medium to long term.

For 9M FY2023, ICRA’s sample reported a robust revenue growth of 26% on a YoY basis. Aided by the benefits of operating leverage, increase in content per vehicle, easing of cost pressures, and improvement in the supply-chain scenario, the rating agency expects YoY improvement of 100-150 bps in operating margins in FY2024 with the same returning to pre-Covid levels of 11-11.5%. That said, certain headwinds will continue to persist, especially for companies that have a high share of imports, because of the forex volatility.

For 9M FY2023, the operating margin for the sample set stood at 10.0%, about 30 bps lower on YoY basis.