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Annual revenue of around 49 auto ancillaries is expected to grow 8-10 percent in the current fiscal year from Rs 3 lakh crore, rating agency Icra said on Thursday. The revenue increase is expected on the back of stable demand and gradual easing of supply-chain issues in 2022-23, it added. Stable demand from the OEM segment coupled with steadily increasing premiumization of vehicles, focus on localization, improved export potential and EV opportunities (resulting in higher content per vehicle) will translate into healthy growth prospects for auto component suppliers, Icra said in a statement.

While cost pressures are likely to continue in the first half of the fiscal year, Icra expects a year-on-year improvement of 50-75 basis points in operating margins in 2022-23, with easing of commodity prices and supply-chain issues, it added. "While the sharp rupee depreciation vis-a-vis USD could impact the cost structure of auto ancillaries with high import dependency, the impact on margins will be driven by the ability to pass through the same," Icra stated. Besides, Icra noted that it expects auto component suppliers to gradually increase their capital expenditure outlay in 2022-23 to 6-6.5 percent of operating income, translating into Rs 16,000-Rs 18,000 crores.

The incremental investments will be primarily towards capability development, new product additions, and development of advanced technology and EV components, unlike the investments towards capacity expansion witnessed in the past, it added. "The capex is expected to hover around 7-8 percent of operating income in FY2024 and FY2025, which is over Rs 20,000 crore each for FY2024 and FY2025," Icra said.