India's auto parts industry is facing a fresh crisis as the newly imposed US tariffs could hit exporters' earnings hard, credit rating agency ICRA has said. According to the agency, the impact of the tariffs could reduce the operating profit of exporters by Rs 2,700-4,500 crore, representing 10-15 percent of the sector's total operating profit and 3-6 percent of the industry's total operating profit.
ICRA also forecast that the industry's revenue growth could come down to 6-8 percent in FY26, compared to an earlier forecast of 8-10 percent growth. Declining exports to the US market are the main reason for the expected slowdown, especially due to the increase in tariffs.
In addition, the operating margin of the entire industry is expected to decline by 50-100 basis points to 10.5-11.5 percent by 2026. The situation could be even more difficult for exporters, as their margins could fall by 150-250 basis points.
However, despite the pressure, ICRA believes that the debt position and liquidity of most exporters will still be relatively comfortable. However, working capital requirements may increase slightly and pressure will be exerted on margins.
Shamsher Dewan, Senior Vice President, Corporate Ratings, ICRA, said that suppliers whose products are very important, less competitive or technologically advanced will be able to pass on additional costs to customers to some extent. However, this ability will depend on the market share of the company, the importance of the product and its competitiveness, he cautioned.
In addition, the slowdown in vehicle sales in the US, weak replacement demand and the intensity of competition in the global market are making the situation more difficult. The fight is also getting tougher for Indian exporters in the European and Asian markets.
It is estimated that about 65 percent of total exports will be affected by the new US tariffs. Although India has suspended the counter-tariff for 90 days, the additional 10 percent duty is still in effect.
However, ICRA believes that in the medium term, India could have an opportunity if it can become more cost-competitive with China. This is because global automobile manufacturers are now considering changing their sourcing policies. Already, some Indian manufacturers are receiving increased enquiries from US importers, indicating new opportunities in the future.
