Auto bearings sector to see strong growth despite near-term risks

India's auto bearings and ancillary sector is set for strong medium-term growth, driven by robust demand from auto and industrial sectors, though profitability may be hit by input cost volatility and transition expenses, a new report has said.

Strong Growth Forecast Amid Short-Term Pressures

India's auto bearings and ancillary sector is expected to witness strong medium-term growth, driven by robust demand across the automotive and industrial segments, although short-term profitability may face pressure from input cost volatility and transition-related expenses, according to a report by Centrum.

The report noted that the sector is benefiting from rising bearing content per vehicle, as modern vehicles require a greater number of specialised bearings. It also highlighted robust growth in automobile volumes across the passenger vehicle (PV), commercial vehicle (CV), and two-wheeler (2W) segments.

In addition, demand from the railway sector remains structurally resilient, while end-user industries such as wind energy, cement, steel, and renewables are witnessing a gradual recovery, providing further support to the sector's growth prospects. Together, these factors create positive outlook for the sector.

"The auto bearings and ancillary sector is well-positioned, led by rising bearing content per vehicle, robust auto volume improvement across PV/CV/2W, and structurally resilient Rail demand alongside gradual pickup in Wind, Cement, Steel and Renewables," the report added.

Profitability, Costs, and Market Expansion

At the same time margins across most OEMs will likely decline due to higher RM costs during the quarter partially offset by higher operating leverage, it said.

Apart from this, Centrum expects the growing share of exports along with the expansion of manufacturing capacity, and greater product diversification will widen the sector's addressable market and support margin expansion over the medium term.

"Deepening export share along with new capacity and product diversification (CRB/SRB ramp-ups, transfer case and component scale-ups, premiumization), should expand addressable markets and drive margin accretion over the medium term, while near-term profitability faces pressure from one-off costs and input cost volatility," it said.

Additionally, the report said ongoing localisation of manufacturing and portfolio rationalisation are expected to support structural improvement in margins over time, providing further support to the sector's long-term growth prospects.

Centrum expressed optimism that improved operating leverage and a relatively weaker rupee would partially offset margin pressures, even as higher raw material costs driven by elevated commodity prices, rising energy costs, and supply-side headwinds are expected to weigh on profitability across most companies.

Overall Outlook

Overall, Centrum expects "the sector to deliver healthy double-digit growth over the next 2-3 years, with earnings likely to outpace revenue as margin levers play out, notwithstanding near-term risks from input costs, geopolitical uncertainty, and company-specific transition costs." (ANI)

(Except for the headline, this story has not been edited by Asianet Newsable English staff and is published from a syndicated feed.)