auto parts industry: Local auto parts makers can look on the brighter side too

ET Intelligence Group: Though majority of the auto ancillary stocks have shown weakness after the US government’s decision to impose import tariffs, the extent of their fall . Key component exports like powertrain parts, transmissions, and engines face rising costs, but India may benefit given steeper tariffs on other competing nations. While companies with minimal US exposure have held steady, others including Bharat Forge, Sona BLW, and Sundram Fasteners have seen stock declines.

According to a report by Prabhudas Lilladher Capital, India exported $2.6 billion of automobiles and ancillaries to the US in FY24. The export of ancillaries at $2.1 billion was 80% of the category export to the US. A report by Crisil highlighted that the US forms a significant 28% of the auto component exports from India.

Powertrain parts make up 40% of India’s auto component exports to the US, followed by transmissions at 29% and engines at 13%.

Shares of Steel Strips Wheels increased 4% while that of Ramkrishna Forgings, Endurance Technologies, Jamna Auto Industries and CIE Automotive India have declined up to 5% in a period of one month as these companies have either negligible or no share of their revenues from exports to the US, limiting the impact of new trade barriers.

Stocks such as Sona BLW Precision, Bharat Forge, and Sundram Fasteners have slipped 11-21% as 22-40% of their revenues come from US exports. For Samvardhana Motherson International, exports to US from India constitute only 1.1% of revenue. Revenue mix for FY24 consisted of 18% from the US as it has manufacturing plants there.

“Due to potential negative implications on US sales and OEM companies from EU exporting to the US, there can be an impact on revenue,” Kotak Institutional Equities said. Varroc Engineering, which offers lighting systems, has lost 10% on bourses in the past one month, even though only 1% of its consolidated revenue in FY24 came from US exports. But India may find opportunities in the shifting global supply chain. China and Mexico face even steeper tariffs, which could prompt American companies to look for alternative sourcing options. Also, trade negotiations between India and the US may play a crucial role in determining the long-term impact of these tariffs.