Auto part makers look beyond cars to dodge global headwinds

During management calls with analysts and investors in May after declaring their Q4 results, Sona Comstar (listed on the bourses as Sona BLW Precision Forgings Ltd) said it is looking at railways, Motherson at aerospace, and Bharat Forge said it is eyeing defence and electronics to boost growth even as the core auto business faces challenges. 

The tweak in strategic direction follows the March announcement by US President Donald Trump that all automobile-related imports into the US would attract a flat tariff of 25%. For these three companies, which have among the highest exposure to the US market among Indian auto component makers, that is likely to hit revenues and margins. 

Sona Comstar’s managing director and chief executive officer (CEO) Vivek Vikram Singh said in an analyst call on 30 April that the developments in the US could impact 3% of its total revenue. “In our opinion, they (US tariffs) will adversely impact the demand for cars and light trucks," Singh said.

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In FY25, Sona Comstar earned 41% of its ₹3,545 crore consolidated revenues, and Motherson 19% of ₹1.13 trillion, from the North American market, the bulk of which comprises sales in the US. Bharat Forge generated 70% of its total exports from the Americas (both North and South America) in the same fiscal year. 

Sona Comstar said that acquisition of railway equipment business from Escorts Kubota, which was completed this month, will make India its largest market from second largest in the previous financial year. The company had announced the acquisition of Escorts Kubota in October 2024 for ₹1,600 crore, marking its entry in the railway equipment space.

Motherson’s revenue from aerospace components rose from ₹339 crore in FY24 to ₹1,749 crore in FY25, growing at a pace of 415%, albeit on a low base. The company is also diversifying and expanding into areas like consumer electronics and semiconductor manufacturing machines. “We expect this to grow even further in the coming quarters," said Laksh Vaaman Sehgal, director at Samvardhana Motherson, on the non-automotive revenue. 

Per its investor presentation for Q4 FY25, Motherson plans to spend about 70% of ₹3,000 crore earmarked for growth capital expenditure on non-auto related business in the current fiscal year (FY26).

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Meanwhile, Bharat Forge identified defence and electronics as key growth areas. “Industrial saw growth across verticals with Defence, Heavy Horse Power Engines registering robust performance. In the medium term, scale up of the Defence business and opportunities for components supply to Small Nuclear Reactors would be key to growth," its investor presentation said. 

To be sure, Bharat Forge, which has been in the defence business since 2010, is the most diversified among these three companies with more than seven lines of business, including auto parts, defence, aerospace, and electronics, among others. The core auto segment now forms just 53% of its overall business.

Amit Kalyani, vice chairman and joint managing director at Bharat Forge, also noted that electronics is going to be a key growth area as its role increases in the industrial sector. 

“You need to build scale, you need to build supply chain capability, and I think we are going to do that in multiple areas," Kalyani told analysts in the post earnings call. “The Indian government wants to create Indian electronics players in niche areas where imports are not wanted to be used. So, I think there is an opportunity and that's what we are pursuing." 

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Jugnu Sakuja, managing director at consultancy firm Alvarez & Marsal, told Mint that the pursuit of leading auto component players to diversify into high-end tech areas like electronics, robot parts manufacturing etc. will continue to intensify as these players will look to find new avenues of growth and expand margins.

Facing Global Challenges

Companies and analysts alike agree that the growth environment for the country's auto component players is becoming increasingly challenging. 

“Muted global production due to geopolitical issues, evolving platform mix and trade dynamics; growth in India and China offset by degrowth in developed markets," were some challenges outlined in Motherson’s investor presentation on 29 May. 

Echoing a similar sentiment, Bharat Forge’s management highlighted in its presentation to investors on 8 May that an “unpredictable policy environment in the near future can lead to lower discretionary spends impacting overall volumes in North America". 

The imposition of restrictions on rare earth magnets by China in response to the US’s decision to impose tariffs has further sparked concerns about automobile production. “Global automotive production, and in this I include every market, may see disruptions due to supply chain complexities and high dependence on China, especially for rare earth material," Singh of Sona Comstar said.

And read | Indian auto stuck in queue as China clears rare earth magnets for others

Meanwhile, analysts at Ambit Institutional Equities wrote in a 25 April note, “We identify three key risks for Ancs-USMCA/tariffs, EU weakness and Chinese competition, and EVs–given the industry’s export reliance on US/EU and good salience of engine components." 

Nifty Auto index has gained 0.81% this year as against a 4.11% rise in the benchmark Nifty 50.