India's auto bearings and ancillary sector is poised for strong medium-term growth, fueled by robust demand across automotive and industrial segments, though short-term profitability may be squeezed by input cost volatility and transition-related expenses, according to a report by Centrum.
Key Growth Drivers: Rising Bearing Content and Robust Auto Volumes
The report highlights that the sector benefits from increasing bearing content per vehicle, as modern vehicles require more specialized bearings. It also notes strong growth in automobile volumes across passenger vehicles (PV), commercial vehicles (CV), and two-wheelers (2W). Demand from the railway sector remains structurally resilient, while end-user industries such as wind energy, cement, steel, and renewables are seeing gradual recovery, further supporting growth.
"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 stated.
Near-Term Margin Pressures from Input Costs and Transition Expenses
Despite the positive outlook, margins across most OEMs are expected to decline in the near term due to higher raw material costs, partially offset by improved operating leverage. The report attributes this to elevated commodity prices, rising energy costs, and supply-side headwinds. One-off costs related to capacity expansion and product diversification also weigh on profitability.
Centrum expects growing export share, along with new capacity and product diversification—such as cylindrical roller bearing (CRB) and spherical roller bearing (SRB) ramp-ups, transfer case and component scale-ups, and premiumization—to widen the sector's addressable market and support margin expansion over the medium term.
Medium-Term Margin Accretion via Exports and Diversification
"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," the report added.
The report also highlights that ongoing localization of manufacturing and portfolio rationalization are expected to support structural improvement in margins over time, providing further support to the sector's long-term growth prospects.
Operating Leverage and Weaker Rupee to Partially Offset Headwinds
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, 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."
