Indian auto component makers could benefit from lower US tariffs after the India-US trade deal reduced duties on Indian auto exports to 18% from 50%, improving the outlook for companies with significant exposure to the American market.
The tariff reduction lowers the cost of exporting Indian-made components to the US and could support earnings growth across the sector. Companies with established supply chains serving US vehicle manufacturers stand to benefit the most as they seek to expand exports and improve margins.
The US market accounts for about 30% of India's $80 billion auto component industry. Indian suppliers exported auto components worth $3.1 billion to the US in the first half of the current fiscal year, putting the sector on course to exceed $6.2 billion for the full year.
Manufacturers in Tamil Nadu, Maharashtra and Haryana form a large part of India's component production base and supply parts to major US vehicle makers. The tariff reduction is expected to strengthen the competitiveness of Indian suppliers in the market.
Stocks In Focus
Companies with higher exposure to the US market may see a larger benefit from the tariff cut.
Sona BLW Precision Forgings derives about 40% of its revenue from the US. The stock rose 10% after the trade deal announcement. With around Rs 1,500 crore in US revenue, lower tariffs could support profitability over time.
Ramkrishna Forgings generates about 27% of its revenue from the US market. The company has built manufacturing capacity focused on export markets and could benefit from stronger demand from US customers.
Bharat Forge has around 25% exposure to the US market. The company trades near its 52-week high and remains one of India's largest engineering exporters serving global automotive customers.
Tata Motors has about 23% exposure to the US market. Its presence across passenger and commercial vehicles, combined with its scale, may help it benefit from stronger export demand.
Samvardhana Motherson derives about 18% of its revenue from the US. The company offers exposure to the trend through its global automotive supply business.
Margin Impact
The tariff reduction could improve profitability for exporters.
For example, a component maker with Rs 1,000 crore in US revenue that previously absorbed a 5% margin impact under a 50% tariff regime would face a lower margin impact of around 1% under the new tariff structure. The resulting improvement could add Rs 40 crore to earnings before considering other costs.
Industry estimates suggest earnings could rise by 5% to 10% for companies with significant US exposure if tariff savings are retained.
Demand Outlook
The US automotive industry produces more than 15 million vehicles annually and relies on imported components to support production. Indian suppliers have developed manufacturing capabilities, quality certifications and supply networks that have helped them secure long-term relationships with US vehicle manufacturers.
The tariff reduction may encourage US customers to increase sourcing from India and support new supply agreements, capacity expansion and product development.
Risks Remain
The outlook remains dependent on vehicle demand in the US market.
A slowdown in the US economy could reduce vehicle production and weaken demand for components. Customer concentration also remains a risk for suppliers that depend on a limited number of large vehicle manufacturers.
Currency movements could affect export earnings, while the transition to electric vehicles may require further investment in new technologies and products.
Sector Outlook
The reduction in US tariffs changes the operating environment for Indian auto component exporters. With the US accounting for a significant share of industry exports and tariffs falling by 32 percentage points, companies with substantial US exposure may be positioned to benefit if demand remains stable and export volumes increase.
ALSO READ: Can Gems And Jewellery Stocks Continue To Rally As India-US Trade Deal Slashes Tariffs?
Disclaimer: The views expressed in this article are solely those of the author and do not necessarily reflect the opinion of NDTV Profit or its affiliates. Readers are advised to conduct their own research or consult a qualified professional before making any investment or business decisions. NDTV Profit does not guarantee the accuracy, completeness, or reliability of the information presented in this article.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
