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Auto Ancillary to feel the pinch of US Tariff War

ICICIdirect Research 07 Mar 2025 DISCLAIMER

US is the largest trading partner of auto components with India with total trade value pegged at ~US$ 7.2 billion (~₹ 61,000 crore).

US accounts for 27% of total auto components exported from Indian at US$ 5.7 billion (total exports at US$ 21.2 billion) which are subject to negligible tariffs. While on the front of imports, US account of ~7% of total auto components imported into India at US$ 1.5 billion (total imports at US$ 20.9 billion) which are subject to ~10% import tariff.

As per media sources, Indian Auto ancillary players are looking at options to mitigate the reciprocal tariff impact from US, due to come into effect from 2nd April 2025.
The situation is fluid and we shall closely monitor developments in this space.

One fallout of this US tariff war is the US Class-8 truck ecosystem which is highly interlinked between US, Mexico and Canada.

North American Class 8 net orders in February totalled 17,000 units, reflecting a decline of 31% MoM & 38% YoY. This figure was below seasonal expectations, falling short of the seven-year February average of ~27,000 units.

This is negative development for the domestic forging industry which are witnessing subdued growth prospects from international markets especially catering to the CV domain. This is sentimentally negative for Indian forging players such as Bharat Forge, Ramkrishna Forgings among others.

Our Top best in the Auto Ancillary Space at this point in time is more domestic focussed ancillary players such as Lumax Auto Technologies. It counts M&M and Bajaj Auto as its top OEM clients contributing ~40% of its sales. With both OEM’s driving premiumisation in the respective domains, we are positive on Lumax Auto. The Company posted strong growth in Q3FY25, with a 24% YoY revenue increase and a 23% YoY rise in PAT. we have a Buy rating on Lumax Auto Technologies, valuing it at ₹750 (20x PE on FY27E).

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