Indian auto component industry to have 20-23% growth in FY2022, says ICRA

After hearing gloomy news, this projection by ICRA should come across as some respite. The firm that was previously known as Investment Information and Credit Rating Agency of India Limited, says that buoyed by a good demand in exports, the Indian component industry will see a 20-23 per cent growth in FY2022. Even the Indian domestic as well as aftermarket will improve, says ICRA, leading to a good growth. Commodity prices are expected to remain at multi-year highs in H1 FY2022 (resulting in multi-year high average in FY2022), before softening in H2 FY2022. Moreover, the profit percentage of commodities like tyres will also go up and a YoY improvement of 50-75 bps in FY2022 can be expected. ICRA though wants that the sharp rise in commodity prices will keep the marginal expansion in check. This being said, ICRA expects ICRA the credit profile and liquidity position of auto ancillaries to remain largely stable in FY2022.

Indian component makers have reported good export numbers to other countries that have recovered from the pandemic wave. As a result of multiple lockdowns, Indian auto industry has suffered because of inoperational plants and lower number of vehicles being produced as well as consumed. ICRA warns that chip shortages, slow vaccination roll-out in some regions, logistics challenges and further lockdowns/curfews, if any, could be demand dampeners going forward. This though will be mighty applicable for our market whereas the exports ones will be largely unaffected. Therein the recovery in the Indian market will be slower as compared to Europe or North America.

Ashish Modani, Vice President and Sector Head, ICRA Limited said, “The Covid 2.0 applied temporary brake on the auto component industry’s recovery prospects in Q1 FY2022. The aftermarket sales were also impacted for close to 4-6 weeks, because of the curfews/lockdowns and closure of workshops. The industry’s revenues declined by 30%-40% on QoQ basis, despite support from exports. While the QoQ decline was relatively sharp, revenues were more than double of Q1 FY2021 levels. For the full year FY2022, we expect a revenue growth of 20-23% aided by growth across segments and commodity passthrough, albeit on a low base. However, headwinds such as sharp increase in commodity prices, supply chain disruptions partly arising from semi-conductor shortage and premium freight expenses are expected to weigh in industry margins in FY2022, partially offsetting benefits arising from improved operating leverage.”