According to rating agency Icra, backed by easing of supply-chain issues and commodity inflation in the second half of the year, the Indian auto component industry is expected to grow at 8-10% in FY13.
For 2021-22, the industry’s revenue growth is pegged at 13-15%, driven by pass-through of domestic OEMs, substitution, export volume and commodity prices. However, healthy volume growth will come at a low base for FY21, the agency said in a statement.
Icra Ltd said, “Demand for auto components stems from domestic OEM, replacement and exports. Domestic OEM demand mixed bag in FY 2022 with slowdown in two wheelers (2W) and decline in overall production volume coupled with semiconductor shortage Has been made.” Assistant Vice President and Sector Head – Corporate Ratings Vinuta S said.
Partially aided by the “China + 1 strategy”, exports remain a bright spot in the Indian auto component story. This is despite supply chain issues, she said.
“ICRA is of the view that FY22 export growth would have been even better if not for the semiconductor shortage. While the auto subsidiary has a healthy export order book for the next few months, the real offtake will be ground on the ground. The impact of political and supply-chain issues is monitorable,” Ms Vinuta said.
For FY2023, Icra said, “Revenues are likely to expand by 8-10% in H2 FY2023 supported by easing of supply-chain issues and commodity inflation. In the longer term, vehicular premiumization and focus on localization are will translate into healthy growth for auto component suppliers”.
The rating agency said cost inflation and semiconductor shortages are unfavorable for the industry.
“Operating margins for auto subsidiaries are likely to be impacted in the near term with increased raw material, fuel and freight prices. While the semiconductor situation has improved over the past 1-2 months, the Russia-Ukraine conflict over the globalized chip may stress the value chain,” it said.
In the aftermarket segment, the agency said improved personal mobility, healthy freight traffic and postponement of purchases of new vehicles due to cost inflation have supported replacement sales in the past few months.
A portion of the revenue growth has also come from commodity pass-throughs. While January to mid-February was relatively sluggish due to the Omicron wave, demand has picked up in the past few weeks.