The domestic auto components industry is expected to see revenue growth of 15 to 17% this fiscal, says a report by Brickwork Ratings. There will also be a growth of 10 to 12% in the next financial year on the back of the recovery in automobile sales. The report said the pent-up demand and a preference for personal mobility due to safety concerns led to the recovery in automobile sales post relaxations in the COVID-19 lockdown.
“A pick-up in economic activity augurs well for commercial vehicle sales and in addition, the scrappage policy and strict inspection of Pollution Under Control (PUC) certificates would boost the aftermarket of the auto component industry,” it said. “The industry may again see double-digit growth in FY23, given that the impact of the omicron variant is limited and that there is no further risk of new variants.”
The report highlighted that the industry is facing challenges such as an unprecedented shortage of semiconductor chips, high costs as well as the unavailability of raw materials and logistical issues related to exports. It said this may restrict the growth momentum to a certain extent. “On the other hand, the export market, which was expected to gain momentum, may again face some pressure owing to the unprecedented impact of the omicron variant in Europe and North America.”
The ratings agency said that in FY22 it expects the profitability of auto component players to decline on account of high raw material prices. “Auto component suppliers generally pass on price hikes to OEMs. However, in the current scenario, it will take some time, and auto component players will have to take a hit on their profitability to safeguard volume growth.
Moreover, the report said decline in the sales of automobiles in the past couple of years due to the economic slowdown in FY19, price hike and anticipation of BS-IV in FY20 as well as the coronavirus pandemic, among other factors, had a severe impact on the auto components industry. “In the first half of the current fiscal, automobile sales recovered strongly on account of pent-up demand and a preference for personal mobility. This led to an increase in demand for auto components during the same period.”
The report noted the setback on the supply side driven by the shortage of semiconductor chips hampering the production schedule of OEMs. This restricted recovery in the overall automotive value chain.