Domestic auto components industry to see 15-17% revenue growth this fiscal year: report

The domestic auto components industry is expected to see revenue growth of 15-17% this fiscal year and 10-12% in the next fiscal year as auto sales recover after remaining subdued over the past of the past two years, according to a report. Brickwork Ratings said on Thursday that pent-up demand and a preference for personal mobility due to safety concerns led to auto sales picking up after lockdown relaxations.

A pick-up in economic activity bodes well for commercial vehicle sales and furthermore the scrapping policy and strict PUC inspection would boost the aftermarket of the automotive components industry, he said in the report.

The industry could experience double-digit growth again in FY23, as the impact of the Omicron variant is limited and there is no more risk of new variants, it said. -he adds.

The industry faces 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.

This may limit the growth momentum to some extent, the report said, adding that on the other hand, the export market, which was expected to accelerate, may again face some pressure due to the unprecedented impact of the Omicron variant in Europe and North America.

In FY22, the rating agency said it expects the profitability of automotive components players to decline due to high commodity prices.

Automotive component suppliers typically pass on price increases to OEMs. However, in the current scenario, this will take time and automotive components players will have to take a hit to their profitability to preserve volume growth.

According to the report, the decline in auto sales over the past two years due to the economic downturn in fiscal 2019, rising prices and anticipation of BS-VI in fiscal 20 as well as the coronavirus pandemic, among other factors, has had a severe impact on the automotive components industry.

In the first half of the current fiscal year, auto sales rebounded strongly due to pent-up demand and a preference for personal mobility. This has led to an increase in demand for automotive components over the same period, he said.

However, there has been a pullback on the supply side, with shortages of semiconductor chips hampering the production schedule of OEMs, thus limiting the recovery of the entire automotive value chain.

In addition, renewed concerns over the pandemic will further act as an accelerator of recovery in the industry, according to the report.

Noting that domestic auto enterprises mainly export items such as engine components, transmissions and steering, bodies and chassis, suspensions and brakes, the report indicates that exports for the auto components industry during of FY21 recorded a decrease of 4% year-on-year.

Europe, the largest export destination for India’s automotive components industry and accounting for 32%, saw a 4% year-on-year decline in FY21. Similarly, North America and Asia, which account for 30% and 26%, recorded a year-on-year decline of 7% and 8%, respectively.

In the long term, the rating agency expects growth to increase as with new investments under the Production Linked Incentives (PLI) program, the automotive industry supply chain Indian would improve.

This would allow the industry to explore new markets by taking advantage of prevailing anti-China sentiments and given that India is the world’s second largest steel producer. However, the growth projections will only be true if there is a limited, short-term impact from omicron and no major disruption occurs globally due to a pandemic, the report says.

India’s automotive components industry is active in three major regions: the western region (Mumbai, Pune, Nashik and Aurangabad), the southern region (Chennai, Bangalore and Hosur) and the northern region (Delhi and Gurgaon).

In FY22 and FY23, demand for automotive components is expected to increase due to an expected increase in demand for automobiles after the decline over the past two years. However, auto component makers are struggling to bridge the gap between demand and supply. according to the report.

The report also indicates that while chip shortage is the industry’s main concern, other natural rubber automotive components are facing a raw material crisis. Besides tires, natural rubbers are used in the production of airbags, rubber floor mats, rubber gaskets, rubber bumpers and dust covers.

Therefore, due to the 4,40,000 tons gap between demand and supply of natural rubber, the production of these automotive components is disrupted. While supply chain issues are expected to persist in the near term, government support and incentives could bring new investment into the automotive components sector, thereby reducing import dependency and therefore closing the gap, according to the report.

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