Icra Reduces Growth Forecast For Automotive Components Industry To 17-20% For FY22

New Delhi: Rating agency Icra on Monday revised its growth forecast for the automotive components industry for the current fiscal year down 300 basis points, citing the impact of the semiconductor shortage on domestic automakers as well as on export earnings.
According to Icra, the components industry is now expected to grow 17-20% in 2021-2022, in part due to “last year’s weak base and commodity transmission” in addition to the growth driven by domestic OEM, replacement and export volumes.
“However, healthy volume growth would come on a weak basis in fiscal 2021. The growth forecast has been revised down 300 basis points from previous estimates due to the impact of the semi shortage. -Drivers on domestic OEM and export revenues, ”Icra said in a statement. declaration.
The operating profit margin (OPM) of auto accessories (excluding tire manufacturers) will remain below normal levels (FY2020), he said, adding the industry’s unusually weak performance over the course of from the first quarter of 2020-21 due to strict foreclosure, dragged last year profit margins.
“While this translates into an optical improvement in margins year over year, operating margins are expected to increase by 75 to 125 basis points due to improved operating leverage, a possible third wave of COVID and new lockdowns are downside risks for the Icra estimates, ”the rating agency added.
Icra deputy vice president Vinutaa S said underlying demand remains strong, although near-term supply chain challenges and commodity inflation persist.
“Although sequential moderation is likely, most of the national OE (Original Equipment) segments are expected to experience healthy demand in FY 2022, with the preference for personal mobility and the resumption of infra activity. the engines of growth, ”she said, adding pent-up demand. and increased economic activity will support secondary market income.
Part of the revenue growth in the components industry would also come from the commodity pass-through. The export order book, both to the United States and to Europe, remains solid.
“But the continuation of the trend remains to be seen, given the semiconductor shortage. In the long run, the premiumization of vehicles and the focus on localization will translate into relatively stronger growth for component suppliers. automobiles, ”said Vinutaa S.
ICRA said auto component makers reported a noticeable improvement in export volumes and a healthy order book over the next few months, which could have been even better without the semiconductor shortages.
“In the US market, North American Class 8 (larger than heavy-duty) truck manufacturers continued to see a healthy order flow. remains an overhang, ”he added.
Operating margins are expected to improve sequentially in the second quarter of Fiscal 2022 following the loss of revenues in the first quarter of Fiscal 2022 and negative operating leverage that hurt corporate earnings. exploitation, he added.
Regarding the outlook, Icra said: “In the short term, semiconductor shortages and associated supply disruptions remain a challenge. Because the automotive supply chain is long and complex, OEMs and Tier I suppliers typically follow Just-in-Time (JIT) inventory management practices. ”
Stating that it takes about six months between chip production and car production, with several levels of vendors in between, Icra said, “Our interaction with industry participants indicates that the semiconductor shortage is should continue at least until the end of calendar year 2021. ”
Regarding the liquidity position, Icra said it remains comfortable for Level I and II players, while in terms of additional capital spending, the recently announced PLI program bodes well for industry.

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