Steep decline in operating profits of suppliers as per rating agency ICRA

Rating agency ICRA in its latest study estimates auto component suppliers to witness an over 70 per cent decline in operating profits during the first quarter of the current financial year (Q1FY22). Largely blamed on the second wave and associated lockdowns, the study expects challenges to be further compounded by the sharp increase in commodity prices. These price burdens are known to be passed on to the Original equipment manufacturers (OEMs) with a three to six-month lag. The study allayed fears by stating how most investment grade auto component suppliers are maintaining adequate liquidity to help them sustain and ensure continuity. Retail sales on the decline sharply during the last two months are said to indicate an inventor y build-up in the system. Commodity prices could also remain high in the first half of the current fiscal. The shortage of electronic components and increase in semiconductor prices are known to have added to the woes, stated the report. “ICRA estimates a revenue loss of 30 to 40 per cent quarteron-quarter. This will translate into a sequential decline in EBIDTA of over 70 per cent during Q1 FY22 for the industr y,” Vinutaa S, Assistant Vice President and Sector Head at ICRA reportedly said. However, the overall industr y revenue will still be almost double than Q1FY21 level, she opines. Drawing attention to exports coming to the industr y’s rescue in the last few months with domestic demand known to have been negatively impacte, she cited suppliers depending solely on domestic OE demand as the worst impacted. The domestic auto component industr y is however expected to register a 20-23 per cent revenue growth in the current fiscal year, supported by doubledigit volume growth across most automobile sub-segments and with the impact of commodity inflation on realisations. Both aftermarket and export stability is expected to add to the industr y’s revenue.