Auto component suppliers to log 8-10% revenue growth: ICRA
MUMBAI: Auto component suppliers are expected to log an 8-10% growth in revenue this fiscal driven by healthy demand from domestic original equipment manufacturers (OEMs) and pent-up demand from the aftermarket, according to a report by rating agency ICRA.
However, the report by ICRA said headwinds persist on the exports front for the auto component suppliers.
For the first half of the current fiscal, the industry reported a year-on-year growth of 29%, ICRA said on Monday, based on projections from as many as 49 auto ancillaries with aggregate annual revenues of close to ₹3,00,000 crore.
The export orders have slowed down in the last few months, impacted by inflationary pressures, geopolitical tensions, and supply-chain issues.
“Domestic OEM demand constitutes almost 50% of sales for the Indian auto component industry. This is likely to remain healthy in FY2023, with doubledigit growth expected in both passenger vehicle and commercial vehicle segments,” said Vinutaa S, vice president and sector head at ICRA.
Further, according to ICRA, demand for public and private transport is expected to remain healthy with an increase in mobility, supported partly by the reopening of schools and offices.
This, along with steady freight movement, is likely to aid replacement volumes in the near-term, among other factors, it stated.
Furthermore, select companies have also started witnessing a healthy ramp-up in revenues with a steadily rising share of electric vehicles where content per vehicle is expected to rise considerably, the rating agency said. These trends will translate into healthy growth for auto component suppliers over the medium-to-long term, it said.
However, certain headwinds will persist, especially for companies with a high share of imports because of the depreciation of the rupee vis-a-vis the dollar and the high cost of raw materials linked to crude oil derivatives, the report said.
Aided by the benefits of operating leverage and easing commodity prices and supply chain disruptions, the auto part makers are also likely to see a 50-75 basis points improvement in operating margins in FY2023, with margins for the ex-tyre sample likely to return gradually to pre-pandemic levels of 10.5-11%, it said.
“While a gradual increase in usage of advanced components unavailable in India has contributed to import increases over the years, supply chain disruptions and domestic market recovery contributed to an increase in imports in FY2022,” said Vinutaa.
The auto component imports in India stood at $18.3 billion in the previous fiscal, with China and Germany being the largest source markets, contributing 30% and 11%, respectively, in FY2022.