Saturday, 23 October, 2021

Icra slashes growth forecast for auto parts industry to 17-20pc for FY22

NEW DELHI: Ratings agency Icra on Monday revised downwards by 300 basis points the growth forecast for the auto components industry for the ongoing fiscal year citing the impact of semiconductor shortage on domestic vehicle manufacturers as well as on exports revenues.

According to Icra, the components industry is now expected to grow at 17-20 per cent in 2021-22, partly aided by “the low base of last year and commodity passthrough” besides growth driven by domestic OEM, replacement and export volumes, report agencies.

“The healthy volume growth would, however, come on a low base of FY2021. The growth forecasts have been revised downward by 300 bps from the earlier estimates due to the impact of semiconductor shortage on domestic OEM and export revenues,” Icra said in a statement.

The operating profit margin (OPM) of auto ancillaries (excluding tyre manufacturers) will remain lower than normal levels (FY2020), it said, adding the industry’s exceptionally weak performance during first quarter of 2020-21 due to the strict lockdown, dragged last year’s profit margins.

“Though this will result in year-on-year (YoY) improvement in margins optically, with the operating margins expected to expand by 75-125 bps due to improved operating leverage, a possible third COVID wave and further lockdowns are downside risks to Icra’s estimates,” the ratings agency added. Icra Assistant Vice President Vinutaa S said the underlying demand remains strong, though near-term challenges on supply-chain and commodity inflation persist. “While sequential moderation is likely, most domestic OE (original equipment) segments are expected to witness healthy demand in FY2022, with preference for personal mobility and pick-up in infra activity being the growth drivers,” she said, adding pent-up demand and increase in economic activity will support aftermarket revenues.

Part of the revenue growth for the components industry would also come in from commodity pass-through. The export orderbook, both to the US and Europe, remains healthy.

“But continuation of the trend remains to be seen, given the semiconductor shortage. Over the long term, premiumisation of vehicles and focus on localisation will translate into relatively stronger growth for auto component suppliers,” Vinutaa S said.

ICRA said auto component manufacturers have reported healthy improvement in exports volumes and healthy order book over the next few months, which could have been even better if not for the semiconductor shortages.

“In the USA market, North American Class 8 trucks (bigger than heavy duty trucks) OEMs have continued to witness healthy order inflow. While this will benefit auto-ancillaries’ dependent on healthy class 8 truck orders for the next few quarters, semiconductor shortage remains an overhang,” it added.