leading rating agency ICRA has estimated that the revenue decline for the
Indian auto component industry will be limited to 6-8% in FY2021 supported by
the better-than-expected demand pick-up across most segments, as against the
12-15% estimated earlier.
through of commodity prices and change in emission norms has also resulted in
4%-6% increase in realisations, partly supporting revenue growth during H2
FY2021. The rebound in FY2022 is expected to be strong at 20-23%, benefitting
from demand pickup, low base of FY2021 and impact of commodity prices on
realisations. However, this would come supported by low base of Q1 FY2021 when
industry revenue collapsed by approximately 60%.
headwinds from disruption in automotive production due to supply chain
constraints (primarily due to semi-conductor shortage, globally) could play
spoil sport in Q1 FY2022 and may be even beyond. Localised lockdown due to
recent spike inCovid-19 infections could also derail the growth momentum for
the industry as footfalls to dealerships may shrink and remains a monitorable. Despite
the strong revenue growth during FY2022, the overall revenue CAGR during
FY2020-2025 is likely to remain modest at 7%-9%.
sharp V-shaped recovery is likely to cap the overall margin contraction for
auto ancillaries (ex-tyres) in FY2021 to 100bps to 150bps. Entities heavily
dependent on the M&HCV segment will be the most impacted and could witness
a margin contraction of over 300 bps, whereas those catering to tractors, PV
and 2W segments will be relatively better placed. On the other hand, tyre
manufacturers will register multi-year high operating margin at over 15%in
FY2021 supported by favourable RM prices. ICRA expects auto ancillaries
(ex-tyres) to bounce back to pre-Covid (FY2020) margins in FY2022, benefitting
from improved operating leverage, despite commodity headwinds.
Ashish Modani, Vice President, ICRA, “Automobile production volumes during H2
FY2021 was significantly better than H1, capping the overall production volume
decline for the fiscal. The aftermarket segment also witnessed sequential
recovery from Q2 FY2021, with the opening up of the economy, pent-up demand,
delayed replacement of vehicles and festive season demand. We expect a flattish
to low single digit growth for the replacement segment in FY2021, and a 10-12%
increase in FY2022, partly arising from the commodity pass through. Supported
by improved demand and additional financing support from banks, liquidity
position of most auto ancillaries has improved substantially from Jun-2020
levels, with many entities who availed moratorium benefits skipping
restructuring proposals, despite eligibility. With improved cash flows and
easing liquidity position, ICRA revised its credit outlook for the sector to
‘Stable’ from ‘Negative’ in Dec-2020. Strong growth across automotive segments
is further likely to improve credit profile of industry players in the coming
aluminium and copper have witnessed significant price increases in the last
five to six months and this is likely to continue in the near term as well. The
weighted average commodity index for a passenger vehicle has surpassed FY2019
levels in FY2021, primarily because of sharp increase in commodity prices since
Nov-2020. Prices of electronic components have also surged due to supply disruption/shortage
following increased demand in consumer electronics. Unavailability/price
increase of electronic components remains a key downside risk for the industry.
The INR depreciation is also a cause of concern for net importers.
of ICRA’s auto component sample of 50 listed auto-ancillaries witnessed a
stellar YoY growth of 22.1% in Q3 FY2021, aided by demand pickup across
segments and commodity pass through. For 9M FY2021, ICRA’s auto component
sample set witnessed a YoY decline of 13.4%; however, strong double-digit
revenue growth expectation in Q4FY2021 will restrict the overall revenue
decline to single digit. Operating profit margins of our overall sample stood
at a multi-quarter high of 15.5% in Q3 FY2021 benefitting from healthy volumes
and commodity pass through. Within the sample set, tyre companies reported
multi-year high margins because of muted raw material prices.
Vinutaa S, Assistant Vice President, ICRA, “Strong cash accruals of the past
few years have resulted in low leverage for auto ancillaries. The aggregate
TD/OPBDIT for ICRA’s sample of 50 listed auto-ancillaries was at 1.4 times in
FY2020. The industry sample has consistently reported high interest coverage
metrics (above 8x) over the last several quarters, barring Q1 FY2021 when
operating profits were impacted by the pandemic-induced lockdown.
tier-I suppliers, who have used their cash flows from the upcycle to develop a
strong balance sheet were more resilient to the recent downturn. The stress was
relatively higher in the smaller entities and those lower down the value chain
with limited access to capital and with stretched working cycles. Nevertheless,
assistance from banks and the Government in the form of additional Covid lines,
CGSTME support and loan moratorium provided the much-needed liquidity support
to the MSMEs to tide over the crisis in H1 FY2021. Further, the handsome
recovery in domestic automotive demand provided a boost to the industry’s
revenue and profitability, resulting in none of ICRA rated auto ancillaries in
the BBB category or higher level applying for loan restructuring.”
in turnover during FY2021 released funds blocked in working capital, thereby
arresting any meaningful slippages in leverage level (0.2x in FY2020 and FY2021e),
though coverage indicators moderated across the board – the total debt/OPBDITA
for ICRA’s auto component sample is expected to increase to 1.6x in FY2021e
from 1.4x in FY2020 while the interest cover would moderate to 7.8x in FY2021e
from 8.6x in FY2020.
borrowings are largely related to working capital financing and fund raised by
companies to tide over possible liquidity crisis during H1 FY2021. The industry
had almost frozen its capex / investment plans in the last 15-18 months and is
now exploring investment opportunities. Incremental investments are primarily
towards committed orders/platforms, which will be largely funded by internal
accruals and hence the long-term borrowing requirement remains limited.
“Our interaction with large auto component
suppliers indicates a cautiously optimistic approach towards capex/investment
plans for FY2022, with most of these players awaiting clarity on Government
support for the production-linked incentive (PLI) scheme. ICRA research expects
auto component suppliers to gradually increase their capex/investment outlay in
FY2022, though most of these investments will be largely funded by internal
accruals. The incremental investments will be primarily towards capability
development i.e. new product additions and committed platforms, unlike the
investments towards capacity expansion witnessed in the past. Despite the
strong growth in FY2022, production volumes across most automotive segments
will remain below the FY2019 level and hence capacity will not be a constraint
for the industry,” concludes Ashish Modani.
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