The disruption caused by the COVID-19 second wave has derailed the momentum of the auto component manufacturers in India, where most of them registered their highest ever revenue during Q4FY21, according to ICRA.
Auto component players recording the highest revenue in Q4FY21 is in line with the swift recovery in automobile demand in H2 FY2021; earnings of auto component manufacturers also started improving.
Vinutaa S, Assistant Vice President and Sector Head, ICRA, says the research agency estimates a revenue loss of 30%-40% Q-o-Q, translating into a sequential decline in EBIDTA of over 70% during Q1 FY2022 for the industry.
'However, the overall industry revenue will still be almost double than Q1FY2021 level. Exports have come to the industry's rescue in the last few months when domestic demand nosedived due to lockdown restrictions; suppliers dependent solely on domestic OE demand have been the worst impacted. However, given the liquidity position, the credit profile of auto ancillaries is likely to remain largely stable in FY22,' she added.
ICRA forecasts that the challenges for component manufacturers will be further compounded by the sharp increase in commodity prices, which are generally passed through to OEMs with a lag of 3-6 months.
However, adequate liquidity across most of its rated investment grade auto component suppliers should help them to tide over pandemic-related headwinds, the research agency said.
While the production volumes were stable in April 2021, retail sales declined sharply during the last two months indicating inventory build-up in the system.
Industry volumes are expected to remain muted in June 2021 as well, with many OEMs and suppliers currently operating in single shifts.
The industry is also witnessing pressure on the raw materials front, impacted by the record-high commodity prices.
Outlook
Commodity prices are expected to remain elevated in H1FY22 before softening in H2FY22. However, the current year's average commodity prices are expected to be at a multi-year high. Another cause of concern is the shortage of electronic components and the increase in semiconductor prices.
ICRA expects the domestic auto component industry to register a 20-23% revenue growth in the current fiscal year, supported by double-digit volume growth across most automobile sub-segments and the impact of commodity inflation on realisations. Stable aftermarket business and strong growth in auto component exports will further add to the industry's revenue growth in the current fiscal year.