ICRA lowers growth forecast for components

Ratings agency ICRA expects a 17-20 per cent revenue growth for the domestic auto component sector in FY2022, driven by domestic OEM, replacement, export volumes and pass-through of commodity prices.

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 semi-conductor shortage on domestic OEM and export revenues.

The operating profit margin of auto ancillaries (ex-tyres) will remain lower than normal levels (FY2020). The industry’s exceptionally weak performance during Q1 FY2021 due to the strict lockdown, dragged last year’s profit margins.

 Ms. Vinutaa S, Assistant Vice-President, ICRA Limited, 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 segments are expected to witness healthy demand in FY2022, with preference for personal mobility and pick-up in infra activity being the growth drivers. Pent-up demand and increase in economic activity will support aftermarket revenues. Part of the revenue growth would also come in from commodity pass-through.”

She said the export order-book, both to the US and Europe, remains healthy but continuation of the trend remains to be seen, given the semiconductor shortage.

ICRA expects operating margins to sequentially improve in Q2 FY2022, post the loss of revenues in Q1 FY2022 and negative operating leverage which dented operating profits.

In the near-term, semi-conductor shortages and related supply disruptions remain a challenge. ICRA said its interaction with industry participants indicates that semiconductor shortage is likely to continue at least till the end of CY2021.