ICRA revises outlook for auto parts industry to ¡®stable¡¯ on vehicle sales rebound
<p style="text-align: center;"><img title="1609304118108134.jpg" alt="8.jpg" src="/ueditor/php/upload/image/20201230/1609304118108134.jpg"/></p><p>Rating agency ICRA has revised the outlook for the auto component industry to stable, from negative, with the revival of demand across original equipment manufacturers (OEMs), replacements and exports.<br/><br/>OEMs, which account for over 56% of the demand for auto components, have recorded a sharp increase in demand since September 2020 across all segments barring the medium and heavy commercial vehicle (M&HCV) segment, ICRA said in a release.<br/><br/>However, it mentioned that the M&HCV demand has also bottomed out and increased in Q3 FY2021.<br/></p><p><br/></p><p>¡°Thriving demand from the rural markets across the country has supported the demand for two-wheelers and tractors. ICRA has a Stable credit outlook on the tractor, two-wheeler and passenger vehicle industries. The credit outlook for the passenger vehicle industry has been revised to Stable, from Negative, in December 2020,¡± the rating agency said.<br/><br/>The aftermarket demand for components, which account for 18% of the industry turnover, has also picked up during Q2-Q3 of FY21 after a sharp decline in Q1 during the lockdown.<br/><br/>While shared mobility continues to suffer, demand for personal mobility has increased the replacement demand. Exports, which account for 26%-27% of the total industry revenues, have also recovered from the lows of early 2020, despite the pandemic.<br/><br/>On the cost front, accommodative commodity prices of Q1 and Q2 have given way to a sharp increase in the prices of key raw materials like steel, copper and rubber, among others since early Q3 FY2021, ICRA highlighted.<br/><br/>¡°The availability of raw materials has also been a cause of concern in recent months as demand-supply rebalanced globally. This will trigger a price hike from January 2021 across most OEMs. This could depress retail offtake as prices were already higher, following the transition to BS-VI,¡± it added.<br/><br/>Since the automotive industry¡¯s volumes will take 2-3 years to revert to the pre-COVID highs, the sector¡¯s investment will remain weak, ICRA said. It noted that the industry Capex hit a decadal low of sub 5% in FY21 as players focused on conserving liquidity. ¡°While the Capex intensity (Capex/sales) will return to the normal 6%-7% range slowly during FY 2022-23, any substantial increase in debt-funded Capex and investment plans is unlikely, given the sizable reduction in capacity utilisation in FY21,¡± the agency said.<br/><br/>ICRA expects the Indian auto component industry¡¯s revenue to grow by 16%-18% in FY22, supported by increasing content per vehicle, low base effect and higher realisation, partly from the pass-through of commodity price hikes.<br/><br/>The industry¡¯s operating margins are likely to revert to the normal level of 13% (¡À 50 bps), after hitting multi-year lows in FY21. The rating agency further said that OEMs¡¯ cost control measures, increasing localisation, and improved economies of scale will support margin expansion.</p>
30 Dec,2020
