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Automotive component suppliers to see 8-10% revenue growth this fiscal year: ICRA

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Automotive component suppliers are expected to see 8-10% revenue growth this fiscal year, driven by healthy domestic original equipment manufacturers (OEMs) and pent-up aftermarket demand, even if headwinds persist on the export front, according to the credit rating agency, CIFAR said in a report.

For the first half of FY23, the industry recorded annual growth of 29%, ICRA said on Monday, based on projections of 49 auto accessories with cumulative annual revenues of nearly ₹3,00,000 crore. .

Export orders have slowed in recent months, impacted by inflationary pressures, geopolitical tensions and supply chain issues.

“Domestic original equipment manufacturer (OEM) demand accounts for almost 50% of the Indian automotive components industry’s sales. This should remain healthy in fiscal 2023, with double-digit growth expected in the passenger vehicle and commercial vehicle segments,” Vinutaa said. S, vice-president and sector head at CIFAR.

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In addition, according to the ICRA, demand for public and private transport is expected to remain healthy with an increase in mobility, supported in part by the reopening of schools and offices.

This, coupled with steady freight movement, is likely to help short-term replacement volumes, among other factors, he said.

In addition, some companies have also started to see a healthy increase in revenue with a steadily increasing share of electric vehicles where content per vehicle is expected to increase significantly, he said and added that these trends will result in growth healthy for automotive component suppliers over the medium to long term.

However, some headwinds will persist, especially for companies with high import shares and high raw material costs related to crude oil derivatives, according to the report.

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Aided by the benefits of operating leverage and lower raw material prices and supply chain disruptions, auto parts makers are also expected to see a 50 to 75 basis point improvement in operating margins. operating in FY23, with non-tire sample margins likely to gradually return. to pre-Covid levels of 10.5 to 11%, he said.

Imports

“While a gradual increase in the use of advanced components not available in India has contributed to increased imports over the years, supply chain disruptions and domestic market recovery have contributed to an increase imports in fiscal year 2022,” Vinutaa said.

India’s auto component imports amounted to $18.3 billion in FY22, with China and Germany being the top source markets, contributing 30% and 11% respectively.

While the depreciation of the Indian rupee against the US dollar worries net importers, the adopted currency hedging measures and alternative local sources have mitigated the risk to some extent. In the event of components being unavailable in India, the auxiliaries are exploring alternative materials and localization options as measures to mitigate foreign exchange and supply chain risks in the future,” added Vinutaa.

Investment projects

ICRA said its interaction with major automotive component suppliers indicates a cautiously optimistic approach to investment/investment plans for FY23.

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ICRA Research expects automotive component suppliers to gradually increase capital expenditure/capex to 6-6.5% of operating profit in FY23 and 7-8% in FY23. FY24, although most investments are largely funded by internal accruals.

The additional investments will be primarily for capacity expansion – new product additions, product development for engaged platforms, and development of advanced technologies and EV components, unlike investments in capacity expansion seen in the past, according to The report.


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