Auto parts industry revenue to grow 16-18% in next fiscal: ICRA

Ratings agency ICRA on Tuesday said it has revised its outlook on the auto component industry from negative to stable, on the back of demand revival across original equipment manufacturers (OEMs), replacements and exports.

ICRA expects the domestic auto component industry's revenue to grow 16-18 per cent in the financial year starting April 2021, supported by factors such as increasing content per vehicle, low base effect, and higher realisations.

Long-term demand drivers include increased focus on localised supply chains by Indian OEMs. Diversification of supply chain risk by global OEMs is also expected to lead to increased sourcing from India in the coming years, ICRA said in a statement.

OEMs, which account for over 56 per cent of the auto component demand, have recorded a sharp increase in demand since September across all segments, barring the medium and heavy commercial vehicle (M&HCV) industry, it added.

Volumes of the automotive industry will take 2-3 years to revert to the pre-COVID-19 highs. Schemes such as production-linked incentives could encourage OEMs and large auto component vendors to advance their investment plans, targeted at exports.

It said the M&HCV demand has also bottomed out and increased in the December quarter of the current financial year. Thriving demand from the rural markets across the country has supported demand for two-wheelers and tractors, the rating agency added.

ICRA has a stable credit outlook on the tractors, two-wheelers and passenger vehicle industries, it said. "The credit outlook for the passenger vehicle industry has been revised to stable, from negative, in December."

The aftermarket demand for components, which accounts for 18 per cent of the industry turnover, has also picked up during September and December quarters of FY21 after a sharp decline in the first quarter during the lockdown, it stated.

Freight activities across the country have increased significantly since August, corroborated by diesel consumption and toll collection trends, triggering replacement demand.

While shared mobility continues to suffer, demand for personal mobility has increased replacement demand. Exports, which account for 26-27 per cent of the total industry revenues, have also recovered from the lows of early 2020, despite the pandemic, Icra said.

ICRA expects the domestic auto component industry's revenue to grow by 16-18 per cent in 2021-22, supported by increasing content per vehicle, low base effect and higher realisations, partly from the pass through of commodity price hikes.