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The automotive components manufacturing sector could see a rebound in its fortunes in FY22, after two years of double-digit decline in profit and revenue due to the pandemic-induced economic slowdown and disruptions. Many manufacturers suffered huge losses in the first two quarters of FY21.

According to credit ratings firm Crisil Ltd, the sector will witness 21-23% growth in revenue along with higher operating margins due to the growth in top line and cost-cutting measures that are already in place.

The uptick in demand from original equipment manufacturers (OEMs) will rub off on the automotive components sector, which could see a revenue growth of 21-23% next fiscal compared with de-growth of 13% and 8% in fiscal 2020 and 2021, the ratings firm said in a note. It added that replacement demand, impacted by the lockdowns and restricted movement , will recover gradually. Besides, exports, which contribute 20% to revenue, will be aided by steady demand from the US and staggered recovery in the European Union—regions that account for 55% of India’s automotive component exports.

The FY22 growth, however, will come on the back of a low base due to significant decline in the last two fiscals.

Crisil expects capacity utilization of component suppliers to remain below 2019 levels, despite higher demand. As a result, operating margin will increase only 100-150 basis points (bps) to 10% next fiscal, after falling 150 bps in FY20 and 200-250 bps in FY21. Consequently, operating profit will be lower than fiscal 2019. Automakers across segments had been posting decline in sales from the second half of FY19 due to an economic slowdown triggered after the Infrastructure Leasing and Financial Services Ltd (IL&FS) went bankrupt and vehicle prices rose due to the new safety and emission norms.

“The ongoing rebound in economic activity will drive a strong recovery for OEMs next fiscal. Improving fleet utilization and better availability of finance will also improve demand for commercial vehicles, while demand for personal vehicles (passenger cars and two-wheelers) will be driven by improving urban consumer sentiment, resilient rural incomes, modest vehicle price increases and attractive financing options," said Hetal Gandhi, director, Crisil Research.

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