Home >Industry >Manufacturing >Second covid wave, high input cost to hit auto parts makers

NEW DELHI: Disruption in operations due to the second wave of covid-19 and continued rise in prices of raw materials like steel and copper will derail the recovery in financials witnessed by auto parts manufacturers in the second half of FY21, said analysts of credit rating agency Icra.

While production volumes were stable in April, retail sales slumped over the last two months indicating inventory build-up in the system. Industry volumes are expected to remain muted in June as well, with many OEMs and suppliers currently operating in single shifts, the rating agency mentioned in a note.

As per Icra, the industry has also been witnessing a rise in raw material pries, led by a surge in global commodity prices. Commodity prices are expected to remain elevated in H1 FY22, before softening in the second half.

According to Vinutaa S, assistant vice president and sector head, Icra estimates a revenue loss of 30-40% sequentially, and this will translate into a sequential decline in EBIDTA of over 70% during Q1 FY2022 for the industry. However, the overall industry revenue will still be almost double than Q1 FY2021 level.

“Exports have come to the industry’s rescue in the last few months when domestic demand nosedived due to lockdown restrictions. Suppliers dependent solely on domestic OE demand have been the worst impacted. However, given the liquidity position, the credit profile of auto ancillaries is likely to remain largely stable in FY2022," he said.

He added that majority of investment-grade entities continue to maintain comfortable liquidity position, in the form of cash and liquid investments and undrawn credit facilities, to service near-term liabilities and fixed expenses.

Notwithstanding the short-term headwinds, Icra expects the domestic auto component industry to register a 20-23% revenue growth in the current fiscal year, supported by double-digit volume growth across most automobile sub-segments and impact of commodity inflation on realisations.

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