BackGlobal auto component makers’ CY22 outlook brings cheer
Ebitda margin of auto component makers is expected to increase by about 100 basis points y-o-y on an average despite a weak performance in H1CY22
PremiumFor auto component manufacturers, demand may be staging a recovery, but high input costs are a matter of concern. However, some respite seems to be on the anvil.
According to an ICICI Securities Ltd analysis of the June quarter results and the CY22 outlook of global auto component makers, Ebitda margin of these companies is expected to increase by about 100 basis points year-on-year (y-o-y) on an average. This despite a weak performance in H1CY22 on account of headwinds from severe cost inflation.
Ebitda is earnings before interest, tax, depreciation and amortization. One basis point is 0.01%.
The growth in margin points to an improvement in pricing along with a fall in commodity, container and power costs, reckon analysts. Crude oil prices have fallen considerably from their highs. The analysts further added that revenue in CY22 is expected to be up by 10-12% y-o-y for global auto component makers notwithstanding adversities in the form of recession fears, drought, and supply-chain issues.
“As per post-result outlook on CY22 for leading auto component makers globally, the expected revenue growth for their Indian counterparts is still about 10% y-o-y, implying a strong H2FY23E driven by improvement in semiconductor supply," said ICICI Securities analysts in a report dated 4 September. However, recurring lockdowns in China could play a spoilsport for achieving such targets.
Meanwhile, diversification into new revenue streams by the auto component makers will drive growth. With the shift in the automobile industry towards sustainable options, these companies would do well by adding electric vehicle components to their portfolio.
To be sure, worsening of the semiconductor supply situation or renewed inflation in commodity prices could negatively impact investor sentiments. Against this backdrop, shares of Balkrishna Industries Ltd, Mahindra CIE Automotive Ltd and Sona BLW Precision Forgings Ltd are down by 12-38% from their 52-week highs.
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