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Home / News / India /  Auto component manufacturers may report strong recovery in revenue: Icra

NEW DELHI : Domestic manufacturers of automotive components have witnessed a strong recovery in business after two months of subdued production due to an explosive rise in covid-19 cases, according to credit ratings firm Icra. Most auto manufacturers, especially in the passenger vehicle and two-wheeler segment raised production sharply from June to fill inventory at dealerships.

“The domestic auto component industry has witnessed smart recovery during the quarter ended June 2021 driven by strong exports and revival of domestic demand in June 2021. ICRA’s sample of 50 auto component suppliers witnessed a strong revenue growth of 140% Y-o-Y, albeit on a low base of Q1 FY2021. Despite the Covid 2.0 restrictions, the overall decline in Q1 FY2022 was restricted to 19% on QoQ basis, in contrast to ICRA’s earlier estimate of QoQ decline of 30-35%," Icra said in a statement.

It further added that the revenue decline for aftermarket-dependent components like tyres and batteries was capped at 13%, as against a steeper 19% decline for the broader sample. Most domestic automobile sub-segments, especially passenger-vehicle and tractors continue to witness strong demand and are almost at pre-covid levels.

The auto industry came under pressure from the first week of April when Maharashtra imposed a strict lockdown. Delhi, Haryana, Karnataka, Tamil Nadu, and others followed suit. Maruti Suzuki, Hero MotoCorp Ltd, Hyundai and others either stopped production or reduced output significantly. Some manufacturers such as Bajaj Auto Ltd, however, continued to operate with limited capacity to meet export orders.

With a steady drop in infections, especially in northern and southern India, most automakers have resumed operations since the middle of May.

According to Vinutaa S, assistant vice president and sector head, corporate ratings, ICRA, operating margins are likely to witness sequential improvement in the second quarter in FY2022 and most auto component suppliers lost 1-2 weeks of revenue during Q1FY2022 due to Covid 2.0 related localized lockdowns.

“Consequently, negative operating leverage dented operating profits despite some comfort in passthrough of commodity prices. Pass through of commodity price increases to OEMs and operating leverage benefits should result in sequential improvement in operating margins in Q2 FY2022, despite some production impact because of the semiconductor issue," added Vinutaa.

 

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