The Autocomp sector is ready to rebound after two difficult finances: Crisil
Update: May 27, 2021 1:39 PM STI
Bombay (Maharashtra) [India], May 27 (ANI): The auto components sector will see revenue rebound 21 to 23 percent in the next fiscal year, as domestic and export demand picks up after two consecutive contractions, according to a Crisil analysis.
Higher margins will also increase operating profits. Along with prudent capital spending and working capital management, this will lead to improved credit profiles of auto component manufacturers in the next fiscal year, says the analysis of 230 manufacturers who account for 40% of the sector’s revenue.
The Rs 3.2 lakh crore sector derives 60 percent of its revenue from original equipment manufacturers (OEMs), with the balance split equally between replacement demand and exports.
Hetal Gandhi, director of CRISIL Research, said the ongoing rebound in economic activity will lead to a strong recovery for OEMs next fiscal year.
“Improving the use of the vehicle fleet and better availability of finance will also improve the demand for commercial vehicles, while the demand for personal vehicles (passenger cars and two-wheelers) will be boosted by improving consumer confidence. urban consumers, resilient rural incomes, modest vehicle price increases and attractive financing options. “
The rise in OEM demand will rub off on the automotive components sector, which could see revenue growth of 21-23% in the next fiscal year, compared to a decline of 13% and 8% in the 2020 and 2021 budgets respectively.
Replacement demand, impacted by lockdowns and the limitation of the movement of people and freight, will gradually pick up. In addition, exports (20 percent of revenue) will be supported by sustained demand from the United States and a phased recovery in the European Union.
The two geographies account for 55 percent of India’s automotive component exports. Signs of recovery are visible here since the third quarter of this fiscal year.
As the impact of the pandemic diminishes, the government’s decision to increase spending on infrastructure bodes well for the auto industry and, in turn, for auto component makers.
Sustained improvement in consumer spending on automobiles will be worth watching, Crisil said.