Auto component sector set for a rebound after two tough fiscals: Crisil

The automotive components sector will see revenue rebound 21 to 23 per cent next fiscal as domestic and export demand revives after two straight contractions, a Crisil research analysis shows.

Higher margins will lift operating profits too. Along with prudent capital spending and working capital management, this will lead to an improvement in credit profiles of automotive component makers next fiscal, shows the analysis of 230 manufacturers which account for 40 per cent of sector revenue. The ₹3.2 lakh crore sector derives 60 per cent of its revenue from automobile original equipment manufacturers (OEMs) with the balance split equally between replacement demand and exports.Hetal Gandhi, Director at CRISIL Research, said the ongoing rebound in economic activity will drive a strong recovery for OEMs next fiscal.

"Improving fleet utilisation 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."The uptick in OEM demand will rub off on the automotive components sector which could see a revenue growth of 21 to 23 per cent next fiscal compared with de-growth of 13 per cent and 8 per cent in fiscals 2020 and 2021 respectively.

Replacement demand which was impacted due to lockdowns and restricted movement of people and freight will recover gradually. Besides, exports (20 per cent of revenue) will be aided by steady demand from the United States and staggered recovery in the European Union.

The two geographies account for 55 per cent of India's automotive component exports. Signs of the recovery have been visible here since the third quarter of this fiscal. As the impact of the pandemic wanes, the government's move to increase spending on infrastructure augurs well for the automobile sector and, in turn, for the automotive components makers. Sustained improvement in consumer spending on automobiles will bear watching, said Crisil.