Domestic auto components industry to see 15-17% revenue growth this fiscal: Report

In FY22, the rating agency said it expects the profitability of auto component players to decline on account of high raw material prices. Auto component suppliers generally pass on price hikes to OEMs. However, in the current scenario, it will take some time, and auto component players will have to take a hit on their profitability to safeguard volume growth.

According to the report, decline in the sales of automobiles in the past couple of years due to the economic slowdown in FY19, price hike and anticipation of BS-VI in FY20 as well as the coronavirus pandemic, among other factors, had a severe impact on the auto components industry. In the first half of the current fiscal, automobile sales recovered strongly on account of pent-up demand and a preference for personal mobility. This led to an increase in demand for auto components during the same period, it said.

However, there has been a setback on the supply side, with the shortage of semiconductor chips hampering the production schedule of OEMs, thereby restricting recovery in the overall automotive value chain. Also, renewed concerns around the pandemic will further act as a speed-breaker for recovery in the industry, the report said.

The Indian auto components industry is active in three major regions -- the western region (Mumbai, Pune, Nashik and Aurangabad), southern region (Chennai, Bengaluru and Hosur) and northern region (Delhi and Gurgaon). In FY22 and FY23, demand for auto components is likely to increase on the back of an expected rise in demand for automobiles after degrowth in the last two years. However, auto component manufacturers are finding it challenging to bridge the gap between demand and supply,. as per the report.

The report also stated that while the shortage of chips is the major concern for the industry, other auto components made of natural rubbers are facing a raw material crisis. Apart from tires, natural rubbers are used in the production of air bags, rubber floor mats, rubber seal, rubber bumper and dust cover. Therefore, due to the 4,40,000 tonnes of demand-supply gap of natural rubber, the production of these auto components is disrupted. While supply-chain issues are expected to continue in the short term, government support and incentives may bring in fresh capex in the auto components space, thereby reducing the dependence on imports and in turn, reducing the gap, the report said.