Auto component makers set to achieve double-digit revenue growth this fiscal year: crisis

The country’s auto components sector will see a 14-16% increase in revenue this fiscal year, marking the second consecutive stage of double-digit annual growth after the 24% recorded last fiscal year, according to a report by Crisil Ratings.

Operating margins will be flat at 12-13% due to better utilization and companies passing on higher input costs to customers with a lag. The improved demand outlook across all segments will lead to a 30% increase in capital expenditures (capex), which will be funded in part by debt, and the balance by higher accruals generated.

An analysis of 220 automotive component entities rated by Crisil Ratings, which account for about a third of the industry’s $4.2 trillion revenue, said the segment derives about 61% of its revenue from OEMs. of automotive origin (OEM), 18% from the aftermarket and the remaining 21% from exports. Pushan Sharma, Director of Crisil Research, said, “We expect all three segments to fuel healthy revenue growth.

Demand from OEMs is expected to grow 18-20% this fiscal year, driven by increased production of commercial and passenger (PV) vehicles. Aftermarket demand is expected to rise 7-9% off a high base last fiscal year, which benefited from a longer vehicle replacement cycle amid the pandemic. And component exports will grow 8-10% on top of last year’s 40% growth due to steady demand from US and European markets.

There has been a sharp increase in input prices, mainly steel and aluminum, over the past 18 months. The impact on operating profitability was somewhat mitigated, however, as most of the increased input costs were passed on to OEMs.

Higher operating leverage and moderating steel prices from June 2022 due to the recent imposition of export duties on many steel products, including automotive grade steel, will contribute to reinforce the impact of rising transport costs.

This will ensure that the operating margin remains stable at 12-13% for this financial year, although it will still be below the 14% achieved in financial year 2019, which was among the best years in the sector. Naveen Vaidyanathan, Director of Crisil Ratings, said: “Capex by Crisil Listed automotive component manufacturers are expected to see a significant increase of 30% this fiscal year, driven by strong demand prospects, including for electric vehicles, and investments related to the production incentive program.

Working capital is also expected to increase due to higher inventory costs caused by high raw material prices. But higher operating profits would nonetheless support healthy leverage metrics leading to a “stable” credit outlook for gamers. Debt to Ebitda ratio of auto component makers is estimated to be about 2x and interest coverage ratio 6-7x in FY2023, almost similar to last fiscal year.

“A prolonged shortage of semiconductors, which may derail PV growth in particular, intense new waves of the pandemic and inflationary headwinds in key export markets will all be worth watching,” he said. declared.