Capacity utilization at auto component firms was hovering at sub 30 per cent for May and June 2020, as against breakeven of 40-45 per cent and pre-Covid capacity utilisation of 60-65 per cent, according to an ICRA report released on 8 October.
“Interactions with passenger vehicles, two wheeler focused auto ancillary players like Minda, Varroc and Mahindra CIE suggest utilisation levels are back to ~75 per cent in September versus. sub- 30 per cent in first quarter,” according to an October 5 report by Ambit Capital.
This has come on back of an elevated production levels for key manufacturers like Maruti Suzuki India, Royal Enfield, Hero MotoCorp, Tata Motors (PVs), to name a few. In fact, ancillary players are striving to fulfill demand amid constraints of limited work force and trying best to enhance productivity using limited resources while maintaining SOPs to avoid spread.
Icra notes that with sequential pick-up in production across all automotive segments (except for commercial vehicles) supported by pent-up demand and channel filling; gradual opening of export markets, capacity utilization for most auto component players (two wheelers, passenger vehicles
and tractor) has been close to pre-Covid levels (at 60-65%) in September 2020.
The ratings agency expects accruals to improve significantly in FY2022 and believes that the proportion of entities opting for loan restructuring as part of KV Kamath Committee’s recommendation s, would be relatively low and largely restricted to the smaller players.
The recovery has been a confidence booster. “As of now I do not think that auto component is stressed. The situation ahead depends on projections of two and four wheeler customers,” said Hemant Agarwal, head of finance, Subros. Subros is a supplier of car AC systems to several automakers.
After a near zero production sales month in April, auto sales
have been improving every month since June. Besides dispatches to dealers, retail volumes are also showing improvement for PVs, two wheelers retail continue to skid. A pent-up demand, positive rural sentiment, shift toward personal mobility and the fading impact of price hikes are driving sales. “Wholesales have witnessed healthy growth in the same period due to inventory restocking with dealers, prior to the festive period. Inventory days have increased to 30- 40 days in PVs and 35-45 days in two wheelers, according to a recent report by Emkay.