Autocomp sector set for a rebound after two tough fiscals, says Crisil

Representational image

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 Rs 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.


(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel