Auto ancillaries’ revenue to grow by 8-10% in FY23: ICRA

Ratings agency ICRA Limited forecasts the revenue growth of auto ancillaries at 8-10 per cent in FY23 led by stable demand and the likely easing of supply-chain related concerns in H2 FY2023. The rating agency also expects the sector’s coverage metrics to remain comfortable in this fiscal, benefitting from healthy accruals and relatively low incremental debt funding requirements. 

“ICRA expects auto ancillaries’ revenues to grow by 8-10 per cent in FY23, supported by stable demand as well as the expected easing of supply-chain related issues in H2 FY2023. Over the long term, premiumisation of vehicles, focus on localisation, improved exports potential and EV opportunities, resulting in higher content per vehicle, would translate to healthy growth for auto component suppliers, in our view,” Vinutaa S, Vice President and Sector Head, ICRA Limited said.

Vinutaa added that auto ancillaries have displayed adequate liquidity position, especially across tier-I and tier-II players. “ICRA expects the coverage metrics for this sector to remain comfortable going forward as well, aided by healthy accruals and relatively low incremental debt funding,” she said.

In FY2022, ICRA’s sample of 31 auto component companies with cumulative revenues of over Rs. 1,75,000 crore had registered a 23 per cent year-on-year (YoY) growth in revenues, driven by domestic OEM, replacement, export volumes and pass-through of commodity prices. 

“The estimated revenue growth for the sample in FY2022 was constrained by factors like semiconductor shortage issues, muted two-wheeler and tractor demand, and the impact of geopolitical developments on international business. However, the industry’s actual revenues were supported by healthy exports and better realisations. ICRA’s sample of 30 companies [excluding a large auto component supplier] reported operating margins of 10.6 per cent for FY2022, 10 bps lower on a YoY basis, and 40 bps lower than projections,” she added.

According to ICRA, uncertainties on the supply-chain front and cost inflation resulted in auto ancillaries stocking higher inventory, with inventory levels for the sample being the highest as of March 31, 2022, compared to the last four years. Nevertheless, the working capital intensity remains comfortable, at sub 10 per cent levels.

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