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Auto component sector FY21 revenue may fall 14-18% due to coronavirus crisis: ICRA

ICRA noted that while the auto components industry has been hit due to Covid-19 and lockdown, mission critical replacement parts like batteries and tyres would be less impacted

twitter-logoPTI | July 10, 2020 | Updated 18:15 IST
Auto component sector FY21 revenue may fall 14-18% due to coronavirus crisis: ICRA

Weak demand across domestic original equipment manufacturers, replacement market and exports could lead to a decline of 14-18 per cent in revenues of auto component sector in 2020-21, according to ratings agency ICRA.

It noted that while the auto components industry has been hit due to Covid-19 and lockdown, mission critical replacement parts like batteries and tyres would be less impacted.

"Automobile volumes are expected to decline by (around) 15-16 per cent in FY2021; within this, passenger vehicle demand will decline by 22-25 per cent," ICRA said in a statement.

The year will be tough for commercial vehicles (CV) too, given the slowing economic growth, current overcapacity in the CV space and tight financing environment amid price increases due to transition to BS-VI emission norms, it added.

However, the ratings agency said,"Two-wheeler sales could benefit as people prefer personal transport and are wary of public transport, easy retail credit availability; and expectations of better demand in rural and semi urban markets, which were relatively less impacted by Covid-19 pandemic and resulting restrictions."

ICRA research expects the recovery of the auto components sector to be gradual and slow-paced, with the industry pinning hopes on revival in rural income to support growth in the festive season and thereafter, it added.

Commenting on the situation, ICRA Senior Group Vice-President Subrata Ray said, "Domestic automotive production declined by (around) 14.7 per cent in FY20 and is expected to witness double-digit decline in FY21 as well. The aftermarket component demand which accounts for 18 per cent of the industry turnover, is also expected to be subdued in the near term, the exception being components like batteries."

The global light vehicle outlook too is expected to remain negative in the next 12-18 months with steep decline anticipated in calender year 2020 because of extensive spreading of the pandemic and its impact on demand, and consumer income levels, he added.

"All these will have a serious bearing on the auto component industry's prospects. Though auto and auto component production has partly restarted across various zones in India since early May 2020, production levels continue to be sub 30 per cent," Ray said.

Also, he said lockdown in auto component clusters, like the current one in Chennai and the ensuing supply chain disruption will keep the industry's recovery on a slow footing. Shortage of labour and productivity loss because of social distancing will also impact output.

ICRA said revenue of its auto component sample set (excluding-tyres) declined by 19.9 per cent in March quarter 2019-20, the steepest quarterly year-on-year decline in the last several years. In the last fiscal, revenues declined by 12.3 per cent.

"The slowdown was far steeper than that during FY08. However, auto ancillaries with focus on exports were less impacted," it added.

Commenting on the outlook, Ray said,"Our FY21 revenue estimates for the industry, especially the first two quarters, remain highly uncertain. Further downward revision linked to pandemic related impact and consumer demand in both domestic and international markets is possible."

Having said that, Ray noted ,"We expect a revenue decline of 14-18 per cent in FY21, over and above the sharp 13-15 per cent decline in FY20. Tyre manufacturers will be relatively better off. The revenues of rest of the industry are expected to decline by 16-20 per cent in FY21."

ICRA said the aftermarket performance during the last fiscal was impacted due to continued credit crunch across the channel inventory, tight financing environment and overall economic slowdown leading to lower vehicle movement.

Further, nearly 45 days of sales were lost in June quarter of the current fiscal because of lockdown and the weakness was felt in the rest of the quarter.

The liquidity in the market is tight and consolidation in the aftermarket space, with some smaller retailers facing insolvency is expected. Overall, 2020-21 is expected to be sluggish for the aftermarket, the ratings agency said.

Also Read: PM Modi inaugurates Asia's largest 750 MW solar plant in Madhya Pradesh's Rewa

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