Rating agency ICRA in its latest report has said that the performance of auto component makers is likely to remain subdued in Q2 (July-September) of FY21 over the year-ago period, but may witness significant improvement on a sequential basis. For 2020-21, it expects the revenue of auto ancillaries, except tyre segment, to fall by 16-20 percent following the double-digit decline during FY20.
According to the report, tyre manufacturers are expected to perform better, with revenue decline likely to be in the high single-digit. It also said the auto component industry was already impacted by muted demand in FY20, with the industry witnessing 16 months of decline in volumes pre-COVID and was aggravated following the pandemic. However, going forward, it said the industry is expected to register strong growth in FY22, which will result in improved profitability and coverage indicators for most vendors. It noted that during the period FY 2014-19, most auto ancillaries have ploughed back their accruals to deleverage their balance sheet.
ICRA further said that 28 percent of its rated auto component portfolio had availed moratorium, and the need for restructuring will be limited despite eligibility. It has indicated that about 28 percent of its auto component portfolio has availed of the moratorium. Of this, it said 72 percent of the entities that availed moratorium are rated in the investment-grade (BBB category and above). It added that they have availed moratorium primarily to conserve cash in an uncertain environment.