Rating agency ICRA in its latest report has said that Indian auto component industry is expected to post 20-23 per cent revenue growth in the current fiscal (FY22) aided by strong exports and recovery in the domestic market. It said the growth would however be on the low base of the last two fiscals and will look optically strong because of the exceptionally weak first half of the financial year 2020-21. It also said headwinds such as sharp increase in commodity prices, supply chain disruptions partly arising from semiconductor shortage and premium freight expenses are expected to weigh in industry margins in FY2022, partially offsetting benefits arising from improved operating leverage,
According to the report, commodity prices were expected to remain at a multi-year high in the first half of the financial year 2021-22 before softening in the second half of the financial year. It noted that an increase in air freighting, resulting in higher freight costs for the industry, also remains a challenge. Despite the strong revenue growth and consequent benefits from operating leverage expected, these headwinds are expected to weigh in on margins.
Rating agency further noted that its interaction with large auto component suppliers indicated a cautiously optimistic approach towards CAPEX plans for the financial year 2021-22, with investments expected to be largely funded by internal accruals. It said the incremental investments will be primarily towards capability development i.e. new product additions and committed platforms, unlike the investments towards capacity expansion witnessed in the past.
