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Auto component replacement demand to grow at 6-8% in FY24 supported by underlying demand drivers: ICRA

27 Feb 2023 Evaluate

Credit rating agency ICRA in its latest report has said that the aftermarket segment constitutes around a fifth of the overall demand and remains a vital cog in the Indian auto component industry. It projects the replacement demand growth at 6-8% in FY2024, supported by underlying demand drivers, including the increase in mobility, improving economic activity, and healthy freight movement. It said the improvement in demand has resulted in a positive impact on cash flows for aftermarket dealers and garages.

According to the report, the liquidity in the aftermarket remains comfortable, and there have been relatively minimal issues in the collection of receivables. The replacement segment has also benefitted from the postponement of new vehicle purchases due to increasing inflationary pressure and elongated waiting periods, especially in the PV segment. It noted that with the deferral of vehicle purchases since FY2020, the proportion of CV fleet older than 10 years increased considerably and was almost half of the M&HCV population in FY2022 and H1 FY2023.

The report said similar trends are visible for LCVs older than five years, which now account for almost two-thirds of the LCV population. ICRA estimates that the average age of M&HCVs had increased to almost 10 years in FY2022, the highest in the past two decades.  In the PV segment, ICRA assesses the average age at 7.3 years in FY2022, also the highest in the past two decades. It highlighted that the increase in vehicle parc and ageing of vehicles on the road augurs well for auto component replacement demand.

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