ICRA lowers auto revenue growth forecast on Omicron wave

ICRA lowers auto revenue growth forecast on Omicron wave

The ICRA revised its revenue growth forecast for the automotive components industry in the current fiscal to 15 -- 17 per cent, citing the Omicron wave, delayed recovery in semiconductors shortage and muted two-wheelers demand. Revenue growth forecast for FY 2022 has been revised downward by 200 bps to 15 - 17 per cent from the earlier estimates due to the ongoing Omicron wave, delay in semi-conductors and muted two-wheelers and bus demand, Icra Assistant Vice President and Sector Head Vinutaa S said in a statement.

She said that ICRA expects to see a robust 15 -- 17 per cent revenue growth in the ongoing fiscal for the Indian auto component industry in the future, driven by domestic OEM, replacement, export volumes and pass-through of commodity prices.

According to Vinutaa, there could be a downward bias to Icra's estimates in case of prolonged lockdowns or a significant demand slowdown because of the Omicron wave, as well as a low base on FY 21, which would lead to healthy volume growth.

In FY 2022, the domestic original equipment sub-segments are expected to register healthy volume growth, despite a low base of the last fiscal, Icra said, adding pass-through of commodity prices will also inflate revenues by 4 -- 5 per cent.

Certain segments, like two-wheelers 2 W and buses, will be impacted by the Omicron wave. We expect a delayed recovery in the 2 W segment because of affordability and dampened sentiments. Demand for buses is expected to be impacted during the upcoming school season for the third year in a row, according to the rating agency.

Easing of COVID 2.0 related lockdown restrictions and improvement in personal mobility, healthy freight movement and pent-up demand arising from the deferment of purchases last year, supported replacement sales for auto components in Q 2 and Q 3 FY 2022.

The agency said that there could be a positive impact on mobility because of the COVID wave, freight movement and deferment of fresh vehicle purchases in Q 4 FY 2022, and that there will be healthy replacement demand in Q 4 FY 2022.

The rating agency said that Indian auto component suppliers reported a healthy improvement in sales volumes to Europe in year-to-date FY 22 and have a strong order book for the next few months, aided by the China 1' strategy.

The third quarter was relatively dull because of supply-chain issues, it said, adding that the export order book for Indian auto component suppliers would have been even better if not for chip shortages.

It noted that prolonged lockdowns in key export markets like Europe and the US are a downside risk due to high infections and prolonged lockdowns in India's key export markets.

Vinutaa said that over the long term, premiumisation of vehicles and the focus on localisation will result in a lot of growth for auto component suppliers.

We expect a 5 year CAGR of 8 -- 10 per cent for the industry. She said that operating margins will benefit from improved operating leverage benefits and increased premiumisation of vehicles in FY 2022 and will be impacted in FY 2022 because of cost pressures.