Auto component industry is probably going to witness a 70 per cent decline in operating profits within the half-moon of the present fiscal thanks to disruptions caused by the second wave of COVID-19, as per domestic ratings agency ICRA.
The challenges for component manufacturers are going to be further compounded by the sharp increase in commodity prices, which are generally skilled to original equipment manufacturers (OEMs) with a lag of 3-6 months, ICRA noted.
“ICRA estimates a revenue loss of 30-40 per cent quarter on quarter, and this may translate into a sequential decline in EBITDA of over 70 per cent during the primary quarter for the industry,” it added.
Exports have come to the industry’s rescue within the previous couple of months, when domestic demand nosedived thanks to lockdown restrictions, ICRA said.
Suppliers dependent solely on domestic demand are the worst impacted, it added.
ICRA noted that despite the short-term headwinds, it expects the domestic auto component industry to register a 20-23 per cent revenue growth within the current financial year , supported by double-digit volume growth across most automobile sub-segments and impact of commodity inflation on realisations.
“The overall industry revenue will still be almost double than the April-June quarter of last fiscal year ,” it added.
Elaborating on the present situation, the rating agency said that while the assembly volumes were stable in April, retail sales declined sharply during the last two months indicating inventory build-up within the system.
Industry volumes are expected to stay muted in June 2021 also , with many OEMs and suppliers currently operating in single shifts, it said.
The industry is additionally witnessing pressure on the raw materials front, impacted by the record-high commodity prices, it added.
“Commodity prices are expected to stay elevated within the half of the present fiscal, before softening in H2 FY2022. However, the present year’s average commodity prices are expected to be at a multi-year high. Another explanation for concern is that the shortage of electronic components and increase in semiconductor prices,” ICRA said.