Next, auto parts industry sales are expected to rebound around 21-23%. On the financial front, domestic demand and export demand are expected to recover after two consecutive contractions. Operating profit will also increase as margins improve.

CRISIL ratings are expressed in %. An analysis of 230 companies shows that the credit profile of auto component manufacturers will account for 40% of industry revenues in the next fiscal through prudent capex and working capital management.

This value 32 About 60% of the industry is billion rupees Revenues come from automotive original equipment manufacturers (OEMs) and the remaining revenues are equally distributed among OEMs (original equipment manufacturers). Substitute demand and exports.

Gandhi, Research Director, HetalilCRIL said, “Continued rebound in economic activity will drive a strong recovery for automakers in the next fiscal. Improved vehicle utilization and financing will also boost demand for commercial vehicles. Demand for personal vehicles (passenger cars) cars and two-wheelers will also be driven by urban consumer confidence, rural income flexibility, moderate rise in car prices and attractive financing options.

Increase in OEM demand will impact the auto components industry. Revenues are expected to grow by 21-23% in the next financial year as compared to 13% and 8% respectively in the last financial year.

Alternative demand affected by the embargo and restrictions on movement of people and goods will gradually recover. In addition, about 20% of imported exports will benefit from stabilized demand in the US and gradual recovery in the EU3335. These two regions account for about 55% of India’s auto component exports. Signs of recovery began to emerge in the third quarter of the current fiscal year.

However, despite the increase in demand, capacity utilization at component suppliers will remain lower than in 2019. As a result, in 2020, operating margins will fall by around 150 bps in FY and 200-250 bps in FY 2021 increasing by only 100-150 bps in the next fiscal year reaching around 10% bps (see Annex). ). As a result, operating profit is expected to be lower than in 2019.

The credit ratio (upgrade to downgrade ratio) of CRISIL rated portfolio has touched an eight year low of 0.1 so far this financial year (April to December 2020) and is expected to improve steadily in the next financial year, most likely in line with industry participants. Better performance is consistent.

CRISIL Rajeswari Karthigeyan “Better operational performance, controlled capex (providing adequate production capacity) and prudent working capital management will support the credit profile of auto component suppliers in the next phase.”

Government measures to increase infrastructure spending as the epidemic subsides bode well for the automotive industry and auto component manufacturers.