In the past fiscal year, 31 automotive component companies with cumulative revenues of more than ₹1.75,000 crore had seen a 23% year-on-year revenue growth.
Auto accessories revenue is expected to rise 8-10% in 2022-23 on steady demand and a likely easing of supply chain concerns in the second half, Icra said on Monday. At the same time, hedging measures for the sector should also remain comfortable in 2022-23, benefiting from healthy claims and relatively low additional debt funding requirements, the rating agency said in a statement.
In the past fiscal year, 31 automotive component companies with cumulative revenues of more than ₹1.75,000 crore had seen 23% year-over-year revenue growth, driven by domestic original equipment manufacturers (OEMs), replacement, export volumes and the pass-through of raw material prices.
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Although growth occurred on a relatively weak FY21 base, actual revenue growth was better than Icra’s estimates, in part due to better-than-expected exports and an increase achievements to pass on the impact of rising inflation in raw materials and freight costs, he said. Icra’s estimate of operating margins for fiscal year 2022 had taken into account the benefits of operating leverage.
However, unprecedented raw material and transportation cost inflation in the second half of FY2022 (October-March) and the inability to fully pass them on in a timely manner impacted profit margins. of the previous fiscal year, according to the press release. Operating margins for the 31 auto component companies in the sample in fiscal 2022 were the lowest in the past five years, he added. “ICRA expects auto accessory revenues to grow 8-10% in fiscal 2023, supported by stable demand as well as the expected easing of supply chain issues in the second half of the 2023 financial year.
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“Over the long term, premiumization of vehicles, a focus on localization, improved export potential and opportunities for electric vehicles, resulting in higher content per vehicle, would in our view result in growth healthy for automotive component suppliers,” said Vinutaa S, Vice President. and sector head at Icra According to her, automotive auxiliaries showed an adequate liquidity position, especially among Tier I and Tier II players.
Icra expects hedging metrics for this sector to also remain comfortable going forward, helped by healthy accrued liabilities and relatively low incremental debt funding, it said.
Estimated revenue growth for the sample in fiscal year 2022 was limited by factors such as semiconductor shortage issues, weak demand for two-wheelers and tractors, and the impact of geopolitical developments on international trade, she said.
Archive photo for representation purposes: (Bloomberg)
“However, the industry’s real revenues were supported by healthy exports and better achievements. ICRA’s sample of 30 companies (excluding a large automotive component supplier) reported FY2022 operating margins of 10.6%, 10 basis points lower on a annual and 40 basis points lower than projections,” she added.
Uncertainties on the supply chain front and cost inflation have led auto accessories to store higher inventory, with sample inventory levels at their highest as of March 31, 2022, compared to the four last years.
Nevertheless, working capital intensity remains comfortable, at levels below 10%, according to Icra. He pointed out that the sample’s operating profits were higher in the prior fiscal year compared to fiscal 2020 and 2021, helped by healthy revenues, despite a marginal decline in operating margins.
Icra said that while debt levels increase with increasing working capital intensity, improved operating profits translate into comfortable debt coverage metrics for the industry.
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He also said the auto accessories sample’s capital expenditures for fiscal 2022 as a proportion of their operating profit were 5.9%, below pre-COVID levels by more than 7.5%. %, which was in line with Icra’s estimates.
The incremental investments were primarily for capacity expansion – new product additions, product development for engaged platforms, and development of advanced technology components and electric vehicles – in contrast to the capacity expansion investments seen in the past. .
Going forward, the recently announced PLI program will help accelerate medium-term capital expenditures in addition to investments by new entrants in the electric vehicle segment, he said, adding that most auto accessories rated by the CPBI are investment grade, reflecting a healthy credit profile. .
Date of first publication: June 20, 2022, 7:15 PM IST
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