Why auto component makers may post robust gain after strong growth last year


by 5paisa Research Team Last Updated: Jun 24, 2022 - 11:20 am 24.1k Views
Listen icon

The Indian automobile sector had been hit with a triple whammy of slowing demand before the pandemic along with shortage of chips and cost push due to the higher raw material prices.

The automotive component sector is intrinsically linked to the fate of the overall market, but also has a strong demand from after-market sales that comes as a hedging factor in terms of demand. Intuitively, if consumers are buying fewer new vehicles, they are sweating existing automobiles and thereby would need to replace parts due to wear and tear.

The segment derives about 61% of its income from automobile original equipment manufacturers (OEMs), 18% from the aftermarket, and the rest via exports.

So even as the overall Indian automobile sector is yet to come out strongly from the trench, the components sector is expected to see revenue cranking up 14-16% to a new high this fiscal year. This will mark the second straight annual double-digit growth milestone after the 24% growth clocked last fiscal year, according to credit rating and research agency CRISIL.

The agency said the industry’s operating margin will be stable at 12-13% due to better utilisation and as companies pass on higher input costs to customers, albeit with a lag. Improved demand outlook across segments will also drive a 30% rise in capital expenditure, which will be funded partly through debt, and the balance through higher accruals generated.

The firm analysed data of 220 automotive component entities, which account for about one-third of the sector revenue of Rs 4.2 lakh crore, to come out with its forecast.

Demand from OEMs is expected to grow the fastest at 18-20% this fiscal, driven by higher production of commercial and passenger vehicles. Aftermarket demand is expected to grow at a modest 7-9% on a high base of the previous fiscal while exports are likely to grow 8-10% after a robust 40% jump last year as demand rose from the developed markets.

Meanwhile, the sharp increase in input prices, especially steel and aluminium, since January 2021 has been partly neutralised as the cost increase were passed on to the OEMs.

Higher operating leverage and moderation in steel prices from this month due to the recent imposition of export duty on many steel products (including automotive grade steel) is likely to tone down the overall cost base despite rising logistics expenses. CRISIL said that this will ensure operating margin remains stable at 12-13% this fiscal, though still below the 14% level achieved three years ago, one of the best years for the sector.

Share Market Today


How do you rate this article?

Start Investing in 5 mins*

Rs. 20 Flat Per Order | 0% Brokerage

378X91-D3

About the Author

Our research team is composed of some highly qualified research professionals, their expertise range across sectors.


Enjoy 0%* Brokerage with 5paisa
Resend OTP
Please Enter OTP
Mobile No. belongs to

By proceeding, you agree to the T&C.

Latest News
Trust Fintech IPO Subscribed 108.63 times

Trust Fintech IPO is book-built issue of ₹63.45 crores, consisting entirely of fresh issue shares totalling 62.82 lakh. Trust Fintech IPO commenced its subscription period on March 26, 2024, & concludes today, March 28, 2024.

Aspire & Innovative IPO Subscribed 15.17 times

Aspire & Innovative IPO is a book built issue of Rs 21.97 crores. The issue comprises entirely a fresh issue of 40.68 lakh shares. Aspire & Innovative IPO opens for subscription on March 26, 2024, and closes on March 28, 2024. The allotment for the Aspire & Innovative IPO is expected to be finalized on Monday, April 1, 2024.

Blue Pebble IPO Subscribed 56.32 times

Blue Pebble IPO, valued at ₹18.14 crores, comprises fresh issue of 10.8 lakh shares. Commencing subscription on March 26, 2024, Blue Pebble IPO is set to conclude on March 28, 2024. Allotment process is scheduled to be finalized by Monday, April 1, 2024. Following this, IPO is slated to debut on NSE SME, with tentative listing date of Wednesday, April 3, 2024.