Auto components industry's revenue to recover by 21-23% in fiscal 2022 backed by improved demand sentiments
CRISIL Research projects domestic auto-component production revenue to decline by 7-9% in fiscal 2021. This will be on account of subdued demand across all automobile asset classes amid continued weakness in the economy (FY21 GDP expected to shrink 7.7%), decline in exports amid COVID-19 outbreak in key export destinations and lower demand from replacement market owing to less movement of vehicles. However, auto component industry is estimated to have witnessed a ~17% drop in sales revenues during April-December 2020 led by a recovery in demand from Q2 FY21 onwards. Resultantly, better than anticipated revival is expected to cushion the steep decline in revenues in fiscal 2021. Moreover, higher component intensity due to the BS-VI norm is expected to aid average realizations.
On the demand side, domestic demand was impacted during H1 FY 2021 (with tractors being an exception since it was exempted from lockdown) owing to spread of COVID-19, income uncertainty and increase in cost of acquisition on the back of BS VI transition. However, demand from other segments showcased signs of revival since September 2020 with the recovery in economy. On the export front, there were green shoots visible in demand from September 2020 onwards. While exports plunged by 36% on-year during April-August 2020, the pace of decline slowed down to 14% during 9 months ended December 2020. The recovery was led by an increase in demand from European and North American markets. Going ahead, demand from Europe remains a key monitorable owing to re-imposition of lockdown in the wake of second and third wave of COVID-19.
Weak domestic demand and a drop in demand from export destinations is likely to hit auto-component manufacturers for the second consecutive year. Replacement demand is expected to fall for the first time in over a decade in fiscal 2021. This can be attributed to lower movement of vehicles in the initial few months of the fiscal.
