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Revving up amid speed-bumps
Key messages
- PVs and CVs to lead automobile volume growth in fiscal 2023, with TWs showing moderate recovery; tractor demand to remain modest
- Strong growth seen in passenger and commercial vehicles (PVs and CVs; ~12% and ~18% on-year) on pent-up and replacement demand
- Moderate growth in two-wheelers (TWs; ~6% on-year) with scooters outpacing motorcycles; electric TW penetration to shave off ICE volumes
- Marginal growth in tractors (~1% on-year) on account of significant price hikes, a high base, and a moderate increase in rural income
- Better OEM growth to rub off on the automotive component sector’s revenue growth (12-17%) this fiscal
- Strong OEM demand (65% of revenue) of 18-20% to drive overall growth this fiscal, supported by PVs and CVs
- Replacement demand (15% of revenue) to grow 7-9% and exports (20% of revenue) to rise 8-10% this fiscal
- Credit quality of OEMs to remain stable; operating margins seen recovering from record lows of last fiscal, supported by price hikes
- Volume recovery, price hikes to aid in 100 bps OEM margin expansion from record lows of last fiscal, even as commodity price inflation persists
- Capex to be driven by EV and PLI schemes (PVs and TWs); robust liquidity and strong balance sheets to keep OEMs’ credit profiles ‘stable’
- Credit quality of component suppliers to be ‘stable’ this fiscal; gradual operating margin recovery to support accruals
- Operating margin to recover gradually to 12-13% over the next two fiscals, supported by better operating leverage and export margin
- Capex to be driven by OEM requirements and PLI scheme; debt metrics, nonetheless, to remain adequate, resulting in ‘Stable’ credit outlook
Note: PV – Passenger vehicle; UV – Utility vehicle; TW – Two-wheeler; CV – Commercial vehicle; OEM – Original equipment manufacturer, ICE – Internal Combustion Equipment, Bps – basis points, PLI –Production Linked Incentive, EV – Electric Vehicle
Analytica