The Indian automotive components sector will clock 10-12 percent growth in revenue in fiscal 2024, riding on continuing domestic growth buoyed by robust demand from original equipment manufacturers (OEMs) on the back of high base of past fiscals, and steady aftermarket demand says CRISIL. This it says is despite exports continuing to remain sluggish.
The report states that continuing demand momentum, driven by OEMs, complemented by cost-efficiency measures by auto component manufacturers should drive up operating leverage. This, along with moderation in prices of key raw materials – albeit still high compared with pre-pandemic levels – will support operating margin inch back to the pre-pandemic level at 12-12.5 percent in fiscal 2024 (around 11.9 percent in last fiscal).
CRISIL Ratings analysed around 230 auto component players, which account for nearly 50 percent of the sector revenue of approximately Rs 4.8 lakh crore, indicates as much.
Anuj Sethi, Senior Director, CRISIL Ratings said “Revenue from OEMs is expected to grow 12-14 percent this fiscal, backed by continued strong demand from almost all segments barring tractors which had hit an all- time high last fiscal. Improving semiconductor availability will support supplies of passenger vehicles and premium motorcycles. Exports, the second-largest revenue contributor, will remain sluggish amid continuing headwinds in key markets in Asia, Africa and Latin America. Lastly, revenue from the aftermarket segment, which accounts for the balance, will grow at a steady 6-8%, supported by strong automotive sales in past fiscals.”
Amidst growth, players with high exposure to engine and transmission components – accounting for 22 percent of the sector’s revenue – will continue to diversify their product basket by enhancing focus on electric vehicles components.
Poonam Upadhyay, Director, CRISIL Ratings said, “With EV adoption expected to be fastest in the two- and three-wheeler segments, the auto component makers with high exposure to engine and transmission components are likely to focus at diversifying their product basket. This, along with focus on meeting PLI-related commitments and capacity enhancements, will push up capital spends. Players rated by CRISIL Ratings are likely to undertake capital expenditure of around Rs 17,500 crore this fiscal, up around 20 percent year-on-year. Nevertheless, strong balance-sheets, healthy profitability and prudent capex funding will keep credit profiles stable.”
The report expects that interest coverage may moderate marginally in fiscal 2024 but will remain comfortable at 7.-7.2 times compared with around 7.5 times last fiscal. The ratio of debt to earnings before interest, taxes, depreciation, and amortisation is also seen stable at 1.5 times (around 1.6 times).
Sustainability of demand from domestic OEMs, increased indigenisation of EV components, and the global macroeconomic scenario will bear watching in the road ahead.
