New Delhi
India Ratings and Research Pvt Ltd (Ind-Ra) has maintained an improving outlook for the auto ancillary sector and maintained a stable outlook on its rated portfolio for the second half of FY22.
Pallavi Bhati, Senior Analyst, Ind-Ra, said that the agency expects the sector revenues to grow 18%-20% YoY in FY22, supported by strong growth in demand from original equipment manufacturers (OEMs) and the export market. It would also increase by higher realisations due to a likely rebound in medium & heavy commercial vehicles (CVs) sales and passthrough of higher raw material prices.
Although Ind-Ra had lowered its FY22 OEMs sales volumes growth forecast to 12%-16% YoY (initial estimate: 16%-20%), higher exports and improved realisations keep the revenue growth estimate intact. The agency expects the export demand to be marginally better, while demand from the aftermarket would provide a steady contribution.
Profitability margins would see a 50-100bp YoY contraction due to increased input prices, supply chain disruptions and semiconductor shortage, despite better operating leverage. Still, the EBITDA would increase on an absolute basis, and credit metrics are likely to improve in FY22.
The pandemic-led supply chain disruptions have solidified the thrust on localisation for the sector. While the fine print is awaited on the Production-linked Incentive (PLI) Scheme, it could create competitive advantages and growth opportunities for the segment in the medium to long term. Also, the introduction of the National Vehicle Scrappage Policy could lead to an uptick in demand, especially in the CV segment; although the benefit from the policy would accrue FY24 onwards.
Source – India Ratings and Research Release
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