Auto component industry likely to clock 8-10% growth in FY23: Report

Cost inflation and semiconductor shortage remain headwinds for the industry: Report

The Indian auto component industry is expected to clock 8-10 per cent growth in FY23, supported by the easing of supply-chain issues and commodity inflation in the second half of the year, according to rating agency Icra.

For 2021-22, the revenue growth of the industry is pegged at 13-15 per cent, driven by domestic OEM, replacement, export volumes and pass-through of commodity prices. The healthy volume growth will, however, come on a low base of FY2021, the agency said in a statement.

"Demand for auto components stems from domestic OEMs, replacement and exports. Domestic OEM demand has remained a mixed bag across segments in FY2022, with a slowdown in two-wheelers (2Ws) and semiconductor shortage dragging down overall production volumes," Icra Ltd Assistant Vice President & Sector Head Corporate Ratings - Vinutaa S said.

Exports have remained a bright spot in the Indian auto component story, partly aided by the "China+1 strategy". This is despite supply chain issues, she added.

"ICRA believes that the growth in FY2022 exports would have been even better if not for the semiconductor shortage. While auto ancillaries have a healthy export order book for the next few months, the impact of geopolitical and supply-chain issues on actual offtake remains monitorable," Vinutaa said.

For FY2023, Icra said, "Revenues are likely to expand by 8-10 per cent supported by easing of supply-chain issues and commodity inflation in H2 FY2023. Over the long term, premiumisation of vehicles and focus on localisation will translate into healthy growth for auto component suppliers".

The rating agency said cost inflation and semiconductor shortage remain headwinds for the industry.

"Operating margins for auto ancillaries are likely to be impacted in the near term with elevated raw material, fuel and freight prices. While the semiconductor situation has been improving in the last 1-2 months, the Russia-Ukraine conflict could stress the globalised chip value chain," it said.

In the aftermarket segment, the agency said the improvement in personal mobility, healthy freight movement and deferment of new vehicle purchases due to cost inflation have supported replacement sales in the last few months.

Part of the revenue growth has also come from commodity pass-through. While January to mid-February was relatively dull because of the Omicron wave, demand has picked up in the last few weeks.