Revenues of auto-parts SMEs set to grow 10-14% in FY22: Crisil SME Tracker

Growth in demand for automotive components is on track to accelerate in the current fiscal year (FY 22), given that automobile purchases have darted ahead after the easing of pandemic restrictions, reopening of offices and educational institutions, and public places.

The increasing desire for personal mobility is driving passenger vehicle and two-wheeler sales growth. Even though these segments have been partially affected by semiconductor shortage, overall demand sentiment continues to be resilient. 

Small and medium enterprises (SMEs), which account for one-third of the sector, were badly hit in FY 21 due to the pandemic and countrywide lockdowns. Now, they are set to rebound due to demand recovery in the auto segment.

Revenues of auto-component SMEs could increase 10-14 per cent year-on-year (YoY) in FY 22, primarily due to demand recovery from tier-1 units catering to original equipment manufacturers. Replacement demand, the other major source of revenue, is picking up as well due to pent-up demand.

Exports are also expected to recover strongly, since demand from key destinations such as the US and Europe has been picking up steadily.

Rising prices of commodities like steel, iron, plastic and rubber, coupled with soaring fuel prices, are likely to affect the auto industry in the coming months, thereby also hurting SMEs. The ongoing global power crisis, especially in China, is also leading to raw material shortage in some SME clusters.

We expect SME clusters in Pune, Chennai, the national capital region, and Aurangabad to grow 11-15 per cent and operating margins for the SME sector to expand 180-230 bps YoY due to demand revival.