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Auto component replacement demand estimated to grow 6-8% in FY24: Report

Auto component replacement demand is estimated to grow 6-8 per cent in the next fiscal driven by factors such as the increase in mobility and healthy freight movement, among others

automobile

Press Trust of India Mumbai
Auto component replacement demand is estimated to grow 6-8 per cent in the next fiscal driven by factors such as the increase in mobility and healthy freight movement, among others, a report stated on Friday.
The improvement in demand has resulted in a positive impact on cash flows for aftermarket dealers and garages while the liquidity remains comfortable, credit ratings agency Icra said in the report.
Also, there have been relatively minimal issues in the collection of receivables, as per the report.
Icra also said that while the medium-term demand prospects are favourable, EV adoption, implementation of scrappage policy, component lifetime elongation, and possible increased use of public transport vis--vis private vehicles could cap the growth.
The aftermarket segment constitutes around a fifth of the overall demand and remains a vital cog in the Indian auto component industry, it said.
The average age of medium and heavy commercial vehicles had increased to almost 10 years, while the average age of passenger vehicles had risen to 7.3 years in FY22, the highest in the past two decades, according to Icra.
"Icra projects replacement demand growth at 6-8 per cent in FY2024, supported by underlying demand drivers, including the increase in mobility, improving economic activity, and healthy freight movement," it said.
The replacement segment has also benefited from the postponement of new vehicle purchases due to increasing inflationary pressure and elongated waiting periods, especially in the PV segment, it noted.
"Original Equipment Manufacturers (OEMs) have undertaken periodic price hikes across segments in the last two to three years because of the changes in regulatory norms and cost inflation.
Further, the semiconductor shortage and supply-chain issues have resulted in an increase in vehicle wait times. The increase in vehicle prices, along with higher wait time, have resulted in deferred purchases and necessitated replacement, wherever required," said Shamsher Dewan, Senior Vice President and Group Head for Corporate Ratings at Icra.
With the deferral of vehicle purchases since FY20, the proportion of the commercial vehicle fleet older than 10 years increased considerably and was almost half of the M&HCV (Medium & Heavy Commercial Vehicle) population in FY22 and first half of FY23.
Similar trends are visible for LCVs (Light Commercial Vehicles) older than five years, which now account for almost two-thirds of the LCV population, it said.
The credit ratings agency also noted that the increase in vehicle part and ageing of vehicles on the road augurs well for auto component replacement demand.
Demand for used cars, according to Dewan, remains healthy, aided by the growth of organised players, elongated wait periods for new cars, and improving financing penetration.
This apart, reduced imports and growth in the proportion of branded parts, deeper penetration in rural/semi-urban regions, among others, are likely to facilitate growth in replacement demand over the medium term, emphasised Dewan.
"EVs will have significantly fewer parts compared to a traditional ICE vehicle, thus reducing maintenance requirements. Also, the sale of engine and transmission products could be impacted by EV adoption," added Dewan

According to the credit ratings agency, while vehicle eligibility for scrappage by vintage remains significant, actual scrappage is likely to be lower as older trucks are generally used in hinterlands for short-haul operations by operators and are unlikely to be replaced.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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First Published: Feb 24 2023 | 3:57 PM IST

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