Domestic auto component sector’s revenues are estimated to decline by 14-18 per cent in FY2021, due to weak demand across domestic OEMs, replacement market and exports, said ICRA on Friday.

The industry has been affected by the Covid-19 pandemic and continuing lockdown which is directly impacting the economic environment and consumer sentiments, the credit rating agency said in a statement. ICRA Research expects the recovery to be gradual and slow-paced, with the industry pinning hopes on revival in rural income to support growth in the festive season and thereafter.

The exceptions are mission critical replacement components like batteries and tyres, which will be less impacted, it noted.

“Domestic automotive production declined by around 14.7 per cent in FY2020 and is expected to witness double-digit decline in FY2021 as well. The aftermarket component demand which accounts for 18 per cent of the industry turnover, is also expected to be subdued in the near term, the exception being components like batteries. The global light vehicle outlook too is expected to remain negative in the next 12-18 months with steep decline anticipated in CY2020 because of extensive spreading of the pandemic and its impact on demand; and consumer income levels. All these will have a serious bearing on auto component industry’s prospects,” said Subrata Ray, Senior Group Vice-President, ICRA.

Though auto and auto component production has partly restarted across various zones in India since early May 2020, production levels continue to be sub-30 per cent, he said. “Also, lockdown in auto component clusters, like the current one in Chennai and the ensuing supply chain disruption will keep industry’s recovery on a slow footing. Shortage of labour and productivity loss because of social distancing will also impact output, he added.

Exports too will be affected due to fall in European PV sales in CY2020 as a result of demand squeeze caused by weakening macro-economic scenario; and partly due to the pandemic, it said. The European HCV demand too will remain subdued in the near term due to the on-going global slowdown, it pointed out.

Vehicle sales in the USA are also expected to decline in CY2020 due to the pandemic, in addition to several incumbent factors, it said. The sales of North American Class-8 truck orders plummeted in the last three months, hitting the lowest monthly order levels since 2010, it added.

On a positive note, accommodative commodity prices will buffer the impact of negative operating leverage to an extent. Commodity prices across all commodities are expected to remain soft in FY2021, said ICRA.

“Our FY2021 revenue estimates for the industry, especially the first two quarters, remains highly uncertain. Further downward revision linked to pandemic related impact and consumer demand in both domestic and international markets is possible. Having said that, we expect a revenue decline of 14-18 per cent in FY2021, over and above the sharp 13-15 per cent decline in FY2020,” said Ray, talking about the outlook for FY2021.

ICRA maintains its negative outlook on the auto component industry, given that the pandemic will be a supply-chain and demand disruptor in the near term, aggravating the slowdown, he added.

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