‘Auto component players to see revenue, margins go down in FY21’

Chennai, Sep 3 (IANS) Auto component manufacturers are expected to suffer about 15-18 per cent decline in their revenues in FY21 and an average of 100 basis points (bps) in their EBITDA due to sharp contraction in demand over what the industry experienced during FY20, said Brickwork Ratings in a report released on Thursday.

According to Brickwork Ratings, during FY20, the revenues of auto ancillaries declined about 8-10 per cent after a year-on-year (yoy) increase until FY19.

The reduction in revenue is owing to the shrinking order book from Original Equipment Manufacturers (OEMs) due to lower automobile sales in the country last fiscal, it said.

According to the rating agency, the auto component makers' revenue is expected to slip by about 15-18 per cent in FY21 on account of lower income levels and continued weak sentiments.

“BWR (Brickwork Ratings) expects export revenues to decline as well in FY21 as more than 50 per cent of our exports are to markets in Europe, the UK and the US, and demand from these markets is expected to decline amid the Covid-19 outbreak and postponement of model launches or deferment/cancellation of orders,” the report said.

According to the report, auto components players will be affected adversely in the first quarter of the current fiscal and, to some extent, during the second quarter as well.

The rating agency expects a gradual recovery in vehicle sales from the second half of the current fiscal owing to pent-up demand, an improvement in OEMs production activities and the easy availability of credit from financiers.

Further, the demand for two-wheelers and passenger vehicles is expected to rebound faster due to the preference for personal mobility over shared mobility or public transport on account of safety concerns in the pandemic situation.

Furthermore, rural demand will continue to remain strong owing to a normal and well-distributed monsoon.

According to Brickwork Ratings, the sales of automobiles are expected to decline in FY21 due to the postponement of model launches, reduced production levels, supply chain disruptions and the slowdown in new capacity additions.

India exports around 27 per cent of its automotive components production. The US, Germany, UK, Italy, Turkey, UAE and Thailand are the largest export markets for auto components globally.

Over the past few years, India has emerged as the sourcing hub for many OEMs globally due to its cost effectiveness in production and favourable geographical positioning to key markets such as the US, Europe and the Middle East.

More than 50 per cent of exports are to markets in Europe, the UK and the US, which have been the most impacted by coronavirus.

Owing to Covid-19, exports were affected as orders were cancelled or deferred as well as shipment delays.

On the other hand, the domestic market has also been impacted due to the shutting-down of dealerships and OEMs until mid-May 2020, labour shortage, the shortage in raw material availability, lower income levels and weaker consumer sentiments.

Overall, the coronavirus had impacted both domestic and export markets.

“The EBITDA (earnings before interest, tax, depreciation and amortisation) margins have been declining since FY19 due to an increase in raw material costs and other promotional expenses. BWR expects to see, on average, a 100bps EBITDA margin decline in FY21 for auto components companies due to pricing pressure from OEMs as they may not be able to fully pass on price increases on account of the BS-VI norms in a subdued demand scenario,” the report said.



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