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The rating agency ICRA in its latest report has said that auto ancillaries' revenues are expected to grow 8-10 per cent in 2022-23, supported by stable demand as well as the expected easing of supply-chain related issues in H2 FY2023. It said at the same time, the sector's coverage metrics is also likely to remain comfortable in 2022-23, benefitting from healthy accruals and relatively low incremental debt funding requirements.

According to the report, in last fiscal year, 31 auto component companies with cumulative revenues of over Rs 1,75,000 crore had registered a 23 per cent year-on-year growth in revenues, driven by domestic original equipment manufacturers (OEMs), replacement, export volumes and pass-through of commodity prices. It said though the growth came on a relatively low base of FY21, the actual revenue expansion was better than Icra's estimates, partly on account of better-than-expected exports and increase in realisations to pass on the impact of higher commodity inflation and freight costs.

Icra's estimation of operating margins for FY2022 had factored in operating leverage benefits. However, the unprecedented inflation in raw material costs and freight costs in H2 FY2022 (October-March) and inability to pass on the same completely and in a timely manner impacted the profit margins in previous fiscal year. Operating margins for the sample 31 auto component companies in FY2022 were the lowest in last five years. It also expects over the long-term, premiumisation of vehicles, focus on localisation, improved exports potential and EV opportunities, resulting in higher content per vehicle, would translate to healthy growth for auto component suppliers.