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Rating agency ICRA in its latest report has revised downwards the growth forecast for the auto components industry by 300 basis points for the ongoing fiscal year (FY22) due to the impact of semiconductor shortage on domestic vehicle manufacturers as well as on exports revenues. It said the components industry is now expected to grow at 17-20 percent in 2021-22, partly aided by the low base of last year and commodity passthrough besides growth driven by domestic OEM, replacement, and export volumes. However, it said the healthy volume growth would, however, come on a low base of FY2021.

According to the report, the operating profit margin (OPM) of auto ancillaries (excluding tire manufacturers) will remain lower than normal levels (FY2020), and added that the industry's exceptionally weak performance during the first quarter of 2020-21 due to the strict lockdown, dragged last year's profit margins. Though, it said this will result in year-on-year (YoY) improvement in margins optically, with the operating margins expected to expand by 75-125 bps due to improved operating leverage, a possible third COVID wave, and further lockdowns are downside risks to Icra's estimates.

ICRA further said the underlying demand remains strong, though near-term challenges on supply-chain and commodity inflation persist. It noted that while sequential moderation is likely, most domestic OE (original equipment) segments are expected to witness healthy demand in FY2022, with a preference for personal mobility and pick-up in infra activity being the growth drivers and added that pent-up demand and increase in economic activity will support aftermarket revenues.