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HomeANI Press ReleasesDemand tailwinds supportive for auto sector: Ind-Ra

Demand tailwinds supportive for auto sector: Ind-Ra

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But the growth will be constrained by supply chain challenges, especially shortage of semi-conductors

Mumbai (Maharashtra) [India], Sep 13 (ANI): India Ratings and Research (Ind-Ra) has maintained an improving outlook for auto sector during FY22 as revival across segments is expected to continue in the second half, aided by a recovery in consumer sentiments, increased preference for personal mobility and macroeconomic tailwinds.

However, Ind-Ra revised auto volumes growth forecast to 12 to 16 per cent y-o-y from the initial growth forecast of 16 to 20 per cent.

The downward revision is mainly on account of a revision in the growth forecasts for two-wheelers (2Ws) and passenger vehicles (PVs) to 10 to 14 per cent (initial estimate: 16 to 20 per cent) and to 15 to 18 per cent (initial estimated: 18 to 22 per cent) respectively.

Growth forecast for commercial vehicles (CVs) is maintained at 20 per cent.

The downward revision in 2W volumes is mainly on account of reduced disposable income especially of the buyers of entry-level segment amid the widespread impact of Covid 2.0, deferral in reopening of colleges and workspaces thus limiting travel as well as increased cost of ownership.

While the demand fundamentals for PVs remain strong, said Ind-Ra, growth will be constrained by supply chain challenges — especially shortage of semi-conductors. CVs could record high double-digit growth in FY22 despite the impact of Covid 2.0 following a rebound in indicators of economic activity in 2Q FY22.

Ind-Ra also expects exports to grow in line with or marginally better than domestic sales growth in FY22.

It expects limited rating movements in the sector in FY22 and has thus maintained a stable rating outlook. Ind-Ra maintains growth estimate for industry revenues at 16 to 20 per cent y-o-y during FY22 as the lower volumes will be set off by the price increases undertaken by original equipment manufacturers (OEMs).

However, the agency expects EBITDA margins to decline by 30 to 80 basis points, mainly due to higher commodity prices and sourcing cost amid supply chain challenges. These are likely to be passed on to customers by OEMs, although with a time lag.

The decline will also be partly offset by improving operating leverage and lower discounts. Credit metrics are likely to remain flat to improving marginally in FY22.

Margins and credit metrics of CV players are likely to witness a higher improvement than the industry due to the weaker base in FY21. Refinancing risk is low for the industry and there is adequate rating headroom, said Ind-Ra.

Rising fuel prices, OEMs mulling for another price hike amid increasing input costs, continued supply chain constraints and any subsequent Covid waves could act as possible headwinds for the sector, it added. (ANI)

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