21 Jun , 2021 By : Kanchan Joshi
Domestic auto parts manufacturers might witness a swift recovery in demand in the second quarter once lockdowns are completely lifted in most states in the last week of June. The recovery is also expected to compensate for the loss of revenues in the first quarter due to the second wave of covid infections, according to India Ratings and Research.
The ratings firm also expects a bounce back in the aftermarket demand once the lockdowns are eased. However, in case, the curbs and restrictions remain in force for a longer duration, there could be a downside risk to year-on-year revenue growth estimate of 18-20% for FY22.
“The focus on cost-cutting measures and better cash flow generation over H2FY21, and availability of financing through the lower cost Emergency Credit Line Guarantee Scheme loans in FY21 have resulted in a better liquidity profile for sector companies vs year-ago levels. Ind-Ra does not foresee any major negative rating actions unless there is a material stress to the credit profiles of the rated entities," a statement mentioned.
The auto industry came under pressure from the first week of April when Maharashtra put strict lockdown measures in place. Delhi, Haryana, Karnataka, Tamil Nadu and others followed suit. Maruti Suzuki, Hero MotoCorp Ltd, Hyundai and others either stopped production or reduced output significantly.
Some like Bajaj Auto Ltd, however, continued to operate with limited capacity to meet export orders. With a steady drop in infections, especially in north and south India, most automakers have resumed operations from the middle of May.
“Ind-Ra expects that sector revenues in Q1FY22 would be 50%-60% of those recorded in Q3-Q4FY21, while also remaining exposed to downside risks relating to the instances of infections and severity of restrictions. In case restrictions remain for a prolonged period, the consumer sentiment could falter as the disposable incomes would decrease as well as delay the recovery of economic activity," analysts of India Ratings said.
As per India Ratings discussions with rated auto ancillary portfolio, the capacity utilization which was tracking at 90-95% levels in March due to a pick-up across vehicle segments, declined to 80-90% in April, and is likely to have fallen further to 55-60% in May 2021, due to state-wise restrictions and production shutdowns at OEMs.
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