India’s auto-component manufacturing is a sector dominated by micro, small and medium enterprises and it contributes 2.3% to the country’s GDP and 4% to total goods exports. According to an estimate by rating agency CRISIL, the sector may witness 20% decline in exports during 2020-21, which comes on the back of 6% fall in shipments in the previous year. Thus, auto-component manufacturers have to navigate through decline in export revenue for two years consecutively.
CRISIL expects exports to recover in 2021-22 and grow by 16% on the back of pickup in demand from major markets. USA accounts for 25% of India’s exports of auto-components, while Germany, UK, Thailand and Italy contribute 7%, 5% and 4% each respectively.
CRISIL also expects demand for auto-components from automobile manufacturers (who are called OEMs) and from aftermarket (replacement) to decline during 2020-21. Auto-component manufacturers earn more than 66% of their revenue from sales to domestic automobile manufacturers or OEMs. According to the rating agency, for the first time in 10 years, auto-component makers are facing fall in demand from all the three sources, namely export market, OEMs and aftermarket. This will hurt the absolute operating profit of auto-component manufacturers by 30-35%, CRISIL estimates.
The total revenue of auto-component companies rated by CRISIL is estimated to have declined to Rs. 3.2 lakh crore in 2019-20 from Rs. 3.6 lakh crore in the previous year. This is expected to fall further to Rs. 2.7 lakh crore in 2020-21, before recovering to Rs. 3.3 lakh crore in the following year.
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