Auto ancillary's FY23 revenue expected to grow at 10-15% YoY: India Rating Report

Domestic auto ancillary sector`s revenue is expected to grow at 10-15 per cent year-on-year (YoY) in FY23.

Accordingly, the trend is supported by moderate growth of 5-9 per cent YoY in original equipment manufacturers` volumes and continued healthy exports.

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However, the FY23 growth is lower than the estimated at 20-25 per cent YoY rise in FY22, due to rising input cost.

"Demand from the aftermarket is likely to provide a steady contribution," said India Ratings and Research (Ind-Ra).

"In addition to the volume growth, the realisations would be aided by the full-year impact of higher selling prices, as higher raw material prices in FY22 would largely be passed on by early FY23, and a continued increase in the sales to the medium and heavy commercial vehicles segment which are of a higher value than other segments."

Besides, the agency expects profitability margins to remain flat to increasing marginally in FY23, as better operating leverage would be offset by firm commodity prices, continued supply chain issues and increased logistics cost due to higher fuel prices.A

"The sector performance remains exposed to downside risks, including those from evolving geopolitical tensions and any subsequent Covid-19 waves."

Nevertheless, Ind-Ra noted that Capex is expected to be higher in FY23 in lieu of the onset of capex under the auto component and advanced chemistry cell batteries production-linked incentives schemes.

"The sector`s renewed focus on investments in R&D, technological tie-ups and/or inorganic acquisitions would continue in the near-to-medium term."