New Delhi, June 15 The second wave of Covid is expected to reduce revenues for automotive auxiliaries in the first quarter of fiscal 22, India Ratings and Research (Ind-Ra) said.

The rating agency estimates that automotive ancillary products would see their revenues significantly lower than 1QFY22, after a strong recovery at 2HFY21.

“The second wave of Covid leading to localized blockages impacted economic activity, leading to shutdowns / advances in maintenance activities at Original Equipment Manufacturers (OEMs) factories, leading to a decrease in volume collection of accessories, “he said.

In addition, the agency estimated that the industry will experience pent-up demand in subsequent quarters if the lockdowns are lifted from the end of June, which could offset the loss of revenue in the first quarter.

“Nonetheless, export demand remains buoyant and could provide respite for auto accessories in the first quarter, as well as support revenue growth in the remaining quarters.”

Ind-Ra also expects secondary market demand to rebound once lockdowns are eased.

“However, if the lockdowns or restrictions remain in effect longer, there could be a risk that Ind-Ra’s estimated revenue growth will decline from 18% to 20% year-on-year for fiscal 22. . “

“The focus on cost reduction measures and better cash flow generation in fiscal year 2HFY21, as well as the availability of financing through the lower cost Emergency Credit Line Guarantee Scheme loans during fiscal year 21 resulted in a better liquidity profile for companies in the sector compared to levels a year ago. “

Additionally, the agency said it is not planning any major negative rating action unless there is significant stress on the credit profiles of rated entities.

“Ind-Ra expects industry revenues at 1QFY22 to be 50-60% of those recorded at 3Q-4QFY21, while also remaining exposed to downside risks related to infection cases and severity. restrictions. “

“Should the restrictions remain for an extended period, consumer sentiment could weaken as disposable incomes decline and delay the resumption of economic activity.”

In addition, he noted that with many dealerships remaining closed, many OEMs halted production in April and May to prevent increased vehicle inventories.

“This caused a sudden drop in demand for automotive accessories after high volumes at 3T-4TFY21.”

According to Ind-Ra’s discussions with the rated auto accessories portfolio, capacity utilization, which was at 90-95% levels in March 2021 due to a recovery in all vehicle segments, fell to 80-90% in April, and is likely to have fallen further to 55-60% by May 2021, due to state-imposed restrictions that did not come into effect until the end of the month. April, and the workforce exposed to Covid infection, combined with OEM shutdowns.

“Ind-Ra expects domestic demand in June to be similar to May. Secondary market demand also remains negatively affected due to the lockdowns.”

Disclaimer: This article was posted automatically from an agency feed without any text changes and has not been reviewed by an editor