Long-term demand drivers include the growing interest of Indian OEMs in localized supply chains.

MUMBAI: Credit rating agency ICRA on Tuesday revised the outlook for the auto components sector to stable from negative due to recovery in demand from original equipment manufacturers (OEMs), substitutes and exports, OEMs said. ICRA expects the domestic auto component industry revenue to grow by 16% to 18% from April 2021 onwards, driven by increased content per vehicle, lower base effect and higher monetization rates.

Long-term demand drivers include Indian OEMs’ interest in localized supply chains. Sourcing from India is expected to increase in the coming years due to the diversification of supply chain risks among global OEMs, ICRA said in a statement.

OEMs account for more than 56% of the demand for automotive components, except for medium and heavy commercial vehicles, (MHCV) Demand from all segments outside the industry has grown significantly since September.

It is expected to take two to three years for sales in the automotive industry to return to pre-COVID-19 peaks. Production-related incentives and other systems could encourage OEMs and large auto parts suppliers to implement export investment programs.

MHCVs are also known to have increased this year after demand bottomed out in the 12th quarter. Strong demand from rural markets across the country supported the demand for two-wheelers and tractors, the rating agency added.

ICRA said the credit outlook for tractors, two-wheelers and passenger vehicles is stable. “The credit outlook for the passenger car segment was revised to stable from negative in December.”

Aftermarket demand for parts and components accounts for 18% of the industry’s revenue. Parts demand also increased in September and December of fiscal 2021 after a significant drop in parts demand during the first quarter lockout, the company said.

In terms of diesel consumption and toll trends, from 8 Since this month, there has been a significant increase in freight activity across the country, triggering replacement demand.

While shared mobility continues to be impacted, personal travel demand has increased replacement demand. Iqra said that despite the impact of the epidemic, which accounted for 26-27% of the industry’s total sales Exports have also recovered from their early 2020 lows.

ICRA expects annual revenue growth of 16-18% in the domestic auto parts industry in 2021-22, partly due to weaker spillover effects from commodity price action, due to higher per vehicle content, lower base effects and higher mobility.