Parts are concentrated in commercial vehicle companies and companies already in business report that recent large debt-financed expansions will be more vulnerable than diversified expansions.

MUMBAI: Sales in the auto parts industry may fall 16% this fiscal due to supply chain disruptions caused by the COVID-19, epidemic and weak demand for cars in India and abroad, a supplier said. Report. Crisil Ratings, in a report on Tuesday, said the industry’s revenues would have declined by about 10 percent in the last fiscal, adding Rs 32 percent crore to the losses.

Based on a growth forecast of 30000000000000 Home Crisil analyzed the auto component suppliers based on their ratings, which account for 40% of the industry’s revenue.

Krisil Ratings “Because the COVID-19 pandemic has disrupted the supply chain, it has dealt a fundamental blow to the demand for automobiles in both domestic and international markets. The auto parts industry is expected to see a decline in sales of around 16% in the current fiscal year.” ” he said.

Domestic original equipment manufacturers (OEMs), which account for more than two-thirds of the industry’s sales, sold 169 million vehicles this fiscal, the lowest level in a decade, the report said. Crisil Ratings said manufacturers’ production plans remain negligible in the first two quarters of the fiscal year and will then gradually recover.

In addition, about one-third of exports and aftermarket demand have increased and are expected to continue to show deficits this year. The report noted that slowing demand in key export destinations will weaken exports, and reduced vehicle use and closure of auto repair stores during the embargo will affect aftermarket demand.

Crisis Ratings said, “In addition to the second consecutive year of slowing demand, we are also seeing a decline in demand from original equipment manufacturers, exports and the aftermarket, which could be the first decline in more than a decade.”

Despite cost rationalization measures and a very flexible cost structure (80%) costs are inherently variable), the operating profitability of the valuation portfolio is still as high as 250 hit basis points, with an impact on the absolute operating profit of almost $30,000. 35%.

Sameer Charania, Director, Crisil Ratings “The only silver lining is that the industry has adopted a prudent approach to capex finance over the last few years and the balance sheet is well managed.”

The average debt ratio of the Crisil sample group remains below one-time levels and is expected to remain subdued due to demand-driven capex and modest expansion of working capital, he said. The report noted that commercial vehicle companies and companies with recent large debt-financed expansions will be more vulnerable than diversified companies.

RBI’s corporate debt moratorium and measures to provide funds to SMEs, including small Tier II and Tier III suppliers, may help overcome temporary cash flow mismatches, but demand is expected to recover in the future, the report said. The financial year will be critical for sustained improvement in the financial position of the industry.