Domestic credit rating agency Icra has said that operating profit fell in the first quarter of the current fiscal year due to disruptions caused by the second wave of COVID-19 and sales in the auto parts industry could fall by 70%.

Icra noted that rapid growth will further exacerbate the challenges faced by parts manufacturers. Raw material prices are typically communicated to original equipment manufacturers original equipment manufacturers (OEMs) with a delay of 3 to 6 months.

"ICRA expects quarterly revenue losses of 30-40%, which will result in a 70%+ decline in the industry's first quarter EBITDA."

Ikra said exports have saved the industry in the last few months, while domestic market demand has surged due to embargo restrictions.

Suppliers who are totally dependent on domestic demand will be the most affected, he added.

Despite short-term headwinds, Icra expects the domestic auto component industry to grow its revenues by 20-20% in the current fiscal, largely on the back of double-digit sales growth in most automotive segments and the impact of raw material inflation on realization.23%.

He added, "Overall industry revenues will remain nearly double as compared to the April-June quarter of the previous fiscal."

In a detailed explanation, the rating agency said that despite stable production in 2019, retail sales in April have fallen sharply in the last two months, leading to an increase in system inventories.

It said it expects monthly industry sales in June 2021 to remain subdued as well, with many OEMs and suppliers now operating on a single-shift basis.

The industry is also facing pressure on raw material prices due to record raw material prices.

"Commodity prices are expected to remain high in the first half of this fiscal year before declining in the second half of fiscal 2022. However, average commodity prices this year are expected to be at the highest level in the last few years." Iqra said electronic components are down, there are shortages and semiconductor prices are up.