Omicron, inflation to weigh on auto ancillary firms, says ICRA

The operating margins and revenue growth of auto ancillary companies are expected to remain under pressure due to Omiccron wave, supply chain issues and persistent commodity inflation, according to rating agency ICRA.

The report says that operating profit margin of auto ancillaries excluding tyre manufacturers will contract by 75-125 bps due to rising commodity prices and will remain lower than the normal levels of 11-12%.

Similarly, the revenue growth estimates for the financial year 2022 has been revised downward by 200 bps to 15-17% from the earlier estimates due to the rapidly rising Omicron cases, continued semi-conductor chip shortage and muted two-wheeler and bus demand. Meanwhile, ICRA expects an 8-10% growth in domestic after-market demand for FY22.

Export Market

For the auto components industry, exports has been a bright spot. ICRA expects a 20% growth in exports for the fiscal year 2022. Indian auto component suppliers have posted a significant rise in year-to-date sales volumes to Europe in FY22 and have a strong order book for the next few months, partly aided by the China+1 strategy.

However, the third quarter of FY22 has been relatively muted due to supply chain issues. The rating agency believes that the export order book for Indian auto component suppliers would have been even better if the chip shortage crisis was overcome.

As for exports to the USA, Class 8 truck order book is expected to soften as OEMs get cautious, even as demand remains strong. It is expected to rebound over the next few months. Relatively high infections and prolonged lockdowns in India’s key export markets like Europe and USA remains a downside risk.

Rising Costs

Commodity prices and other input costs like freight have seen a significant jump in the last three to four quarters, and auto ancillaries have not been able to pass through entirely, resulting in significant decline in gross margins. The operating margins has shrunk by 240 bps to 10.6% in the second quarter of FY22.

As commodity prices are expected to remain elevated in H2 FY22 as well, the gross margin of auto ancillaries is likely to decline on a yearly basis in FY22. Operating margin of tyre companies will also moderate in FY22 from record highs in FY2021.

Liquidity Position

Despite lower operating profits, the overall interest cover remains comfortable for most entities at more than ten times. Most tier-I and tier-II companies are not affected by lower margins. The companies have also stocked up enough inventories for smooth operations and fulfil order books. This will ensure steady cash flow for the companies. 

The interest coverage indicators for the industry are expected to remain to be positive, helped by healthy accruals and modest debt-funding. Majority of ICRA-rated auto ancillaries continue to be in the investment grade category, reflecting a healthy credit profile. Having said that, maintaining adequate liquidity will be important for the companies for their operation in case of any headwinds.

Stocks To Watch

Below, we have curated the top companies in the auto ancillary space for you. You can take a look at the companies based on market cap and last traded price for your investment picks.  

Stock NameMarket Cap (Cr)Last Traded Price on January 14, 2022Day Change (%)Weekly change (%)Monthly Change (%)
Motherson Sumi Systems Ltd.58595.47185.55-20.98-20.31-17.86
Bosch Ltd.51572.51174860.511.224.45
Sona BLW Precision Forgings Ltd.44191.67756.250.63.29-8.18
Tube Investments of India Ltd.34621.41794.85-0.85-0.486.2
Minda Industries Ltd.32846.3511500.28-1.3510.73
Schaeffler India Ltd.29221.889347.80.06-1.0913.45
Endurance Technologies Ltd.239381701.81.35-0.76-2.12
Sundram Fasteners Ltd.19071.25907.60.20.956.71
WABCO India Ltd.16032.178452.40.391.085.7
Exide Industries Ltd.14781.5173.91.081.733.91
Asahi India Glass Ltd.14009.27576.33.618.7422.08
Amara Raja Batteries Ltd.10915.77639.05-0.580.830.3
Mahindra CIE Automotive Ltd.8621.51227.450.4-0.33-5.72
Sundaram Clayton Ltd.7871.83890.750.261.82-2.45
JBM Auto Ltd.7157.741513.31.4811.8934.94
Varroc Engineering Ltd.6820.38446.40.2122.332.9
Suprajit Engineering Ltd.6078.57439.25-0.370.018.79
Greaves Cotton Ltd.5290.87228.8-0.0936.3953.4
Craftsman Automation Ltd.4944.662340.3-0.190.844.89
Jamna Auto Industries Ltd.4771.61119.756.8714.436.02
Minda Corporation Ltd.4604.67192.60.36-3.4810.82
Sansera Engineering Ltd.4140.89795.554.893.992.98
Rolex Rings Ltd.3657.981343.21.2411.5218.79
Rajratan Global Wire Ltd.2894.22850.25-519.1537.83
Kirloskar Oil Engines Ltd.2812.74194.51.357.852.99
Sharda Motor Industries Ltd.2591.85871.751.63-0.63-0.57
Steel Strips Wheels Ltd.2519.99807.2-1.11-3.94-3.8
Subros Ltd.2487.11381.
JTEKT India Ltd.2384.9197.554.674.674.61
Automotive Axles Ltd.2372.741570.1-0.560.5716.26
LG Balakrishnan & Bros Ltd.2123.07676.3-1.017.3119.99
Swaraj Engines Ltd.2019.221663.
Gabriel India Ltd.2016.76140.4-1.020.652.07
Wheels India Ltd.1798.71747.451.414.3410.04
FIEM Industries Ltd.1742.881324.44.4616.929.74
Precision Camshafts Ltd.1618.08170.35-1.7918.0121.68
Igarashi Motors India Ltd.1617.66513.95-3.17-1.98-1.7
Pricol Ltd.1563.74128.3-0.542.764.73
Sandhar Technologies Ltd.1547.8257.15-1.02-0.46-4.25
Banco Products (India) Ltd.1348.48188.55-0.89-2.267.41
Federal-Mogul Goetze (India) Ltd.1314.03236.2-0.320.94-0.9
SJS Enterprises Ltd.1287.98423.154.7917.350.69
Lumax Auto Technologies Ltd.1281.361883.0111.916.37
Shanthi Gears Ltd.1279.62166.80.456.143.09
Automotive Stampings and Assemblies Ltd.1258.84793.5-5-0.75138.68
GNA Axles Ltd.1195.84557.12.63-26.87-23.11
India Nippon Electricals Ltd.1180.72521.950.1527.136.6
Lumax Industries Ltd.1063.911138.15-1.28-2.27-19.12
Saint-Gobain Sekurit India Ltd.888.2897.50.83-5.5734.39
Rane Holdings Ltd.880.58616.750.650.52-0.51
Jay Bharat Maruti Ltd.848.03195.852.925.496.76
Talbros Automotive Components Ltd.761.11616.50.2710.8555.82
Racl Geartech Ltd.729.11676.250.680.742
Yuken India Ltd.714595-0.282.45-0.57
Sterling Tools Ltd.695.09192.95-
Rane (Madras) Ltd.664.6408.6-0.9-4.6215
Rico Auto Industries Ltd.648.0247.91.595.169.86
Rane Brake Lining Ltd.638.72826.3-0.270.715
Enkei Wheels (India) Ltd.612.94341-0.84-0.15-2.86
IST Ltd.577.37495-0.95-2.71-5.53
Automobile Corporation Of Goa Ltd.557.11915-3.39-5.64-13.04
Munjal Auto Industries Ltd.55355.30.362.224.93
Menon Bearings Ltd.530.4294.652.2115.3612.88
The Hi-Tech Gears Ltd.526.63280.65.9911.396.73
Munjal Showa Ltd.524.93131.25-1.831.23.02
Hindustan Composites Ltd.464.49314.50.180.870.9
ZF Steering Gear (India) Ltd.461.83509-2.429.8315.45
Shivam Autotech Ltd.425.3334.8-4.92-10.0827.71
Ucal Fuel Systems Ltd.370.73167.650.993.7116.22
GKW Ltd.368.97618.40.3-0.17-6.79
PPAP Automotive Ltd.336.84240.63.174.861.05
Menon Pistons Ltd.315.9561.95-0.827.2141.12
Veljan Denison Ltd.289.761287.82.52-1.6326.24
NDR Auto Components Ltd.276.8465.5-2.2517.8841.02
Autoline Industries Ltd.252.0866.43.7515.487.18
SAR Auto Products Ltd.241.095064.9818.2119.06
Bharat Seats Ltd.239.976.41.193.1-7.39
Setco Automotive Ltd.234.7617.550-0.856.36
Pradeep Metals Ltd.226.06130.93.44.7230.38
Talbros Engineering Ltd.215.754252.5319.934.62
Jullundur Motor Agency (Delhi) Ltd.193.5884.75-4.1824.7225.56
Rane Engine Valve Ltd.189.64282.25-0.18-1.673.48
I P Rings Ltd.189.25149.3-1.78-2.6726.1
Jay Ushin Ltd.188.594880.21-2.4-3.94
Sundaram Brake Lining Ltd.181.19460.51.526.4823.81
Bharat Gears Ltd.178.58174.452.53-1.6410.24
Samkrg Pistons & Rings Ltd.177.7180.952.385.8510.34
JMT Auto Ltd.151.153-4.76-4.760
Triton Valves Ltd.145.051408.250.98-1.01-9.69
Kinetic Engineering Ltd.14380.754.94-2.8330.24
Remsons Industries Ltd.142.15248.8-0.988.749.1
Bimetal Bearings Ltd.136.28356.3-0.170.765.84
Duncan Engineering Ltd.132.61358.8-3.5542.1674.39
Omax Autos Ltd.122.2357.153.0714.878.65
HIM Teknoforge Ltd.116.89148.6-1.0718.9816.05
Frontier Springs Ltd.115.71293.80.410.728.41
Simmonds Marshall Ltd.86.2477-0.96-0.840
Universal Autofoundry Ltd.75.9874.951.289.112.2
Kalyani Forge Ltd.69.491910.760.425.93
Rasandik Engineering Industries Ltd.67.52113-0.88-3.1313.17
Auto Pins (India) Ltd.65.26114.35-4.99-22.55-27.6
Hindustan Hardy Spicer Ltd.53.28355.552024.7529.46
Bhagwati Autocast Ltd.51.281785.299.176.17
Jagan Lamps Ltd.51.2171.55.382.292.14
SAL Automotive Ltd.50.592111.447.089.9
Kranti Industries Ltd.45.142.7-1.617.298.79
Porwal Auto Components Ltd.42.0527.851.83-3.323.78
G G Automotive Gears Ltd.25.2531.94.93-3.0449.84
Sibar Auto Parts Ltd.22.2613.47-4.94-9.4865.28
Jainex Aamcol Ltd.21.19141.64.97-10.5541.81
G S Auto International Ltd.20.7414.2959.7530.98
Starlit Power Systems Ltd.13.513.41-4.96-9.82-14.91
Amforge Industries Ltd.12.858.93-5-0.7821.99
Spectra Industries Ltd.8.3111.74-4.94-18.07-1.68
Pankaj Piyush Trade & Investment Ltd.3.0676.550.332.751.46
India Radiators Ltd.