Indian auto component industry is expected to post 20-23 percent revenue growth in the current fiscal aided by strong exports and recovery in the domestic market, as per rating agency ICRA. The growth would however be on the low base of the last two fiscals and will look optically strong because of the exceptionally weak first half of the financial year 2020-21.

"For the full year FY2022, we expect a revenue growth of 20-23 percent aided by growth across segments and commodity pass through, albeit on a low base. However, headwinds such as sharp increase in commodity prices, supply chain disruptions partly arising from semiconductor shortage and premium freight expenses are expected to weigh in industry margins in FY2022, partially offsetting benefits arising from improved operating leverage," ICRA Vice President and Sector Head Ashish Modani said in a statement.

The rating agency noted that commodity prices were expected to remain at a multi-year high in the first half of the financial year 2021-22 before softening in the second half of the financial year. An increase in air freighting, resulting in higher freight costs for the industry, also remains a challenge, it added.

"Despite the strong revenue growth and consequent benefits from operating leverage expected, these headwinds are expected to weigh in on margins," ICRA said. Modani noted that its interaction with large auto component suppliers indicated a cautiously optimistic approach towards CAPEX plans for the financial year 2021-22, with investments expected to be largely funded by internal accruals.

"The incremental investments will be primarily towards capability development i.e. new product additions and committed platforms, unlike the investments towards capacity expansion witnessed in the past, he added.