Dents, bends and spends

The economic crisis brought on by the extended lockdown to contain the Covid-19 pandemic is expected to whip up the woes of the auto-component industry (including tyres, engine oil and lubricants) this fiscal. The industry, which has been battling a steep slowdown in demand from both original equipment manufacturers (OEMs) and export markets, will also see challenges mount in the aftermarket.

In this report, we analyse the likely decline in aftermarket revenues of auto-component industry from the top 75 districts in fiscal 2021. These districts together account for a significant chunk of automobile sales by OEMs and 46% of the vehicle parc – or total number of automobiles – in the country. A good 43% of the industry’s aftermarket revenue is also concentrated in these 75 districts.

Our analysis takes into account engine oil, lubricants, tyres, and all auto-component parts and labour spends to arrive at the overall impact of Covid-19 on revenue this fiscal. It also considers the likely impact at a granular level, taking into account annual running of a vehicle, and replacement cycle of lubricants, engine oil, tyres and spare parts, etc., besides customer behaviour and attitudes towards replacement of parts, and commuting trends.

We have bucketed the districts on susceptibility, factoring the spread, risk and intensity of Covid-19 as on June 25. Of the 75 districts considered, 50 are ‘high susceptibility’ areas, 23 ‘medium susceptibility’ areas, and the remaining two ‘low susceptibility areas’. The 50 high-susceptibility districts account for 75% of the total spend of the 75 districts.

Based on CRISIL Research’s analysis, we see aftermarket revenue in the 75 districts falling ~11% this fiscal.