The report states that the growth is largely due to strong volume growth across automotive segments, especially from original equipment manufacturers.
12 Jul 2018 | 6675 Views | By Autocar Professional Bureau
Riding strong volume growth across automotive segments, in particular, from the automotive Original Equipment (OE) manufacturers, ICRA’s sample of the Indian auto component industry grew by 13% during FY2018. OE demand growth was underpinned by rising rural income, recovery in Medium & Heavy Commercial Vehicles (M&HCV) demand post-GST, stricter overloading ...
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Riding strong volume growth across automotive segments, in particular, from the automotive Original Equipment (OE) manufacturers, ICRA’s sample of the Indian auto component industry grew by 13% during FY2018. OE demand growth was underpinned by rising rural income, recovery in Medium & Heavy Commercial Vehicles (M&HCV) demand post-GST, stricter overloading restrictions and pickup in infrastructure activity.
ICRA, an Indian independent and professional investment information and credit rating agency, has released a sample of the Indian auto component industry which states that the industry has grown by 13 percent during FY2018 on account of strong volume growth across automotive segments, in particular, from the automotive Original Equipment (OE) manufacturers.
OE demand growth was underpinned by rising rural income, recovery in Medium & Heavy Commercial Vehicles (M&HCV) demand post-GST, stricter overloading restrictions and pickup in infrastructure activity.
Commenting on this, Subrata Ray, senior group vice president, corporate sector ratings, ICRA, said, “Based on the available trends so far, we expect the domestic OEM segment to witness an about 10 percent volume growth during FY2019, supported by a further improvement in rural income, higher disposable income with anticipated pay revisions by some states and continued infrastructure activity.”
According to ICRA, the domestic aftermarket segment (barring battery and tyres) witnessed a flat revenue growth during FY18 as GST implementation impacted the dealer-distributor supply chain and the higher share of the replacement market has been consolidated with large organised players during the last year. The report further states that the tyre and battery segment witnessed healthy replacement demand during FY18 with truck and bus (T&B) tyre replacement demand growing during FY18, post over three years of muted demand. Thus, the aftermarket demand recovered in Q4 FY2018 and is likely to witness an 8-12 percent growth during FY2019.
The report states that the trend in exports was mixed with the two largest markets for Indian auto components exports, the USA and Europe, accounting for about 60 percent of sector’s exports even though the sales trend in those two markets have always remained critical. Sales trend in these two markets have always remained critical for auto ancillaries in India. The ICRA sample also notes that during CY2017, the US M&HCV demand remained strong, even as light vehicle (PV and pick-ups) sales in the USA and CV/PV sales in Europe witnessed muted growth. They further stated that the heavy truck (class-8) sales in the US is likely to continue to remain strong in CY2018 and light vehicle sales is expected to decline, albeit lower than the decline of CY2017.
As per industry experts, any imposition of punitive import tariffs by the USA, like the current under-review process, would result in increased costs and disruption of the supply chain for Indian exporters. The automotive environment in Europe is likely to remain sluggish in CY2018.
In spite of rising raw material costs during FY2018, ICRA’s weighted average material cost index rebounded to FY2015 levels in FY2018, with a sharp rise in prices of all key commodities over the last six months (except for rubber). Indian steel prices rose by about 17 percent in FY2018, following an increase in global steel prices. Lower supply of aluminium from China and subdued copper production in Chile resulted in an 18 percent and 20 percent increase in price of these two commodities during FY2018. The prices of these three commodities are likely to remain high in FY2019 as well, according to ICRA. For aluminium, the agency observes that the global prices would still be influenced by the closure of Vedanta’s Tuticorin copper plant and the US sanctions on United Company RUSAL, Russia.
ICRA’s sample comprising of 48 companies reported a robust top line growth of 21.1 percent during Q4 FY2018 due to healthy volume growth and higher realisations, which helped offset rising prices of raw materials. Tyre companies witnessed a growth of 15.4 percent in Q4 FY2018 due to strong demand, despite relatively stable rubber prices; while battery manufacturers gained from healthy off-take and price hikes taken to pass-on lead price increases. ICRA has noted that the operating margins stood at 15.1 percent for Q4 FY2018 (from 14.2 percent in Q4 FY2017), supported by margin expansion in the tyre segment (by 330 bps to 14.9 percent).
ICRA reports that the industry players have announced capex of over Rs 10,500 crore (ex-batteries and tyres), which is backed by improvements witnessed in capacity utilisation during H2 FY2018 and anticipated demand growth over the medium term. The report further states that the tyre industry continues to invest in radial tyre capacities while battery manufacturers are investing in two-wheeler and four-wheeler capacities.