Parts makers brace for impact

The outlook for the Indian auto component sector serves as the latest theme for market analyst Fitch’s special report on automotive suppliers. According to Fitch, substantial demand and margin pressures are being faced by both Indian and international OEMs. The domestic automotive component sector is also likely to face substantial operating pressures in calendar year 2009.

The report says component players are likely to face demand pressures in line with their customers, although the impact on cash flows could probably be be more severe in view of OEMs lengthening their payment periods. Export-focused players are likely to face additional pressure from receivable risks on the back of the deteriorating credit profiles of the large international auto majors.

Fitch notes that those players more focused on the commercial vehicle market are likely to be more severely impacted than those with more diversified product and customer profiles.

The demand outlook for the component sector remains negative, reflecting the ongoing pressures being faced on both the domestic and international scene.

The cash flows of most component makers are likely to come under pressure over CY09. The profitability and financial profile of the auto component manufacturers are expected to worsen over the near term, in light of Fitch’s expectation of a subdued demand environment, and in line with its outlook for OEMs.