INDIAN AUTO COMPONENTS INDUSTRY
Replacement market and exports hold up growth at above OEMs’ levels; cost pressures, currency volatility and threat of imports remain a challenge ICRA RATING FEATURE MARCH 2012 Rise in exports and higher domestic replacement demand partially offset the impact of lower supplies to the domestic OEM segment The ~Rs. 1,600 billion Indian auto components industry has been witnessing a moderation in its revenue growth since the beginning of this fiscal following the deceleration in sales volume growth across all automobile segments. As per industry estimates, out of the total turnover of the Indian auto components industry, around 60% is derived from sales to domestic OEMs, around 25% comes from sales to the domestic replacement market and around 15% is derived from exports. While lower YoY volume growth of domestic OEMs in 9m 2011-12, particularly those belonging to the passenger vehicle (PV) and Medium and Heavy Commercial Vehicle (M&HCV) segments, translated into muted revenue growth for the auto components industry during this period; the sluggishness was partly arrested on the back of rise in component exports and higher domestic replacement market sales. While the long term prospects for the industry remain strong in line with the outlook for the OEM segment, the industry faces strong challenges in the form of threat of low cost imports, currency volatility and ability to invest on product development to be able to move up the value chain. Apropos our sample of 35 listed auto component manufacturers, the revenue growth of these select entities has been in low single digits over the last three consecutive quarters on QoQ basis and in double digits on YoY basis. Within our sample universe, however, there was a wide variance in the performance of individual companies with revenue growth being relatively higher for companies dependent on the domestic two-wheeler (2W) and Light Commercial Vehicle (LCV) segments; and growth being lower/ negative for companies dependent on the Medium & Heavy Commercial Vehicle (M&HCV) and Passenger vehicle (PV) segments. This broadly mirrors the trend in sales volumes seen in the respective automobile segments in 9m, 2011-12 (Refer Table 1). Further, despite macro-economic challenges currently being faced by the automotive industry - PV and M&HCV segments in particular – due to inflation, high interest rates and rising fuel prices, many of the auto component manufacturers continued to reported strong double digit revenue growth in 9m, 2011-12 supported by (i) component exports to Europe for CV applications (further supported by a favourable exchange rate scenario, particularly in Q3, 2011-12); (ii) increased sales to the replacement market; and (iii) rising share of revenues from the non-automotive segment. Also, several entities in our sample have been displaying significantly higher revenue growth than average over the last several quarters by virtue of their success in improving market share, expanding product portfolio and changing product mix in favour of higher realization components. The above initiatives sailed such companies through in 9m, 2011-12, allowing them to report healthy topline growth, overall demand side pressures notwithstanding. Table 1: Trend in Sales Volumes of Automobiles (Domestic + Export) Sales Units (Nos.) 2007-08 2008-09 2009-10 2,395,922 27% 265,481 32% 310,921 37% 10,511,415 25% 2010-11 2,973,900 24% 352,060 33% 400,645 29% 13,329,895 27% Q1, 2011-12 723,320 9% 81,503 6% 111,082 25% 3,692,658 18% Q2, 2011-12 731,953 1% 92,710 6% 130,144 37% 3,922,111 19% Q3, 2011-12 722,683 0% 89,961 11% 132,710 27% 3,879,588 13% 2011-12E 3% 5% 24% 15% 2011-16E (CAGR) ~11% 9.5-11.5% 11-13% 10-12%
Anjan Deb Ghosh +91 22 3047 0006 firstname.lastname@example.org Contacts: Subrata Ray +91 22 3047 0027 email@example.com Jitin Makkar +91 124 4545 368 firstname.lastname@example.org Ashish Modani +91 20 2556 1194 email@example.com K Srikumar...
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