Rating agency ICRA has revised upward its revenue growth for the domestic auto component industry to an expected 13-15 percent from an earlier estimate of 9-11 percent for the current fiscal on the back of an anticipated robust growth in demand for vehicles across segments.
ICRA, in a release said it also expects industry-wide credit trends to remain stable, supported by robust demand from the Original Equipment Maker (OEM) segment in the near term, supported by healthy cash accruals, among other factors, over the past two years. The strong growth in topline is also expected to be aided by improved realization due to increase in commodity prices, as per ICRA.
"As for the industry outlook, ICRA research has revised upward its revenue growth estimate from 9-11 percent to 13-15 percent for FY2018(estimated) in the backdrop of robust growth expectation in domestic passengers and commercial vehicle, tractor and two-wheeler segment," senior group president for ICRA corporate sector ratings Subrata Ray said.
According to the rating agency, its sample of 48 auto ancillaries, comprising around 26 percent of the industry’s turnover, grew 18.5 percent revenue-wise during the third quarter of the current fiscal. The same appeared stronger on low base of last fiscal, where overall performance was impacted by demonetisation, it added.
Overall, during April-December period of fiscal 2018, the sample space grew by 12.3 percent which was better than the earlier 9-11 percent growth estimate for FY2018 (estimated). The demand for auto components from domestic OEMs, especially high-volume two-wheeler and passenger-vehicle (PV) industry which together constitutes about two-thirds of overall ancillary industry size, has remained strong in the December quarter of the current fiscal, according to ICRA.
Moreover, stellar growth in the commercial vehicle, as well as tractor segment, has further supported overall volume growth, it said. "According to an ICRA note on the industry, given the indicative trends, the growth momentum is expected to sustain in Q4FY2018 as well. This will be strongly supported by improved demand outlook in key end-user segments as well as the expected pickup in rural income. "Going forward, pickup in infrastructure activity will further drive growth in construction and mining equipment as well as the tipper segment (classified under M&HCVs)," the release said.
According to Ray, while domestic PV demand remained strong, muted PV exports has dragged overall PV production volume growth during the last two quarters. "We expect PV exports related aberration to abate during coming quarters, and it will be more than offset by robust demand momentum in domestic market, effectively supporting auto component demand," he said.
Stating that the ancillaries continue to focus towards moving up the value chain to mitigate profitability and competitive pressure in the intensely competitive industry, ICRA said incremental investments by auto ancillaries are primarily towards new order/platform related requirement or debottlenecking of existing capacity.
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