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Rise in commodity prices puts auto components makers argins under pressure - ICRA

Auto News - Published on Mon, 17 Dec 2018

Image Source: The Economic Times
Economic Times quoted credit rating agency ICRA as saying that rise in commodity prices and sharp depreciation in the rupee will impact margins said. However, the rating agency has a stable outlook as domestic auto components industry is riding on strong OE demand which continues to drive healthy revenue growth in the current fiscal which along with improved realization and content per vehicle will translate into healthy 12-13% revenue growth. Their operating margins are expected to remain range bound in 13.5%-14.5% range over the medium term, despite some pressure in the current fiscal (FY2019).

The industry has been witnessing a robust demand over the last 2-3 years. The demand has been supported by higher systemic capacity utilisation which along with favourable demand prospects over the medium term has triggered capacity expansion announcements by several ancillaries.

Accordingly, the auto components industry (ex-tyres) is likely to sustain its capex & investments at 6%-7% of operating income over the next two fiscals and will subsequently taper down once new capacity become operational. Nevertheless, ICRA notes that given the strong accruals, industry-wide credit profile is expected to be stable over the next three years.

ICRA expects some consolidation in the component industry as players gear up to tackle challenges emanating from rapidly evolving technology and shorter vehicle shelf-life.

With enhanced active and passive safety requirements; tighter emission control norms; and advanced driver assistance and infotainment requirements, electrical content in vehicles is set to increase. This could trigger higher imports for a while until local investments are made to indigenize the technology.

Source :

Posted By : Joykumar Irom on Mon, 17 Dec 2018
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