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'Auto component sector's revenues may fall by 14-18%'
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SME Times News Bureau | 11 Jul, 2020
Indias auto component sectors
revenues are estimated to decline by 14-18 per cent in FY2021, driven by
weak demand across domestic OEMs, replacement market and exports,
rating agency ICRA said on Friday.
Accordingly, the agency said
the industry has been affected by the pandemic and continuing lockdowns
which is directly impacting the economic environment and consumer
sentiments.
"The exceptions are mission critical replacement
components like batteries and tyres will be less impacted," the agency
said in a research report.
Besides, it expects the recovery to be
gradual and slow-paced, with the industry pinning hopes on revival in
rural income to support growth in the festive season and thereafter.
According
to the report, automobile volumes are expected to decline by 15-16 per
cent in FY2021; within this passenger vehicle demand will decline by 22
to 25 per cent.
"The year will be tough for the commercial
vehicles too, given the slowing economic growth, current overcapacity in
the CV space and tight financing environment amidst price increases due
to transition to BS-VI emission norms," the report said.
"However,
two-wheeler sales could benefit as people prefer personal transport and
are wary of public transport, easy retail credit availability; and
expectations of better demand in rural and semi urban markets, which
were relatively less impacted by the Covid-19 pandemic and resulting
restrictions," it said.
ICRA noted that the aftermarket
performance during FY2020 was impacted due to continued credit crunch
across the channel inventory, tight financing environment and overall
economic slowdown leading to lower vehicle movement.
"Further,
nearly 45 days of sales were lost in Q1FY2021 because of lockdown; the
weakness was felt for the rest of Q1 FY2021," the report said.
"The
liquidity in the market is tight and consolidation in the aftermarket
space, with some smaller retailers facing insolvency is expected.
Overall, FY2021 is expected to be sluggish for the aftermarket," it
added.
As per the report, exports too will be affected due to
fall in European PV sales in CY2020 as a result of demand squeeze caused
by weakening macro-economic scenario; and partly due to the pandemic.
"The
European HCV demand too will remain subdued in the near term due to the
on-going global slowdown. Vehicle sales in the USA are also expected to
decline in CY2020 due to pandemic, in addition to several incumbent
factors," the report said.
"The sales of North American Class 8
truck orders plummeted in the last three months, hitting the lowest
monthly order levels since 2010," it added.
On a positive note,
the report cited the accommodative commodity prices will buffer the
impact of negative operating leverage to an extent.
Commodity prices across all commodities are expected to remain soft in FY2021.
"The
factors that will negatively impact commodity prices are domestic
demand uncertainty, with weak auto and infrastructure outlook and
pandemic effect," the report said.
Additionally, the rating
agency said that given the steep pressure on profitability and cash
flows, incremental capex has come to standstill with the focus being
only on absolutely necessary capex for maintenance and confirmed order
related investments.
"The industry is likely to witness an 40 per
cent Y-o-Y decline in capex or investment during FY2021, with capex for
auto ancillaries expected to fall below 5 per cent of revenues for the
first time in last 10 years," the report said.
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75.65 |
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