Ratings agency ICRA has revised upwards the revenue growth outlook for the auto components industry in India to about 16%during FY2019 despite the recent slowdown in vehicle sales.
“ICRA has revised the revenue growth outlook from 12-13% to 15-16% for FY19, supported by healthy volume growth in two-wheelers, commercial vehicles and tractor segment as well as 4%-5% impact of commodity prices on realisation,” said Subrata Ray, senior group vice-president, ICRA.
While the revenue growth rate was expected to slow down from the over 20% seen during first half of FY2019, overall growth rate was still expected to remain in double digits, he said.
Rupee fall impact
“However, sharp depreciation in the rupee will weigh on imports which, along with commodity prices, will pressure margins. The operating margin of auto ancillaries are estimated to be 13.5%-14.5% in the medium-term, despite some pressure in the current fiscal (FY2019),” Mr. Ray said.
ICRA expects automobile volume to grow by 8-9% during FY2019 against 14.8% in FY2018 and 5.4% in FY2017.
“The after-market sales were impacted in FY2018 by the GST-related inventory de-stocking in Q1 FY2018 and initial implementation-related uncertainties…However, demand picked up in August-September 2018…We expect the after-market segment to have grown by over 20% in Q2 FY2019 and H1 FY2019 on y-o-y basis (excluding tyres and batteries), with part-growth attributable to the low base effect in H1 FY2018.”
On export sales, ICRA said that trade disputes, punitive tariffs, higher fuel prices and rising interest costs were expected to play spoilsport in light vehicle sales in the U.S. (the main market for auto components industry other than Europe) in the next 12-18 months.
