Indian Auto Components Industry

ICRA RESEARCH SERVICES
Corporate Ratings
Subrata Ray
+91 22 6179 6386
subrata@icraindia.com
Indian Auto Components Industry
Q3 FY15 operating profits find solace in softening commodity prices
Pavethra Ponniah
+91 44 4596 4314
pavethrap@icraindia.com
Ashish Modani
+91 20 2556 0195
ashish.modani@icraindia.com
K. Srikumar
+91 44 4596 4318
ksrikumar@icraindia.com
Balaji M
+91 44 4596 4317
m.balaji@icraindia.com
Vinutaa S
+91 44 4596 4305
vinutaa.s@icraindia.com
ICRA LIMITED
Page
March 2015
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WHAT’S INSIDE?
1.
Overview
2.
Automotive segment growth tapered down in 2W and tractor segment; M&HCVs continue to grow at healthy pace
3.
Revenue growth decelerates for domestic auto ancillaries
4.
Operating margin expansion driven by improved operating leverage and benign commodity prices
Ratio of raw material costs to revenues is on a declining trend
Trends in EBITDA margin movement of auto component manufacturers
Movement in ICRA Car Cost Index
5.
Interest coverage movement of auto component manufacturers
6.
ICRA’s Credit Rating Trends
Quarterly performance update
Amara Raja Batteries Limited
Amtek Auto Limited
Asahi India Glass Limited
Banco Products (India) Limited
Bharat Forge Limited
Bosch Limited
Exide Industries Limited
Gabriel India Limited
Hinduja Foundries Limited
Lumax Industries Limited
Mahindra CIE Automotive Limited
Motherson Sumi Systems Limited
Munjal Showa Limited
Sona Koyo Steering Systems Limited
Sundaram Clayton Limited
Sundram Fasteners Limited
Wabco India Limited
Wheels India Limited
ZF Steering Gear (India) Limited
Annexure
India’s key macroeconomic indicators
List of ICRA rated auto ancillaries
ICRA LIMITED
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INDIAN AUTO COMPONENTS INDUSTRY
March 2015
Overview
Our sample of 41 auto ancillaries
registered revenue growth(y-o-y) of
9% in Q3FY15 as against 12% in
H1FY15
Automotive industry growth decelerates over last few months…
1
Indian auto component industry size is estimated at Rs 2.12 trillion , out of which domestic OEM segment accounts for 54% of
revenue. Amongst various automotive segments, medium & heavy commercial vehicle (M&HCV) and passenger vehicle (PV)
segment constitute over 55% of revenue share [of auto component supplies to OEMs]. After witnessing demand slowdown
during FY13-FY14, both these segments have posted healthy volume growth during 10mFY15, however momentum has slowed
down in the two wheeler segment (2W); 2Ws constitute a sizable ~11% of overall industry turnover. During Q3FY15, the
domestic PV and M&HCV sales continued to grow at healthy pace of 5% and 41%, respectively. However, the 2W segment
domestic sales growth tapered down to 1% YoY with the segment witnessing sequential decline in volumes during Q3FY15.
Volume in the Light Commercial vehicles (LCV) and tractor segment also remained weak during the quarter. Consequently, in
line with our estimates, revenue growth momentum of most domestic auto ancillaries has also tapered down in the previous
quarter.
Aggregate revenue growth of 41 auto ancillaries in our sample has slowed down to 9% in Q3FY15, from 12% in H1FY15. Given
that farm income is under pressure, near term outlook on rural spend driven segments such as 2W, tractors and LCV remains
sluggish. Nevertheless, over the medium term, we expect the auto ancillary industry’s revenues to continue to grow at a
relatively faster pace than the OEM segment riding on auto OEMs’ growing thrust on localization, the Make in India policy, auto
suppliers’ efforts to expand business into new geographies, the strong upside potential to replacement market demand and
increasing sophistication of vehicles necessitating higher value added inputs.
Correction in commodity prices will
continue to provide support to auto
ancillaries EBIDTA margin in near
term
…but profitability supported by softening commodity prices
Steady decline in global commodity prices, especially steel and copper has supported profitability of Indian auto ancillaries over
the last few quarters, which was otherwise facing challenges of inflationary pressure, demand slowdown and high financing
costs. The situation has eased considerably in the current fiscal with recovery in the domestic PV and CV market as well as
healthy export growth. Consequently, aggregate operating margin in our sample space expanded by 114bps YoY during Q3FY15
(down 56bps QoQ) to 14.7% and 115bps YoY during 9mFY15 to 14.9%. Given sharp decline in global crude oil prices during
Q2/Q3 FY15, crude derivates like High-density polyethylene (HDPE) and synthetic runner (SR) have also witnessed price
correction globally which will lead to further margin expansion for players having plastics/SR as key raw material inputs. Auto
ancillaries deriving sizeable share of their revenues from aftermarket (e.g. batteries, tyre manufacturers) were key beneficiaries
of declining commodity prices given the relative stickiness of retail prices compared to OEM prices; OEMs have inbuilt pass
through clauses (albeit with a lag) in their procurements. Players deriving major revenue from OEMs will witness moderation in
contribution margin going forward, as benefits of soft commodity prices will be gradually passed on to OEMs with a lag of 1-2
quarters. Over the medium to long term duration, operating margin of auto ancillaries will be driven by increasing share of
exports, higher value addition and benefits of scale economies.
1: source ACMA 2013-14 annual report
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CHENNAI
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Mr. Leander Rayen
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Mr. M.S.K. Aditya
Mobile: 9963253777
301, CONCOURSE, 3rd Floor,
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Hyderabad 500 016.
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KOLKATA
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Mobile: 9007884229
A-10 & 11, 3rd Floor, FMC Fortuna,
234/ 3A, A.J.C. Bose Road,
Kolkata - 700020
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22800008, 22831411
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PUNE
Mr. L. Shivakumar
Mobile: 9821086490
5A, 5th Floor, Symphony,
S. No. 210, CTS 3202,
Range Hills Road, Shivajinagar,
Pune-411 020
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25560195/196,
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E-mail: shivakumar@icraindia.com
AHMEDABAD
Mr. Animesh Bhabhalia
Mobile: 9824029432
907 & 908 Sakar -II, Ellisbridge,
Ahmedabad- 380006
Tel: +91-79-26585049/2008/5494,
Fax:+91-79- 2648 4924
E-mail: animesh@icraindia.com
BANGALORE
Mr. Jayanta Chatterjee
Mobile: 9845022459
'The Millenia', Tower B,
Unit No. 1004, 10th Floor,
Level 2, 12-14, 1 & 2, Murphy Road,
Bangalore - 560 008
Tel: +91-80-43326400,
Fax: +91-80-43326409
E-mail: jayantac@icraindia.com
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