ICRA Revises Outlook On India’s Auto Components Sector To Negative

ICRA Ltd. has revised its outlook on India’s auto components sector to negative from stable, amid a prolonged auto slowdown in the country.

Aftermarket demand for components, which accounts for 18 percent of the industry turnover, has also slowed with decline in goods movement and the consequent weakness in freight activity, the ratings agency said on Tuesday. Further, liquidity issues across the aftermarket dealer channel have led to destocking, curtailing fresh demand from component manufacturers.

With the global automotive outlook turning negative with decline in sales across geographies, partly due to heightened trade tensions and other geopolitical factors, export demand for Indian auto component manufacturers could also be impacted in the coming quarters, Icra said.

"Despite accommodative commodity prices, weakness in OEM demand will impact credit metrics for component manufacturers," ICRA Senior Group Vice President Subrata Ray said in a statement.

This comes amid rapid and mandatory technological advancements in vehicle safety and emission norms, which has led to sizable capital expenditure by component manufacturers over the past few years, he added.

"Most players in the auto component sector are taking a relook at their capex plans; consequently, across segments Icra estimates a cut back ranging between 15-25 percent by most players," Ray said.

Large manufacturers, who have used their cashflows from the upcycle to develop a strong balance sheet and product capabilities, are expected to be more resilient to the current downturn, ICRA said. On the other hand, entities with leveraged balance sheet are likely to face stress, it added.