Auto components industry to see moderate growth in 2013

Automotive suppliers would see only a moderate growth in demand during 2013 due to continued slow economic growth and weak signs of recovery in export markets. n expected pick-up in demand towards the second half of the year would ease the pressures being faced by the sector, India Ratings has said.

The auto components industry is better positioned to handle the current slowdown compared with their 2008 position, it noted. " The export competitiveness of automotive suppliers, arising out of the weak rupee, could only slightly benefit them as global automotive sales in key export markets such as Europe would remain weak in the near term," India Ratings said.

A further weakening of the rupee could impact auto suppliers' profitability as cost increases for imported components would only be partially compensated by original equipment manufacturers (OEMs) and that too with a lag. Besides, firm commodity prices would stress cash flows.

The liquidity stress faced by OEMs could be passed down the value chain leading to longer payable periods and higher working capital needs. "This would drive up debt and prevent improvement in credit profiles in 2013." International trade agreements could reduce export competitiveness and intensify competition in the domestic industry over the medium term, India Ratings said.

But a thrust on localisation would drive growth and profitability. Many domestic automotive suppliers are focussed on developing new products. "This partly has also been driven by domestic capacity constraints in technology-oriented products and significant competition faced by suppliers in simple commoditised offerings from cheaper imports," India Ratings said. "These innovations can be a key differentiator in the long run but entail major investments for suppliers and have necessitated reliance on external funding sources," it said.



Keywords:Automotive suppliers, economic growth , export markets,auto components industry, automotive sales , rupee,original equipment manufacturers ,OEMs, commodity prices , cash flows, working capital ,International trade, domestic industry , products, technology,oriented products,cheaper imports, key differentiator,major investments ,business news