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September 01, 2019

Sector Report: Automotive Components

This report is available to users in India for ₹40,000 + applicable taxes

 

Table of Contents

 

  • Summary
  • Domestic - Short term demand
  • Domestic - Long term demand
  • Exports - Short term demand
  • Exports - Long term demand
  • Profitability

 

Summary

 

Auto component revenue to grow by 7-9% in fiscal 2020 CRISIL Research projects domestic auto-component production to grow at 7-9% in fiscal 2020 due to muted demand from the underlying asset classes while exports are expected to provide some respite in the fiscal.

 

In 2019-20, OEM segment is expected to record muted growth due to :-

 

  • Passenger vehicles industry is witnessing subdued retail sentiments leading to higher cost of ownership in FY20. Weakening export demand and low advancement of sales ahead of the BS VI norms in FY21 to result in the segment clocking a tepid 1-3% production growth in FY20
  • Two wheeler production growth was arrested in FY19 due to the rising cost of ownership owing to insurance costs which has resulted in sluggish sales sentiments in FY20. Further, we expect some recovery in the later half of the fiscal due to advancement of sales due to upcoming norms to aid production growth of ~3% for the two wheeler industry in the fiscal.
  • Commercial vehicles production is expected to grow by 4-6% on year as the revised axle load norms are expected to impact MHCVs by creating frieght oversupply in FY20 but we expect government support for various infrastructure projects, LCV replacement demand and BS VI pre buying to give a boost to CV demand.

Realisations will grow on account of vehicle price hikes and withholding the benefits of raw material price decline in FY 20. Basic raw material index is expected to decline by 2-4% in fiscal 2020 due to softening in prices of key raw materials.

 

Replacement market is projected to grow at 7-9% on-year in fiscal 2020 due to healthy demand from existing population and increase in share of organised players post GST implementation.

 

For fiscal 2020, we expect exports to record a 10-12% growth as Indian auto component manufacturers are diversifying their exports to other emerging countries such as South East Asian and Latin American countries while demand from our key exporting market remains stable. Currently the share of exports to total autocomponent revenue is ~19% as of FY19 and we expect this share to gradually increase over the medium to long term.

 

Inspite of various anti-dumping duties and localisation efforts by the players, imports in fiscal 2020 is expected to grow at 9-11% on account of higher imports of components pertaining to safety (due to various mandatory regulations), body parts, etc. From 2018-19 to 2023-24,we expect imports demand to grow at a CAGR of 5-7%. In the long term, availability of new technology due to collaboration of the domestic players with foreign manfacturers and localisation efforts by the OEMs will keep imports in check.

 

In FY21, the auto component industry is expected to clock a growth of 8-10% mainly aided by higher realisation levels due to the implementation of the BS VI norms amid weak production demand. As a result of more stringent emmision norms, the component intensity per vehicle is expected to increase and therby improve the autocomponent industry revenues.