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Demand to grow 9-11% supported by better growth in domestic and recovery in exports
CRISIL Research projects auto-component production to grow by 9-11% in fiscal 2018 -
OEM offtake is projected to grow at 11-13% in fiscal 2018 -
Demand from two-wheeler segment is expected to accelerate (+9-11%) as cash situation improves.
Medium and heavy commercial vehicle segment (MHCV) is expected to pick-up moderately and grow by 4-6% coming fiscal.
Passenger car sales will accelerate 9-11% because of lower effective tax rate post GST despite of the price hike due to increase in raw material price.
Realization will grow on account of sale of high value BS IV components and passing on the raw material price increase. Exports, after growingmarginally in fiscal 2017 will see a positive 3-5% growth in fiscal 2018 owing to revival in class 8 truck sales in US.
We expect the organised aftermarket to benefit from the Goods and Services Tax and increasing presence of Large Fleet Operators (LFOs).
In fiscal 2017, OEM offtake grew by approx. 8%.
Domestic sales accelerated with buoyant monsoons aiding growth in rural dependent segments.
Tractors grew at a healthy 17% on-year in fiscal 2017. However, cash crunch post-demonetization, watered down the positive impact ofgood monsoon, particularly for two-wheelers (H1 growth: +17% YoY; FY17 growth: +6.9%).
For commercial vehicles, lower demand in MHCV segment was offset by a healthy 8% growth in LCV segment. Lower replacementdemand by large fleet operators led to 1% decline in MHCV in FY17.
We estimate the exports to have declined 5% in fiscal 2017 due to sharp fall in class 8 truck production in the key export market US.
Overall, domestic auto component production grew at 6.9% in FY 217.