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September 11, 2017

Sector Report: Automotive Components

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

 

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.