Auto component industry to grow at 10-12% CAGR in long term, says Icra report

Mumbai: The auto component industry is likely to grow at 10-12 percent annually in the long term on rising rural income, higher disposable income and continued infrastructure activity, according to a report. “We expect a long-term compounded annual growth rate (CAGR) of 10-12 percent for the industry (auto component). Operating margins for the industry are expected to be strong at 14 percent for FY19,” said Subrata Ray, senior group vice-president, corporate sector ratings, Icra. Riding strong volume growth across automotive segments, especially in the automotive original equipment (OE) manufacturers, the Indian auto component industry grew by 13 percent during FY18, the Icra report said. OE demand grew following rising rural income, recovery in medium and heavy commercial vehicles (MCV and HCV) demand post-GST, stricter overloading restrictions and pickup in infrastructure activity, it added. [caption id=“attachment_3907349” align=“alignleft” width=“380”] Representational image. Reuters.[/caption] “Based on the available trends so far, we expect the domestic OEM segment to witness a broad-based 10 percent volume growth during FY19, supported by a further improvement in rural income, higher disposable income with anticipated pay revisions by some states and continued infrastructure activity,” said Ray. The domestic aftermarket segment (barring battery and tyres) witnessed flattish revenue growth during FY18 as goods and services tax (GST) implementation impacted the dealer-distributor supply chain, the report said. However, a higher share of the replacement market has consolidated with large organised players during last year. The tyre and battery segment witnessed healthy replacement demand during FY18, with truck and bus (T&B) tyre replacement demand growing during FY18, post over three years of muted demand, it added. The aftermarket demand recovered in the fourth quarter of FY18 and is likely to witness an 8-12 percent growth during FY19, according to Ray. The report further said exports trend was mixed as the two largest markets for Indian auto components exports are the US and Europe, accounting for about 60 percent of sector’s shipments. During 2017, the US M&HCV demand remained strong, even as light vehicle (PV and pick-ups) sales in the US and CV/PV sales in Europe witnessed muted growth, it said. “While heavy truck (class-8) sales in the US is likely to continue to remain strong in CY2018, light vehicle sales are expected to decline, the report said.