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The rapid spread of the coronavirus (Covid-19) infection will negatively impact the domestic auto industry in the near term, because the Wuhan region in China, which has been the epicentre of the outbreak, is a major manufacturing hub for automobiles and auto parts, India Ratings and Research (Ind-Ra) said in a media statement on Thursday.
Furthermore, Ind-Ra believes that the sector would face pressure from not only the supply side but also the demand side and exports if the spread of the virus persists for more than two months in the domestic and global markets.
Indian auto ancillaries and original equipment manufacturers (OEMs) have about 27 per cent import dependence on China for key parts and accessories. The extended production halts in China have created supply-side risks for domestic auto companies, the credit rating agency said in the statement.
It added that against a backdrop of falling domestic sales and continuing margin pressure, any supply-side shocks could affect the credit metrics of sector companies. Wuhan has manufacturing plants of certain leading global auto component makers supplying to OEMs. Being the epicentre of the pandemic, a major supply chain disruption for key auto components is likely to affect passenger vehicles, commercial vehicles and two-wheelers.
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