The auto components industry may invest around Rs 7,000 crore over the next three years on new projects, although its revenue growth will remain weak in the absence of domestic demand and an uncertain global economic environment, rating agency ICRA said today.
Auto manufacturers such as Maruti Suzuki, Hero MotoCorp and Ford, are planning to establish greenfield facilities in Gujarat, prompting component makers to invest around these facilities.
“The above greenfield investments may entail total investments of Rs 7,000 crore to be incurred by auto component manufacturers over the next three years,” ICRA said.
Besides, in the near term, uncertain global economic environment would exert pressure on export volumes thereby affecting revenue growth, according to ICRA’s latest study on 35 publically—listed auto component manufacturing companies.
“Over the near term, the trepidation of auto part makers arising from dull automobile demand is likely to remain...the profitability of auto component manufacturers may be hit harder due to their smaller scale of operations and limited operational and financial flexibility,” the study said.
Over the medium term, however, factors such as growing thrust on localisation and expand business in new geographies should allow the components industry to grow at a relatively faster pace than the auto OEM segment, the study added.
It said the industry’s revenue growth in 2012—13 was the slowest in last five years as suppliers battled weak demand from domestic OEMs, sluggish export volumes starting Q2 2012—13 and tepid replacement market sales.
It added that the aggregate net profit of auto component manufacturers in the study sample declined by around 7 per cent in 2012—13 over the previous year.
“One of the primary reasons for this decline was depreciation of the rupee against the dollar, besides earnings weakness due to weak demand and increase in operating costs,” the study said.