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The EBITDA (earnings before interest, tax, depreciation and amortisation) margins of the auto component industry are likely to stay stable in 2012-13 though revenue growth may slow, according to ICRA.
Mr Subrata Ray, Senior Group Vice-President, ICRA, said: “The weakness in the overall revenue growth of the auto components industry is likely to persist in 2012-13; yet, EBITDA margins may remain intact or even improve as companies step up focus on cost control, besides benefiting from a benign raw material cost environment.”
Sufficient buffer
“The industry’s planned capex outlay for 2012-13 also remains conservative since a large magnitude of greenfield and brownfield capacity expansion was concluded during the course of the last two years that provides sufficient capacity buffer to meet the level of demand envisaged over the short term,” said Mr Ray in a report.
ICRA’s outlook is based on a sample study of 36 listed auto component manufacturers.
The study shows that the quarter-on-quarter revenue growth of companies was in low single digits during Q1, Q2 and Q3 of 2011-12, largely because of an increase in average realisation induced by higher raw material costs.
Q4 was marked by sequential improvement in revenue growth numbers. But it remained weaker on a seasonally-adjusted basis.
There was a wide variance in the performance of companies.
Revenue growth was relatively higher for companies dependent on the domestic two-wheeler and light commercial vehicle segments.
Growth was lower for companies dependent on passenger vehicles and medium and heavy vehicles.
Margin pressures
All companies faced margin pressures as rising raw material costs, forex losses and higher interest burden added to the costs, said the report.
Intensifying competition restricted pricing power across all auto segments.
As per industry estimates, domestic demand recovery and sustenance will govern the automobile industry’s revenue growth and profitability prospects over the short term.
Companies with a significant export exposure should benefit from enhanced competitiveness, given the prevailing weakness of the rupee, the report says.
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