Auto component industry likely to grow at 10-12% CAGR in long term

Riding strong volume growth across automotive segments, the Indian auto component industry grew by 13 per cent during FY18

The auto component industry is likely to grow at 10-12 per cent 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 per cent for the industry (auto component). Operating margins for the industry are expected to be strong at 14 per cent 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 per cent 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.

"Based on the available trends so far, we expect the domestic OEM segment to witness a broad-based 10 per cent 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, 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 per cent 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 per cent 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 is expected to decline, the report said.