Auto component industry may grow 8-10% next year

Medium and heavy commercial vehicle segment likely to stay robust but slow down to 13-15% given increased base in FY2016

The Indian auto-component industry could gain momentum and register growth of 8-10% in the coming financial year, ratings agency ICRA said on Wednesday.

The medium and heavy commercial vehicle (M&HCV) segment is likely to stay robust but growth could slow to 13-15% given an increased base in FY2016. Also, a sustained uptrend in passenger vehicle demand is expected to push growth for the component industry.

According to lobby body Automotive Component Manufacturers Association (ACMA), the Indian auto component industry registered a turnover of Rs 2.34 lakh crore ($38.5 billion) during the year 2014-15. Turnover for the current financial year will be disclosed in a few months.

Over the medium to long term, growth in the auto component industry will be higher than the underlying automotive industry given higher localisation by OEMs, higher component content per vehicle, and rising exports from India, ICRA said in its latest research update on the auto component industry.

Overall demand from the original equipment and export segments remained subdued in FY2016 though some support from aftermarket sales drove overall auto component growth of 3-5%.

While export demand was weak, robust demand for passenger vehicles (PV) in North America as well as Europe is likely to offset the decline in the M&HCV segment in those markets over the next 9-12 months, the report noted. 

Subrata Ray, senior group vice president (corporate ratings) says “Over the medium term, ICRA expects OPBDIT margin for the auto-component industry to stabilise at 14-14.5% level, given expected bottoming out of commodity prices in the current year”.

"In FY2017, the rural demand (impacting motorcycles, tractors and passenger vehicle segments) will be contingent on monsoon, though government efforts in the Union Budget of FY2017 could benefit the rural economy," he added.

With anti-locking braking system (ABS) becoming mandatory in 125cc+ two wheelers from April 2018, the domestic ABS market will witness exponential growth. Also, increasing awareness regarding safety aspects and likely implementation of mandatory crash test for passenger vehicles will further drive demand for ABS in PVs. 

The ABS market could turn out to be a Rs. 6,500 crore opportunity for suppliers by FY2019e in the backdrop of implementation of safety regulations.

International players like Bosch, Continental, as well as homegrown majors like Brakes India will be key beneficiary of the mandatory implementation of ABS for 2W and PVs. At present, ICRA estimates ABS penetration of only 30% in the passenger vehicled segment, while it is minimal in the two-wheeler segment.