Little gain from Kamath Panel proposals, say auto dealers, component makers

They say average current ratio for industry is 0.8-0.9 due to two-year distress, so meeting the suggested ratio of 1 will be difficult for many

The apex body of auto component manufacturers — Automotive Component Manufacturers Association (ACMA) — and retailers association — Federation of Automobile Dealers’ Association of India (FADA) — have said the Kamath committee’s recommendations on loan restructuring will help the auto sector. 

However, they said that the financial ratios recommended by the experts’ committee need to be reconsidered.  

Large listed companies in the auto components and automobile manufacturing space are unlikely to opt for loan restructuring as most of them have strong balance sheets with very less debt. It will largely impact smaller companies in the sector, said analysts.

According to FADA, only a few dealerships will come in the purview of the ratio suggested by the committee. Deepak Jain president, ACMA, said the ratio should be capped on the basis of the average asset life. Therefore, debt-to-Ebitda (earnings before interest, tax, depreciation and amortisation) should be revised to 6 times from the current 4.5 times.  

The cost of borrowing capital in India is one of the highest in the world, said Jain. ACMA has requested the committee to recommend lending to the auto components industry at same interest spread as the priority sector. This will help in securing the industry from any downgrade in ratings due to the adverse impact of Covid, it felt.

The sector, dominated by small and medium enterprises, witnessed severe hardships with regard to cash flow and working capital during the lockdown period.

Vinkesh Gulati, president, FADA, said recommendations of the report will benefit only a small section of dealerships. 

“On an average, we have a current ratio of 0.8-0.9 due to the already two-year distress we have seen. Hence, the ratio suggested as 1 will be a difficult parameter,” said Gulati.  FADA has 15,000 dealers in the country as dealers.

A spokesperson for Siam said members are still studying implications of the recommendations and will not be able to comment immediately.