Icra places 14 auto component makers under watch

Rating agency Icra today placed 14 auto component manufacturers on "rating watch with developing implications", following lockout at Maruti Suzuki's Manesar plant.

Several Icra-rated auto ancillaries that have a high revenue dependence on Maruti's Manesar plant "may experience lower cash accruals" and in some cases possible "stress" on their liquidity position during the lockout, prompting the agency to place their ratings under "watch with developing implications".

"Given the present uncertainties, it is difficult as of now to quantify the extent of supply disruption and its eventual impact on individual companies' financial risk profile," Icra said in a release here.

"The firms under the rating watch list are ALP Nishikawa, Global Autotech, Jay Bharat Maruti, Juken Uniproducts, Kalyani Thermal Systems, Krishna Maruti, Lumax Industries, Machino Polymers, Neel Metal Industries, SKH Metals, Sona Somic Lemforder Components, Subros, Technico Industries and Uniproducts," Icra said.

Comments from the companies could not be obtained.

Icra said it is monitoring the situation and would conclude its rating action as and when greater clarity emerges.

Production of four popular models -- Swift, Swift DZire, A-Star and SX4 -- has been halted since July 18 as India's top carmaker declared a lockout at the plant in Haryana following large-scale violence which led to the death of a top HR executive of the company.

According to Icra, these four models together account for around 30-35% of Maruti's volumes. For suppliers, the overall average realisation of components related to these four models is higher than those of components that go in models produced at Maruti's Gurgaon facility.

It is estimated that those vendors who supply to all models of Maruti derive around 35-40% of their revenues from supplies to models produced at the Manesar plant, the rating agency said.

Being the largest passenger vehicle OEM (original equipment manufacturer) in India with domestic market share of 38.4% in 2011-12, any demand or supply shock on its output, tends to have a relatively greater adverse impact across its supply chain, Icra maintained.

Even during 2011-12, when production had remained intermittently disrupted at both Manesar and Gurgaon units in the wake of a prolong strike, some auto component makers, particularly those deriving a large majority of their revenues and profits from sales to Maruti, had experienced lower profits and cash accruals during that period, it said.

Given the prevailing situation, a quick resolution and subsequent process of normal production resumption may get protracted, the agency added.