US sanctions on Rusal to hit profitability of Indian auto cos: Icra

Indian automobile industry will be impacted in terms of profitability in the near term due to rise in aluminium prices following US sanctions against Russian producer Rusal, according to rating agency Icra.

Prices of aluminium have gone up by 30 per cent over the last two weeks post the US sanctions on Rusal, one of the leading manufacturers of the metal globally, the domestic rating agency said in a statement.

"The sharp increase in aluminium prices will weigh on the profitability of auto-component suppliers as well as OEMs in the near term," Icra said.

Automobile industry is one of the largest consumers of aluminium which along with its alloy accounts for about 10 per cent of the weight of a hatchback and 18-20 per cent in a two-wheeler.

"Generally, auto suppliers have in built pass-on clause with OEMs which provides adjustment for input price volatility after a lag of 1-3 months; this will impact the profitability of the auto suppliers vulnerable to cost increases in the interim," Icra Assistant VP, Corporate Sector ratings Ashish Modani said.

Already, automobile industry is grappling with commodity prices pressure over last one year, and this sharp increase in aluminium prices in recent weeks will further dent their operating profitability, he added.

Over the past few years, aluminium content in vehicles has increased gradually at the expense of ferrous content. Aluminium alloys have good impact absorption capability thereby allowing superior structural capability without increasing overall weight.

The metal is predominantly used in alloy wheels, radiators, doors and frames and in recent time has found increased acceptance in cylinder heads and blocks of two-wheelers and passenger vehicles.

Rusal supplies about 6 per cent of alumina globally from its seven refineries around the globe, including the Aughinish plant in Ireland which is largest in Europe.