Automakers in India seem to be divided over the impact of the coronavirus outbreak on their businesses. While some have said their production will take a hit, others believe they have a cushion for about a month, having stocked their inventories well in advance due to the Chinese New Year and in anticipation of new orders which are usually placed after the holiday period. This period lasts till the second week of February. The corona outbreak time is actually a lean period.
The China issue could support the margins of battery and tyre firms like Apollo Tyres, on account of the potential decline in global commodity prices, say analysts.
Although Chinese suppliers represent only a part of the supplies and other sources exist, there could be delays in the activation of alternative supply chains and increase in costs for Indian OEMs, at least in the near term, said an Emkay report.
Hero MotoCorp said Coronavirus (Covid-19) has affected the supply of some components to company's manufacturing facilities in India. This is likely to impact its planned production by around 10 per cent for the month of February. However, wholesale dispatches to dealers during the month remain unaffected.
"Any further impact on our production will depend on the situation developing in China. We continue to track it and keep evaluating our options," said the company.
TVS Motor, Honda and Suzuki have said that so far production has not been hit as the dependency on China is low. However, they did not share any numbers.
Passenger car makers Maruti and Hyundai say production hasn't been impacted as of now , but they are monitoring the situation. Reports stated Hyundai suspended its five main assembly plants in Ulsan, South Korea, due to lack of parts.
China's MG Motor did not respond.
“I don’t see any risk right now of BS IV ramp down and BS VI ramp up, except for what coronavirus may do. We have one or two parts that are coming from China which are quarantined right now. I am hoping it will open up in the next one week or 10 days. Then there won’t be any impact. But if it goes beyond that, then we will have challenge of around 3000 BS IV vehicles for which all other parts are in our inventory. But we need to wait for this one part. Else we don’t see any risk. All products are ready for BSVI,” said Pawan Goenka, managing director, Mahindra & Mahindra Ltd.
Vinnie Mehta, director general, Automotive Component Manufacturers Association of India said that at present the situation will not impact OEMS, but if the trend continues for the next 3 weeks or one month then the impact will be felt.
According to ACMA India imported around $ 4.2 billion of auto components in 2019 from China and exported $ 410 million to China in the same period.
While Tata Motors did not respond for an email, Emkay's report said in the near term, the Covid-19 outbreak could negatively affect China region revenues of Tata Motors (~11% of consolidated revenues) and Motherson Sumi (~6%), while it could support the margins of Battery and Tyre companies on account of the potential decline in global commodity prices.
TTMT derives about 11% of its consolidated revenues from the China region (on a pro-rata basis) through JLR's exports and the Cherry JV. JLR's China JV's plant is situated at Changshu, China, which is away from the epicenter of the Covid -19 outbreak (Wuhan). Assuming China volumes are impacted by 25% in the near term, consolidated EBITDA estimates could reduce by 6% and 5% in Q4FY20 and Q1FY21, respectively.
Motherson Sumi could see a marginal impact as the company derives about 6% of consolidated revenue es from the China region. Assuming China sales to be impacted by 25% in the near term, consolidated EBITDA estimates could reduce by 3%, be said Emkay report.
Ashok Leyland was planning to launch a new LCV in March, which is now pushed to April or May since virus issue at Wuhan, from where it is waiting for final set of toolings. The impact might not be direct, but suppliers might have an impact.
Tyre companies such as Apollo Tyres can benefit from a reduction in the prices of crude derivatives by up to 60bps, after assuming 75% pass-through in the replacement segment. An increase in steel prices could marginally impact the margins for CV and Tractor OEMs, while the impact is expected to be more than offset by lower Aluminum prices for two-wheeler OEMs.