You are here: Home » Companies » News
Business Standard

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

Topics
Debt recast | K V Kamath | automobile industry

Shally Seth Mohile  |  Mumbai 

car, auto, automobile

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 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 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.

ALSO READ: Kamath panel recommendations: Implementation to be key, say hotel execs

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.

Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Tue, September 08 2020. 14:32 IST
RECOMMENDED FOR YOU