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ICRA expects auto industry to post 11-12% revenue growth

The Times of India:  February, 2015

Chennai: Car sales may have been slow so far this year but the fiscal ahead should see decent growth for the automotive industry.

Credit rating agency ICRA expects the Indian auto component industry to benefit from benign raw material prices and expected revival in automobile demand over the next 12-18 months.

According to its estimates, 2014-15 revenues for the industry should grow by 11-12% supported by healthy recovery by major original equipment manufacturers (OEMs) in the medium and heavy commercial vehicles (M&HCV) and passenger vehicle (PV) segment.

Volumes in the light commercial vehicle (LCV) and tractors segment would, however, decline impacting component manufacturers' dependent on these segments.

Further, ICRA expects operating margins for the industry to expand by 150-170bps to 15.5-15.7% (PY 14.0%), given the continuing focus on cost curtailment and benign raw material prices even as volumes expand leading to apportioning of fixed costs over a larger revenue base.

Over the medium term, ICRA expects the auto component industry's revenues to grow at a relatively faster pace than the OEM segment riding on several factors including auto OEMs' growing thrust on localization, the Make in India policy, auto suppliers' efforts to expand business into new geographies, the strong upside potential to replacement market demand and increasing sophistication of vehicles leading to higher value added parts.

The report dwells on the modes and investment in research & development (R&D) by Indian companies as they are faced with intensifying competition from international auto component manufacturers. During 2013-14, Indian auto component companies invested 0.6% of their net sales towards R&D activity as against 0.2% during 2008-09.