Auto industry outlook stable: India Ratings
Mumbai, Jan 8 (IBNS)
India Ratings says that the 2013 outlook for the Indian auto industry is stable.
Low demand in 2013 coupled with a capacity overhang (particularly in passenger vehicles (PVs)) and intensifying competition is likely to reduce industry operating margins.
However, as the major auto original equipment manufacturers (OEMs) have low financial leverage (median net debt/EBITDA: below1.0x), their credit profiles are unlikely to be considerably impacted from a further slight weakening in credit metrics in the year.
India Ratings believes that the likely 10pc -11pc yoy volume growth in commercial vehicles (CVs) in 2013 would be driven by the sales of light commercial vehicles (LCVs) which are likely to post yoy volume growth of 13pc -15pc yoy.
As LCV sales depend on intra-city movement of mostly consumer non-discretionary items and rural taxis, they would be impacted only to a limited extent due to economic downturns.
However, the segmental volume growth in 2013 is likely to be significantly lower than the growth of around 19pc observed in 2012 due to expected higher diesel prices and negative economic sentiments persisting in the year.
Medium and heavy CV (MHCV) sales which have a strong correlation with industrial activity, corporate capex and the government spending in infrastructure projects are likely to be exhibit a negative growth of 6pc -9pc in the absence of fiscal and monetary policy actions by the government.
Alternatively, increased government spending on infrastructure and other supportive fiscal measures could lead to yoy MHCV volume growth of 3pc -4pc in 2013 as per India Ratings' base case.
In the agency's opinion, PV volumes would register yoy growth of 8pc -9pc yoy in 2013 due largely to the continued strong demand for utility vehicles (UVs), for which sales volumes are likely to increase by 30pc -35pc yoy.
Cars and vans which contributed 73pc and 9pc to domestic PV volumes in the January to November 2012 period would display muted volume growth of 2pc -3pc and 0.5pc -1.5pc yoy, respectively, in 2013.
While weakening household balance sheets and high interest rates would continue to constrain demand, the likely reduction in price difference between petrol and diesel would also significantly impede revival in demand for diesel cars.
On-going capex by OEMs in the PV segment in 2013 is likely to result in a capacity increase of around 25pc over the FYE12 estimated level of 4.5 million units.
With volume growth likely to be muted, capacity utilisation in the PV segment would fall well below the 60pc level.
Moreover, as several foreign OEMs in PVs are earmarking a part of their capacities for exports, a persistent slowdown in markets such as Europe and North America could see these capacities being targeted at the Indian market, thereby increasing competition.
In addition, firm metal commodity prices in 2013 in conjunction with large capacity overhang would exacerbate pricing pressures.
India Ratings could revise the outlook to negative if the high interest rate environment persists or there is a downward revision in economic activity which would significantly affect the credit metrics of auto companies, particularly the OEMs in the MHCV segment.
A negative outlook in 2013 could also be triggered by moderation in volume growth for UVs and negative growth for cars due to higher-than-expected increase in diesel prices coupled with a weakening of consumer purchasing power.
A revision in the outlook to positive is unlikely in the medium term, even if interest rates are reduced, due to the adverse impact of competition-led pricing pressure on the financial profiles of OEMs.