Auto components sector likely to face stiff headwinds: ICRA

Having cemented a strong double- digit growth over the last two years, the auto components industry is likely to face strong headwinds in 2011-12 due to soaring commodity prices, fuel costs and interest rates, ICRA said.

While the industry has made big strides over the last decade towards improving internal efficiency and thereby partially off-setting input cost pressures, efficiency gains alone may be insufficient going forward for players to use as a lever to combat cost headwinds, the rating agency said.

"Usage of common parts, vehicle light weighting, engine efficiency improvement and other frugal engineering themes are likely to occupy centre stage in the Indian automotive market in the times to come," ICRA's Senior Group Vice President, Corporate Ratings, Subrata Ray, said.

The rating agency said industry players will need to intensify their focus on deploying more cost effective vehicle systems in their new product development and existing model refurbishment programmes.

On margin pressures, ICRA said measures required to be taken by the industry to placate challenges on an ongoing basis may need to be directed in areas related to design optimisation and frugal engineering, where results become visible only over a relatively longer time horizon.

This may require the industry players to incur greater investments.

However, the longer term benefits and resultant structural changes could alter the automotive design paradigm, change the cost drivers and provide greater value to customers, it said.