Auto component segment seen logging 8-10% growth in FY17

Driven by the continuing pick-up in medium and heavy vehicles segments, the auto component industry is likely to gain momentum next fiscal and register a growth of 8-10 percent, as against 3-5 percent in the outgoing year, says rating agency Icra.

"Medium and heavy commercial vehicles demand is likely to stay robust but may slow down to 13-15 percent given the higher base in FY16, this should help the auto component makers to clip at 8-10 percent," Icra said in a report today.

"Over the medium-term, we expect margins of the auto-component industry to stabilise at 14-14.5 percent levels, given expected bottoming out of commodity prices in the current year," Subrata Ray, senior group vice-president corporate ratings at Icra said.

"In FY17, the rural demand (impacting motorcycles, tractors and passenger vehicles) will be contingent on the monsoons, though government efforts could benefit the rural economy," he added.

With anti-locking braking system (ABS) becoming mandatory in 125cc+ two-wheelers from April 2018, domestic ABS market will see exponential growth. Coupled with this is the increasing safety awareness and the likely implementation of mandatory crash test for passenger vehicles which will drive ABS demand, the report said.

At present, ABS penetration is only 30 percent in PVs and under 5 percent in the two-wheeler segment. The ABS market could turn out to be a Rs 6,500 crore opportunity for suppliers by FY19.

pThe report, however, said the ongoing ban on high-end diesel cars in the NCR and the newly imposed 1-4 percent infrastructure cess on passenger vehicles will impact overall demand momentum in the passenger vehicle segment which accounts for bulk of the domestic OE demand for auto components.

Over the medium to long-term, growth in component industry will be higher than the underlying automotive segment growth given the increasing localisation by OEMs, higher component content per vehicle and rising exports, it said.

Overall demand from OEs and export segments remained subdued in FY16 though some support from aftermarket sales drove overall auto component growth of 3-5 percent, the rating outfit added.