Icra revises outlook on auto components sector to negative from stable

New Delhi: Rating agency Icra on Tuesday said it has revised the outlook on auto components sector to negative from stable, following dip in sales over the past few quarters.

Aftermarket demand for components, which accounts for 18 per cent of the industry turnover, has also slowed down with decline in goods movement and the consequent weakness in freight activity, the rating agency said.

Further, liquidity issues across the aftermarket dealer channel have led to de-stocking, curtailing fresh demand from component manufacturers, it added.

With global automotive outlook turning negative with decline in sales across geographies, partly due to heightened trade tensions and other geopolitical factors, export demand for Indian component manufacturers could also be impacted in the coming quarters, Icra said.

"Despite accommodative commodity prices, weakness in OEM demand will impact credit metrics for component manufacturers," Icra Senior Group Vice President Subrata Ray said in a statement.

This comes amidst rapid and mandatory technological advancements in vehicle safety and emissions, which has led to sizable capital expenditure by component manufacturers over the past few years, he added.

"Most players in the auto component sector are taking a relook at their capital expenditure plans; consequently, across segments Icra estimates a cut back ranging between 15-25 per cent by most players," Ray said.

Large manufacturers, who have used their cashflows from the upcycle to develop a strong balance sheet and product capabilities, are expected to be more resilient to the current downturn, Icra said.

On the other hand, entities with leveraged balance sheet are likely to face stress, it added.