Thursday 16 January 2014

INDIA RATINGS: Auto sector maintained a stable to negative outlook


The financial profile of most industry players is strong despite all segments displaying a year-on-year (y-o-y) decline in sales volumes during April-December 2013.

It has been believed that the low leverage (net adjusted debt/EBITDA) of most auto original equipment manufacturers (OEMs) gives them the financial flexibility to maintain the ongoing economic downturn. However, OEMs with limited product and geographic diversification could face further credit profile weakening.
Commercial vehicles (CV) segment is expected to post a 6%-9% y-o-y decline in domestic volumes in 2014-15. Most truck fleet operators are likely to defer investments in new vehicles at least till the first half of 2014-15 as there is decline in their operating margins.

Volume growth in passenger vehicles, UVs and MPVs will decline 3%-8% y-o-y in 2014-15 due to the rising cost of ownership and shrinking discretionary spending power of the average consumer.


Further,a capacity addition of 1.6 million units and 0.2 million units is expected over 2013-14-2014-15 in PV and CV segments, respectively.This is likely to result in capacity utilization falling to 45%-47% in 2014-15 for PVs from around 54% estimated for 2013-14. The capacity utilization would decline to 35%-37% in 2014-15 from an estimated 40% in 2013-14 for CVs.


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