domestic automotive industry is likely to be negatively impacted due to the
recent outbreak of coronavirus (COVID-19) across China and neighbouring
countries in South-East Asia.
As per an ICRA note, these countries play a
critical role in the automotive supply chain and domestic OEMs source critical components and
sub-components including fuel injection pumps, EGR modules, electronic
components, turbochargers etc. from these markets, which in turn directly or
indirectly depend on China.
Dewan, Vice President - Corporate Sector Ratings, ICRA Limited said that since
China accounts for 27% of India’s auto component imports valued at US$ 4.8
billion, India’s automotive supply chain could get disrupted if the
manufacturing activities in China continue to remain impacted owing to
coronavirus outbreak. The impact is estimated to be higher for high value-add
and customised components, while commoditised products could shift to alternative
suppliers, he noted.
disruption in supply of certain critical components sourced from China will
have differential impact. OEMs sourcing components like electronic components,
EGR modules, Fuel injection pumps, Turbocharger, Meter sets, LEDs, Magnets,
Airbag components, Steering system components and Electric vehicle components
will be affected most – in particular the impact will be more profound on
commercial vehicle (CV), passenger vehicle (PV) and the two-wheeler(2W)
tractor segment which has high localisation levels with limited dependence on
imports will have much lesser impact. Typically, companies maintain a
comfortable 4-6 weeks of inventory, given the stock-up done prior to the
Chinese New Year. However, if the situation in China were to persist for
another couple of weeks, potential supply disruptions will become more likely.
given that OEMs are currently in the period of transitioning to BS-VI
production, disruption in supply of critical components required for the same
has the potential to impact smooth transition to new emission norms,” added
terms of sectoral outlook on domestic automotive Industry, ICRA has a negative
outlook on the CV segment due to surplus capacity in system, existing financing
constraints, weak macro-economic scenario and industrial output which is likely
to keep demand subdued. The outlook on PV segment too is negative and demand
recovery is expected to be gradual. The initial months post BS-VI transition in
April 2020 will be muted, and subsequently recover thereafter on revival in
The tractors and the 2W segment have stable
outlook on expectations of a good rabi crop which will support rural demand
sentiment. However, in case of 2W higher prices of BS-VI vehicles and muted
urban demand remain dampeners in potential demand growth. As for the auto
components segment, the outlook is negative due to contraction in broad-based
OE sales, subdued aftermarket demand and; muted export demand in light of
global trade tensions which continue to impact the segment.
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