Strong growth in the auto sector is expected to help ancillary companies post healthy top line growth in the second quarter of this fiscal. The price rise in primary raw materials, including steel, rubber and aluminium, are likely to take a toll on the margins to some extent but higher sales volumes will help the companies, except a few tyre firms, to post better bottom line. Abdul Majeed, leader, auto practice of PricewaterhouseCoopers said, ?Positive factors in auto ancillary segment will outpace the negative factors in the second quarter.? The input costs may not impact much due to higher sales volumes.
Around 60 auto ancillary units are actively trading on BSE and NSE. On an average, the companies are expected to record healthy double-digit top line as well as bottom line growth, he said.
He said the growth in auto ancillary segment would higher year-on-year as both original equipment manufacturers (OEMs) and auto after market business in India have grown manifold so far this fiscal. The automotive vehicle sales witnessed a growth of 27% year-on-year in April-September 2010.
Industry sources said some of the vehicle OEMs were forced to renegotiate the prices with part makers to ensure timely delivery of their vehicles. The OEMs are struggling to reduce the waiting period for several vehicle models that increased from 1-5 months in the current year, owing to inadequate parts supply.
According to spokesperson of Automotive Component Manufacturers Association of India (ACMA), the major demand was witnessed in the sectors like casting, fuel injection and tyres. Body and structural accounts for 40% share in the Indian auto component industry followed by engine and exhaust with a share of 20%. Electronics and electrical, transmission and steering, suspension and braking and interior segments accounts for 10% each.
Losses posted by few ancillaries, which have exposure in the overseas market, during the last fiscal are expected to register profit aided by the cost restructuring exercise implemented by them in their overseas operations in the second quarter, said in a report prepared by analysts Vaishali Jajoo and Yaresh Kothari of Angel Broking.
On year-on-year basis, the margins of a few tyre firms may be impacted on higher raw material cost. The state-owned Rubber Board data shows that the rubber prices surged up to Rs 18,600 per 100-kg in the second quarter current fiscal compared to the top price of Rs 10,900 in the same period a year ago. But the rubber prices started cooling down in the past two months that may lead to tyre copanies to post sequential growth. On an average the rubber prices declined to Rs 16,500 per 100-kg in September compared to 18,400 in July 2010.
Owing to raising input costs, tyre makers have hiked prices by 11-14% in the commercial vehicle radial segment and 18-20% in the passenger car tyre segment so far in 2010. Since rubber accounts for half of the operating costs of tyre companies, any hike in rubber prices will eat into their margins. According to a report released by another broking firm Emkay Global, Apollo Tyre’s Ebitda margins to decline by 730 bps y-o-y and 130 bps q-o-q while that of JK Tyre’s will decline 730 bps y-o-y but expand by 90 bps q-o-q.