After being hit by appreciating rupee and sluggish demand, the auto component industry is likely to see sustainable or higher growth in margins in the fourth quarter due to an upward trend in auto production, correction in exports and stability in input costs, according to a report by Motilal Oswal Securities.
While, the aggregate revenue for the industry during the third quarter grew by 7.2%, operating margin was down by 40 basis points and net profit also declined by 1.3%. However, huge cash flows with original equipment manufacturers will help production go up further, the report has noted.
The industry is already grappling with a marginal negative growth of 0.6% during the third quarter, compared with a decline of 3.9% and 2.7% in the first and second quarter, respectively.
The impact of rupee appreciation also seems to be countered partially through price increases for exports as well as partial cost reduction. For instance, Bharat Forge has entered into a joint venture in China to leverage on the low-cost advantage that the communist county offers, and is also looking at new segments in India. Amtek Auto is looking at a 2-3% increase in export prices and Apollo Tyres is planning to come up with a plant in Hungary for passenger car radials. Rico Auto is also entering into a number of JVs for diversifying its client base. Moreover, the falling prices of most commodities are expected to reduce pressure on component manufacturers and help them improve operating margins, the report says. ?With interest rate softening in various sectors and domestic volume reviving, the industry is expected to see improvement in margins,? says an analyst.
