The slowdown in the Indian auto sector is far from over and most original equipment manufacturers (OEMs) are likely to face pressure on operating cash flows due to slower demand, lower margins and higher working capitals, according to Fitch Ratings? 2009 Indian auto sector outlook.
This, Fitch says, will put pressure on the liquidity of OEMs and credit metrics over the short- to medium-term.
Fitch expects volumes to stabilise over the first half of calendar year 2009, although at lower levels than in 2008. This will lead to negative year-on-year growth rates compared with 2008 until end of 2009, when the high base effect is corrected.
According to the rating agency, whilst the long-term fundamentals of the sector remain strong, the reversion to long-term growth rates (around 10-12% for cars and 8-10% for commercial vehicles) is likely to be longer and slower than in earlier cycles.
The situation is worse this time exports haven?t cushioned the impact like before owing to a severe slowdown in their respective markets.
Total domestic sales remained flat at 72,23,610 units between April and December 2008 compared to 71,96,613 units in the same period the year before.
Car sales, which saw a slight dip of 0.28% between the months of April and December at 8,64,449 units vis-?-vis 8,66,860 units, are likely to recover faster than commercial vehicles once credit availability improves. Volumes are likely to go up in 2009 as supported by the large number of new launches planned by various players, the report says.
According to the rating agency, the demand for commercial vehicles will get a boost once a stable economic environment comes about.