US sanctions on Rusal to hit profitability of Indian auto firms, says Icra report

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Chennai | Published: April 24, 2018 5:44:32 AM

The Indian automobile industry is likely to be hit by a sudden spurt in prices of aluminium following US sanctions on Russian company Rusal, the world’s biggest aluminium maker (by primary production output) after China, an Icra report said.

Indian automobile industry, US sanctions rusal, world biggest aluminium maker, russia, CAGR, Icra“The sharp increase in aluminium prices will weigh on the profitability of auto-component suppliers as well as OEMs in the near term,” the report said.

The Indian automobile industry is likely to be hit by a sudden spurt in prices of aluminium following US sanctions on Russian company Rusal, the world’s biggest aluminium maker (by primary production output) after China, an Icra report said.“The sharp increase in aluminium prices will weigh on the profitability of auto-component suppliers as well as OEMs in the near term,” the report said. Over the past few years, aluminium content in a vehicle has increased gradually and steadily at the expense of ferrous content. Additionally, aluminium alloys have good impact absorption capability, thereby allowing superior structural capability without increasing the overall weight.

Ashish Modani, Icra assistant vice-president, (corporate sector ratings) said: “Generally, auto suppliers have inbuilt pass-on clause with OEMs, which provides adjustment for input price volatility after a lag of 1-3 months; this will impact the profitability of the auto suppliers vulnerable to cost increases in the interim. The automobile industry is already grappling with commodity prices pressure over the last 1 year, and this sharp increase in aluminium prices in recent weeks will further dent their operating profitability.”

“The revenue growth of auto ancillaries is expected to be at 11-13% for FY19e, given healthy growth expected across key automotive sub-segments as well as commodity price impact on realisation. We maintain our 10-12% long-term (5 year) CAGR expectation for Indian auto supplier industry,” he added.

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