Post Date : February 20, 2020
There is a possibility of supply chain disruption and negative impact on India’s automobile industry if the coronavirus outbreak in China and South-East Asia persists, says ratings agency ICRA. These countries have a crucial influence on the automotive supply chain. Key components and sub-components like fuel injection pumps, electronic parts, exhaust gas re-circulation modules, turbochargers are sourced from these markets, which directly or indirectly depend on China.
China accounts for 27 % of India’s auto component imports that are worth $4.8 billion and the impact is predicted to be higher for high value-add and customised components, while commoditised products could pass on to alternative suppliers, ICRA said in a statement.
ICRA’s Vice-President – Corporate Sector Ratings Shamsher Dewan said that there might be disruptions in India’s automotive supply chain,if the coronavirus outbreak continues to hamper manufacturing activities in China .
“The impact is estimated to be higher for high value-add and customised components, while commoditised products could shift to alternative suppliers. But high investments and gestation period involved in developing tooling remains the key prohibitive factor for an immediate shift to new suppliers.”Shamsher Dewan ,ICRA’s Vice-President – Corporate Sector Ratings
Disruption in the supply of certain critical components sourced from China will have a differential impact. OEMs sourcing components such as electronic components, meter sets, LEDs, magnets, airbag components, steering system components and electric vehicle components will be the ones most affected.
In particular, the impact will be more pronounced on commercial vehicle, passenger vehicle and the two-wheeler segments, it added. Lesser impact will be observed in the tractor segment which has high localisation levels with limited dependence on imports.
“Typically, companies maintain 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,” the ratings agency added.
For the passenger vehicle segment too the outlook 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 consumer sentiment. However, in case of two-wheeler higher prices of BS-VI vehicles and muted urban demand remain dampeners in potential demand growth.”ICRA
The tractors and the two-wheeler segment have stable outlook on expectations of a good rabi crop which will enhance rural demand sentiment.
So far as the auto components segment is concerned, the outlook is negative due to contraction in broad-based OE sales, subdued after market demand and muted export demand in light of global trade tensions which continue to impact the segment, it said.