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Hike in aluminium prices to affect autocomp makers

11/05/2018 | Author: Autoguide | 0 Comments Back To Home   < Previous News   |   Next news >

ICRA Report

The hike in aluminium prices post US sanctions on RUSAL, one of the leading aluminium manufacturer globally, is likely to weigh on profitability of auto-component suppliers as well as OEMs in the near term, according to a report by ICRA. The price of the metal have went up by 30 per cent over last two weeks. 
Automobile industry, one of the key user industry for aluminium (along with its alloy), accounts for about 10 pr cent of the weight of a hatchback and 18-20 per cent in a two-wheeler. 
Mr Ashish Modani, Assistant V-P, Corporate Sector ratings, ICRA, 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. Already, automobile industry is grappling with commodity prices pressure over last one year, and this sharp increase in aluminium prices in recent weeks will further dent their operating profitability.”
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 overall weight. It is predominantly used in alloy wheels, radiators, doors and frames and in recent time find increased acceptance in cylinder heads and blocks of two-wheeler and Passenger vehicles.
ICRA expects industry-wide credit trends to remain stable, supported by robust demand from the OEM segment in the near term, supported by healthy cash accruals, gearing as well as coverage indicators for the industry have improved considerably over the past two years. Considering the increasing content per vehicle due to various technological advancement as well as regulatory measures (emission, safety regulations), the growth in the auto component industry will be relatively higher than the underlying growth in the automotive industry in the medium to long term.
“The revenue growth of auto ancillaries is expected to be at 11-13 per cent for FY2019e, given healthy growth expected across key automotive sub-segments as well as commodity price impact on realisation. We maintain our 10-12 per cent long term (5 year) CAGR expectation for Indian auto supplier industry,” Mr Modani added.

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