Slowdown in auto sales dents component makers1 min read . Updated: 25 Jul 2019, 01:26 PM IST
- The Street had already seen this coming and punished component stocks
- It is not rosy in overseas markets too for auto component makers
With auto companies hitting the brakes, component makers now feel the shock. Automotive Component Manufacturers’ Association (ACMA) on Thursday said the 14.5% growth in revenue of such firms was subdued during FY19 due to slowdown second half onwards. With unprecedented slowdown in auto sales and the resultant 15-20% cut in vehicle production, the component industry is staring at a crisis.
“If the trend continues, an estimated ten lakh people could be laid-off," said Ram Venkataramani, president, ACMA.
Earlier this week, the Indian arm of German component maker Bosch announced a five-day production cut at its Tamil Nadu unit and two days at Karnataka plant to adjust production to demand.
Management commentary of most component firms after the Q4FY19 results spelt caution.
Meanwhile, it is not rosy in overseas markets either. A third of the country’s component exports are to Europe. And, the European Automobile Manufacturers’ Association has cut growth estimates for passenger car registrations in calendar year 2019 to -1% from its earlier +1%.
Car dealers in the US are reporting a slowdown after a prolonged uptrend. Even Chinese auto firm SAIC Motor Company Ltd has forecast a drop in annual sales for the first time in at least 14 years.
Indian component firms have had a cushy ride, thanks to exports. News of global slowdown is bound to hurt companies such as Motherson Sumi Systems Ltd and Bharat Forge Ltd (large in the listed universe) which rely heavily on Europe and US markets, with their performance seen subdued in the quarters ahead. Stress on margins in international operations was seen in the last two quarters of FY19.
The Street had already seen this coming and punished component stocks. Since April, Bosch Ltd lost 19.31% and, Bharat Forge and Motherson lost 15.8% and 26.3%, respectively. Even recently listed firms such as Varroc Engineering Ltd and Endurance Technologies lost 24.9% and 18.13%, respectively.
This may well be the beginning of a sharper drop ahead if auto demand does not revive.