Production volume of OEMs is estimated to either degrow or log low single digit growth at best in the next two years.
PUNE: Revenue growth for the beleaguered auto components sector would halve in next two fiscals due to a steep decline in domestic vehicles sales.
However, volume of original equipment manufacturers (OEMs) is estimated to either degrow or log low single-digit growth at best in the next two years, rating agency Crisil said.
It expects the Rs 3.5 lakh crore automotive components sector to log a 5-7 per cent compound annual growth rate (CAGR) over fiscals 2020 and 2021, down from 12 per cent in the preceding two fiscals, due to a steep decline in domestic vehicles sales.
Production volume of OEMs is estimated to either degrow or log low single digit growth at best in the next two years. Higher insurance costs, lower availability of finance and low growth in rural wages is affecting off-take in fiscal 2020, Crisil said in a statement.
Vehicle demand is also expected to be impacted by the new safety norms for passenger vehicles and two wheelers, applicable in fiscal 2020, and the Bharat Stage (BS) VI emission norms, which come into effect from April 1, 2020, as these will drive up vehicle prices across categories.
These factors are affecting new vehicle sales and in turn causing a telling impact on the automotive component sector, as OEMs account for 65 per cent of component demand.
However, the new safety and emission norms do offer a ray of hope to component manufacturers as these will increase the component content in vehicles, Crisil said.
“The upcoming safety and emission norms will boost demand for components such as air bags, engine systems, exhaust management systems, and electronic and electrical parts,” Hetal Gandhi, Director at Crisil Research, said.