Download Free PDF

  • HOME
  • ABOUT US
  • SUBSCRIBE
  • ADVERTISE
  • E-NEWSLETTER
  • CONTACT US
91-22-24193000
Subscriber@ASAPPinfoGLOBAL.com
Automotive Products Finder
  • BEST STORIES
  • INTERVIEWS
  • NEWS UPDATES
  • PRODUCTS
  • EVENTS
  • ARCHIVES
Automotive Product Finder Magazine | Electrification brightens future of auto and ancillary industry

Electrification brightens future of auto and ancillary industry

Trends that strengthen the safety and emission game
BreatheEasy introduces IQAir Atem Car air purifier in India

Cover Story  /   April

A whirlpool of changes is about to storm the auto industry, including BS–VI, CAFE norms, alternate mobility, among others. India is likely to adopt BS-VI from 1 April 2020, under which all vehicles will be required to comply with higher emission standards, thus making vehicles costlier. With the price gap between diesel and petrol narrowing, Richa Bulani expects the proportion of diesel cars to decline after the BS-VI adoption.

The auto sector is witnessing several regulatory changes including BS-VI, CAFE norms, higher axle load norms, vehicle scrappage policy as well as alternate mobility. The ongoing regulatory changes in the industry and lack of clarity on the policy front, brings uncertainty in the demand pattern. As per industry estimates, post BS-VI implementation, the cost of PVs and 2Ws is likely to rise by 10-15 per cent. The cost of a diesel variant PV and a CV may increase by 20-25 per cent. Due to likely rise in vehicle prices from FY21 onwards, Ind-Ra expects advancement in demand in 2HFY20 due to early vehicle purchase by consumers.

Higher development and testing expenses related to the upcoming regulatory changes, and increased compliance cost will lead to an increase in cost of vehicles. Moreover, Ind-Ra expects an increase in discounting levels by OEMs to gain volumes and increase the market share in FY20, and is thus likely to have a negative impact on the margins. As a result, the agency expects margins to remain range-bound in FY20. As per industry estimates, average discounts over 3QFY19 were at peak levels of around Rs 24,000 in the PV segment and is unlikely to go significantly below the current levels.

Hindrances to electrification

Electrification is trending to be the next wave of revolution in the auto industry worldwide. Despite the government’s thrust on EV sales, Ind-Ra believes that EVs will take longer to penetrate and its impact in the near-to-medium term would be insignificant. This is mainly due to lack of charging infrastructure, economic viability of EVs in relation to internal combustion engine and inadequate resources of lithium and cobalt in India. Ind-Ra continues to believe that there would be several technological collaborations among OEMs for the development of EVs and electric batteries.

FAME-2 policy is likely to provide the required impetus and clarity to OEMs to manufacture EVs. Although the majority of OEMs have announced capex to launch EVs, and also entered into technical collaborations, lack of a proper EV policy and other cleaner technologies such as hybrid, CNG, biofuel and methanol, have shied away OEMs from making huge investments on the EV platform. The government's commitment towards EV is also visible from the reduction in import duty on EV parts and components to 10-15 per cent from 15-30 per cent.

Ind-Ra believes EV penetration is likely to be faster in public transportation than private vehicles. Also, it is likely to be faster in 2W (especially scooters) due higher economic viability and easier charging options. In the long-term, a shift towards cleaner technology could see increased collaborations in this space.

Various norms at play

Advancing regulatory norms will provide growth opportunities for auto component players. The evolving emissions and safety regulatory norms along with a trend towards premiumisation and digitalisation are likely to increase the content per vehicle, thus driving growth among auto ancillaries. Ind-Ra expects increased technological tie-ups to develop products in compliance with the BS-VI norms.

The industry will continue to equip itself to adopt the BS-VI fuel emission norms; BS-VI compliant components will also drive exports growth. Further, due to increased focus on road safety, the Ministry of Road Transport and Highway has made it mandatory for all new cars to be equipped with airbags, seat-belt reminders, reverse parking sensors, and a manual override for the central locking system for emergencies by July 1, 2019. These changes would lead to higher demand of products complying with the regulatory requirements. The final version of the National Auto Policy (NAP) is also expected to be released in 2019. The NAP (draft unveiled in February 2018) outlines a roadmap to achieve emission standards in line with the global benchmarks by 2028. Further, the second phase of the FAME scheme passed recently in February 2019 will promote localisation of EV components, which are largely imported currently.

EV provides opportunities for auto ancillaries

Although EV would be disruptive for the ancillary sector in the long run due to substantial decline in components per vehicle, electrification is likely to provide opportunities to ancillary segments such as forging, plastic moulding, battery, among others in the short-to-medium term. The government has been emphasizing on local production or assembly or EVs and parts, which also visible from the adoption of FAME-2 policy. It requires 50 per cent minimum localisation content (40 per cent for buses) and the recent reduction of import duty as stated earlier. FAME-2 will provide subsidies not only for purchasing EVs but also for building charging infrastructure. The policy would drive volume growth in the electric 2W-3W and public transport segment, which will push localisation of raw materials. They are currently being outsourced from China due to unviable volumes. Ind-Ra expects impact of the same to not be significant in FY20, and to be more gradual over the next three years.

Capex likely towards new technologies

Ind-Ra expects the capex of ancillary sector to stay at an elevated level, to develop new products for meeting stricter emission standards and higher R&D spending towards greener technologies and solutions. Amid ongoing capex needs and continued dividend payouts, most sub-sectors in ancillary sector are likely to report negative free cash flow in FY19 and FY20. Increasing digitalisation would also lead to the ancillary sector witnessing competition from entities in the non-auto space. The advancement of technology and a shift to alternate fuels could see a continuation of mergers and acquisitions in the sector. Ind-Ra expects the sector companies to embrace inorganic growth in the medium to long term. Such acquisitions could also be debt-funded partially. The tyre sector is going through a capacity addition cycle and is likely to see high capex in FY20-FY21. Diesel engine companies are likely to see a moderate decline in BS-VI related capex after achieving the peak of capex in FY19.

In spite of moderately high capex, the average industry credit metrics of sector companies are likely to remain stable in FY20, due to higher revenue growth supported by the capacity added in FY18-FY19 and stable margins.

Battery players eyeing to capture lithium-ion opportunity

The battery segment over the medium- to long-term would face the threat of increasing adoption of Li-on batteries in the industrial segment as well as shift to EVs. EV will also bring in opportunities for the battery sector in e-mobility, motive power and solar batteries. The top battery players such as Exide Industries Ltd and Amara Raja Batteries Ltd are already taking steps towards capturing the opportunity of localisation in Li-ion batteries. New product development, technology upgradation and capacity addition capex are likely in the sector over the next two to three years. However, strong liquidity and net debt-free position of the top two players will absorb the new capex investments without impacting credit metrics.

Richa Bulani is a Senior Analyst, part of large corporate ratings with India Ratings and Research, a Fitch Group Company. She overlooks the consumer sector and manages a portfolio of companies including automobile and auto ancillaries’ companies. Previously, she has worked with Deutsche Bank and CARE ratings. She holds an MBA (Finance) degree from MET Institute.

Tags Cloud
  • Electrification Brightens
  • Auto Industry
  • CAFE Norms
  • Richa Bulani
  • Scooters
  • Exide Industries Ltd And Amara Raja Batteries Ltd
  • India Ratings And Research
  • Fitch Group Company
  • MET Institute
  • National Auto Policy
Advertise Here [600 W x 90 H pixels]

Comments

Loading ...
Social
Become a fan
Like
Follow us
Follow
RSS
Subscribers
Popular posts
ACMA urges Haryana to reconsider law of 75% reservation for locals in pvt sector
ACMA urges Haryana to reconsider law of 75% reservation for locals in pvt sector
News,
Nov 2020
Valeo launches compact electric powertrain for last mile connectivity in India
Valeo launches compact electric powertrain for last mile connectivity in India
News,
Nov 2020
48V engine: A promising solution for eco-friendly commuting
48V engine: A promising solution for eco-friendly commuting
News,
Nov 2020
Most commented
0 BreatheEasy introduces IQAir Atem Car air purifier in India
0 Bridgestone India unveils new tyre V-STEEL Mix M721 for CVs
0 Govt proposes co-driver airbags mandatory on all cars
Latest Comments
1
None says:
None
2
None says:
None

Posts Categories

  • BEST STORIES
  • INTERVIEWS
  • NEWS UPDATES
  • PRODUCTS
  • EVENTS
  • ARCHIVES

Twitter Feeds

Contact Us

ASAPP Info Global Services Pvt Ltd.

A-303, Navbharat Estates,
Zakaria Bunder Road,
Sewri (West),
Mumbai - 400 015,
Maharashtra, India


Tel : 91-22-24193000, Fax : 91-22-24175734
Email : Subscriber@ASAPPinfoGLOBAL.com
Website: www.ASAPPinfoGLOBAL.com
  • HOME
  • ABOUT US
  • SUBSCRIBE
  • ADVERTISE
  • E-NEWSLETTER
  • PARTNERS
  • CONTACT US

© COPYRIGHT 2019 ASAPP Info Global Services Pvt Ltd. All Right Reserved.