Indian auto suppliers' profitability to moderate in H212: Fitch

Fitch Ratings today said in its mid-year Outlook for Indian auto suppliers that the sector is expected to remain stable in view of steady demand, emanating from their diversified revenue streams, despite a likely easing of profitability in H212.

However, a fall in volumes in some sub-segments of the domestic auto industry could manifest into lower revenue growth for certain suppliers.

Fitch expects the profitability of Indian auto suppliers to moderate in H212 due to the limited ability of original equipment manufacturers (OEMs) to fully absorb high raw material prices, caused partially by a weaker rupee, alongside an increase in other input costs.

"The Indian auto supplier sector has benefitted from increased export competiveness on account of rupee depreciation along with the revival in demand from the US and penetration into new export markets," says Pragya Bansal, associate director in Fitch's Corporates team in India. 

"However, subdued growth in Europe negated part of the positive impact of the weaker rupee," Bansal adds.

According to the ratings agency, OEMs' increased thrust on localisation of imported components and newer vehicle technologies should keep capex requirements high for auto suppliers over the medium term as well.