Auto ancillary sector expected to maintain growth momentum: ICRA

The Indian auto components industry has experienced healthy sequential growth over the last one-and-a-half years, following a period of de-growth in 2008-09.

The recovery could be attributed to factors such as strong buoyancy in the end-user industry; recovery of the global economy; improved consumer sentiment and return of adequate liquidity in the financial system.

The revival of the auto industry was initially driven by the fiscal stimulus programme of the government. Nevertheless, the fact that the growth momentum has sustained even after withdrawal of such incentives in February 2010 highlights the strength of the underlying domestic demand.

Subrata Ray, senior vice president and co-head, corporate ratings, ICRA, says, ''The trend of automobile sales volume growth, and in turn the auto ancillary business growth is likely to hold over the short- to-medium term.

This is likely to be aided by strong underlying domestic demand present across all automobile segments, thrust on low-cost sourcing by Original Equipment Manufacturers (OEMs) and Tier-1 players based from developed markets, aggressive supply-side push from automotive Original Equipment Manufacturers (OEMs) in the form of new model launches and expected continuation of facilitators like easy access to vehicle financing, notwithstanding possible challenges related to pressures on commodity prices,  interest rate hardening and fuel price deregulation''.

While almost all segments of the automobile industry posted a steady growth over the last 18 months, the recovery in the medium and heavy commercial vehicle (M&HCV) segment was the slowest to gain momentum.