Auto component suppliers to curtail capex by 35 %: CRISIL

In addition to conventional measures of pruning costs and managing working capital prudently, automotive (auto) component suppliers are now curtailing their capital expenditure (capex) plans by around 35 per cent to counter the slowdown in demand and pressure on margins, says CRISIL Ratings.

"Such proactive measures are likely to help players manage business pressures in a better manner than during the previous downturn in 2008-09 (refers to financial year, 1 April to 31 March), and ease pressure on their credit risk profile," it said in a statement.

It added, this is well-reflected in the fact that around 80 per cent of CRISIL-rated component suppliers had 'Stable' rating outlooks as on 31 Deccmber 2011.

Rising interest rates, a weaker economic environment, and high fuel costs have caused a significant slowdown in demand for medium and heavy commercial vehicles (M&HCVs) and passenger cars in  2011-12.

Says Anuj Sethi, head, CRISIL Ratings, ''Demand recovery in the medium and heavy commercial vehicle and passenger car segments is likely to be gradual, due to limited flexibility of the government to stimulate demand."
 
The increasingly uncertain business environment in Europe could also hurt export growth in the near term.  Domestic issues like labour, input price increases and volatility in foreign exchange rates are also seen as potential impediments.

An analysis of listed companies in CRISIL's rated portfolio of 275 suppliers revealed that their average profitability margins have been impacted by almost 200 basis points in the second quarter of 2011-12, as compared with the corresponding period in 2010-11.