DSIJ.in JULY 22 - AUG 4, 2019 I DALAL STREET INVESTMENT JOURNAL (^45)
well as the replacement market. The latter generates higher
margins and exports than the former. Owing to the competitive
nature of the OEM market, component manufacturers have to
settle for lower margins to secure bulk orders. OEMs exert
pricing pressure on the auto ancillary sector. As a result, auto
ancillary players have to strike a healthy balance between cost
reduction and innovation.
The data shared by the Department of Industrial Policy and
Promotion (DIPP) reveals that foreign direct investment (FDI)
inflows into the sector in the period from April 2000 to
December 2018 came in at US$ 20.85 billion. With the BS-VI
norms set to come into force in April 2020, automobile
manufacturers will inevitably make alterations at both the
engine and exhaust level in order to control harmful emissions
from vehicles. This will undoubtedly boost the demand for auto
components. The auto ancillary industry is also expected to
follow in the footsteps of OEMs in the adoption of electric
vehicle technologies. The mass conversion to electric vehicles is
likely to generate a domestic market for EV batteries in India by
2030 worth an estimated US$ 300 billion.
We took into consideration 67 companies operating in the auto
ancillary space and assessed their performance over the last
three years. On an average, the revenues in the sector rose 14.98
per cent in FY19. A staggering majority of companies reported
growth in topline in FY19, with the exception of Federal-Mogul
Goetze (India), HBL Power Systems, Panama Petrochem and
Hindustan Composites, which reported de-growth in topline of
1.32 per cent, 22.59 per cent, 5.68 per cent and 3.32 per cent,
respectively. Contrarily, some of the companies that reported
the highest growth in their topline include Taxmaco Rail &
Engineering (63.11 per cent), Ratnamani Metals & Tubes (53.92
per cent) and Welspun Corp (40.71 per cent). It is also
interesting to note that over 80 per cent of the companies
reported good growth in operating profits. For instance,
Texmaco Rail & Engineering’s operating profit showcased an
astounding improvement of 166.07 per cent. Several others
such as Setco Automotive, Precision Camshafts and JK Tyres &
Industries exhibited healthy growth of 60.50 per cent, 58.17 per
cent and 51.15 per cent, respectively.
On the profitability front, Rane (Madras) reported de-growth of
90.01 per cent, while Precision Camshafts and Welspun Corp
de-grew by 47.12 per cent and 43.28 per cent, respectively. On
the other hand, the net income of Texmaco Rail & Engineering
and JK Tyre & Industries increased by an overwhelming 443.39
per cent and 180.18 per cent, respectively. On an average, the
sector experienced growth of 7.73 per cent YoY in bottom-line.
In recent months, prominent ancillary firms witnessed a drop
in their market capitalisation owing to reduced orders, piled-up
inventories and an ambiguous future. This is attributable to the
overall slowdown in the automobile sector as a result of
complex regulations which will be implemented next year as
well as intensifying competition across segments. The
consumer sentiment is subdued and the impact of that is
evident in the sales numbers reported by auto manufacturers.
Despite the sharp decline in volumes, the overall performance
of the auto ancillary sector in FY19 is quite satisfactory. Most of
the players are not overly alarmed by the not-so-optimistic
market sentiment as their exposure is distributed across both
domestic as well as overseas markets.
Come 2020, India is likely to become the fourth largest
automobile manufacturer in the world after China, US and
Japan. The US-China trade war will render both markets volatile,
thereby giving countries like India much-needed leverage to rise.
As a consequence, the Indian auto ancillary sector is expected to
rise to the third largest position in the world by 2025.
449.54 570.56 488.41 3.25 3.36 16.58 -21.21 14.61 19.01 16.07 29.49 30.52 30.52
7.59 11.07 9.77 12.39 3.65 -6.45 -31.47 23.37 31.40 42.43 315.79 210.53 140.36
2668.89 3505.24 5918.44 4.54 1.03 -0.09 -23.86 12.31 18.74 42.66 4.24 4.24 4.24
16.38 30.27 29.14 20.57 19.30 38.39 -45.90 17.21 17.53 18.94 93.13 93.13 46.57
25.68 26.56 26.02 9.77 18.58 3.82 -3.32 15.67 17.52 18.76 55.44 55.44 55.44
9.93 7.86 8.16 11.93 13.75 26.29 26.29 14.84 12.91 14.64 85.00 85.00 85.00
27.78 23.48 68.10 15.92 21.65 26.68 18.30 20.03 20.78 23.19 140.66 140.66 140.66
40.02 38.06 74.17 16.79 18.21 5.15 5.15 17.71 19.30 22.69 38.66 38.66 19.33
11.88 12.65 21.59 16.23 18.45 -6.10 -6.08 6.86 8.49 15.83 57.21 57.21 50.90
28.31 27.59 28.01 8.99 7.76 2.58 2.58 15.42 17.04 20.32 17.08 17.08 17.08
13.15 9.47 4.47 22.23 29.07 49.61 38.83 12.47 10.29 6.42 378.80 378.37 378.09
35.63 20.82 69.96 29.90 35.85 4.17 71.19 28.69 27.00 26.74 52.44 17.41 15.87
12.86 7.86 8.94 14.86 33.64 54.03 63.61 16.29 11.58 14.11 18.77 18.75 18.74
33.11 33.40 27.74 17.10 23.62 9.58 -0.87 14.45 15.92 13.87 13.48 12.31 13.48
213.51 167.06 163.14 20.36 54.93 18.92 27.80 32.26 31.23 32.22 10.12 10.12 10.12
32.48 30.83 35.37 53.92 52.87 66.65 5.35 12.16 12.90 16.91 9.35 9.35 9.35
5.97 1.00 5.72 40.71 -1.41 -43.28 499.07 8.44 3.19 6.58 132.61 132.61 132.61
58.83 89.28 108.17 8.25 4.52 9.80 -34.10 8.38 14.80 21.43 40.45 40.45 40.45
8.28 7.40 8.23 9.55 6.60 -19.57 11.92 21.39 19.89 23.49 48.84 48.84 48.84
15.88 13.89 8.56 -1.32 -0.52 -0.72 14.28 14.61 14.91 11.21 55.63 55.63 55.63
EPS () YoY Growth FY19 (%) RoNW (%) Equity ( in Cr.)
FY19 FY18 FY17 Sales Operating Profit PAT EPS FY19 FY18 FY17 FY19 FY18 FY17
martin jones
(Martin Jones)
#1