Japan impact seen minimal on Indian auto cos

“Japan’s catastrophe is unlikely to have immediate impact on production of Indian auto and auto-ancillary industry but cost-push inflation could impact profitability of Indian auto manufacturers,” an analysis made by credit rating agency ICRA shows.

Some major challenges that could emerge include disruption in supplies of vehicles and vehicle assemblies to India and cost pressures arising from appreciation of the Japanese yen.

Besides there are apprehension that some of the Japanese auto makers, who have noticeable presence in India could delay their investment plans in India apart from postponing launches of their new models.

These challenges would only add to the difficulties arising out of the increasing trend in the prices of raw materials, especially steel, rise in interest rates that Indian automotive manufacturers are already grappling with and increase in customs duty on pre-assembled engine and gearbox.

ICRA Senior Vice President Subrata Ray says “cost-push factors such as higher commodity prices, foreign exchange volatility — especially with respect to yen and increase in landed costs of imports (for players with high dependence on imported assemblies) are factors that may affect financial performance of automotive and auto-ancillary players over the short term.”

While Indian subsidiaries of Japanese OEMs in the two-wheeler segment and most players in domestic commercial vehicle segment have relatively high levels of indigenization and thus limited dependence on imports, some OEMs in passenger car segment continue to have moderately high import dependence.

While production at various sites of automotive OEMs and auto-ancillaries in Japan was halted for a few days, ICRA believes that these events are unlikely to adversely impact automotive production in India in the immediate term as the various Indian importers maintain sufficient stocks.

Additionally, Indian auto-ancillaries and OEMs are monitoring the developments and identifying alternative locations for sourcing electronic components — most affected product segment.

However, if restoration of production in Japan takes longer, this may lead to shortage of select parts like technology intensive and proprietary parts, for which alternative locations may not be available, and impact production levels of those models in India, ICRA cautions.