Ind-Ra upgrades auto sector outlook to stable

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Country's leading rating agency India Ratings & Research (Ind-Ra) has maintained a stable to negative outlook on the automobile sector for FY15, citing that the financial profile of most industry players is strong despite all segments displaying a y-o-y decline in sales volumes during April-December 2013.

The agency revised the auto sector outlook in July 2013 to stable to negative from stable.

Ind-Ra believes the low leverage of most auto original equipment manufacturers (OEMs) provides them the financial flexibility to sustain the on-going economic downturn. However, OEMs with limited product and geographic diversification could face further credit profile weakening.

The agency expects the commercial vehicle (CV) segment to post a 6-9 per cent y-o-y decline in domestic volumes in FY15. Given the low base of FY14 as well as the likely improvement in the industrial activity in 2HFY15, Ind-Ra believes a high single digit positive growth rate will be possible in 2HFY15.

This is reflected in the upper limit of the range of the expected sector growth rate.

According to Ind-Ra's base case, volume growth in passenger vehicles (PVs; including cars, utility vehicles (UVs) and multipurpose vehicles (MPVs)) will decline 3-8 per cent y-o-y in FY15.

Ind-Ra believes UVs, which displayed 51 per cent y-o-y growth in domestic volumes in FY13, will register a 2-4 per cent y-o-y decline in FY15 (base case) following an expected 4.6 per cent y-o-y decline in FY14.

In an optimistic scenario, where political certainty post the 2014 general elections results in a significant revival of economic activity, growth rates in the CV and PV segments could improve to around 1-4 per cent and 2-4 per cent, respectively.

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Story first published: Friday, January 17, 2014, 22:00 [IST]
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