NOT IN AUTO MODE ANYMORE
Fitch ratings expects profitability for Indian auto suppliers in H2' fiscal 2012 to moderate significantly. According to the rating agency a fall in volumes in some sub-segments of the domestic auto industry could manifest into lower revenue growth for certain suppliers. Limited ability of original equipment manufacturers (OEMs) to fully absorb high raw material prices, caused partially by a weaker rupee, alongside an increase in other input costs is also cited as a significant headwind for the sector.
RATINGS UNDER THREAT ?
Fitch expects an easing of operating profitability along with a lengthening of credit cycle to necessitate the need for higher working capital. This is in addition to the long-term borrowings from previous capex plans or proposed projects, which would be likely to weaken the credit metrics of auto suppliers over H212. However, the limited exposure of Indian auto suppliers to foreign currency borrowings would help prevent any large alteration in their credit metrics in 2012 from rupee depreciation. A sharper and widespread fall in automotive volumes beyond 2012 could adversely impact OEM's operating cash flows and in turn lengthen their payable periods to auto suppliers. Auto suppliers' stressed liquidity through higher working capital borrowings could constrain their financial flexibility for completion of capex plans and may cause a revision in the outlook to negative.
Source: Fitch Ratings
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