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India: Automobiles
Equity Research
Impact from component supply shortages possible after April
Low impact on production so far, tough to estimate beyond April
1) Within India’s domestic auto market, there has so far been no reported
impact from the earthquake related supply disruptions in Japan. 2) The
largest carmaker Maruti Suzuki has reported existing inventories could last
till about end of April, and any impact beyond that is difficult to estimate.
They currently have about 20% raw material and component import
exposure in our view, including an indirect exposure of about 10% through
their vendor system. 3) We note that direct exposure for other OEM’s under
our coverage is significantly lower (1%-5%), though a lagged impact cannot
be ruled out from potential disruptions in supply of specialty steel, plastic
and electronic components in the vendor system. 4) For Indian auto plants
of new competitors (unlisted in India) import dependence is higher due to
lower level of vendor localization.
Global production impact also tough to estimate, focus on semis
Our global auto research teams make the following observations: 1)
Japanese auto production could see a realistic downside scenario of a 10%
to 20% loss of June and September quarter production. 2) Impact on auto
production in other parts of the world is currently difficult to estimate, and
will essentially depend on the weakest link in the supply chain. We see
semiconductors, rubber products and plastics as the main component
types affected by the earthquake in Japan. 3) Semiconductors present the
largest concern due to their shorter supply chain driven by air logistics,
high utilization rates at fabs before the earthquake and long lead times in
validating additional supply. Having identified the automotive
semiconductor supply as the crucial driver, we believe developments at
Renesas, Fujitsu, and Toshiba will be the focus.
Potential impact in India over next 4-6 weeks, likely to be one-off
1) We believe there is likely to be some impact on India’s car production
over next 4-6 weeks, though visibility on magnitude is currently low. 2) For
Maruti Suzuki, our sensitivity suggests 1.4% potential impact on FY12E EPS
from 1% lower production. 3) However, we think this could be one-off in
nature with limited impact on the long run earnings potential of the
company. We believe that production will recover with normalization of
steel and auto ancillary plants in Japan.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India: Automobiles
Equity Research
Impact from component supply shortages possible after April
Low impact on production so far, tough to estimate beyond April
1) Within India’s domestic auto market, there has so far been no reported
impact from the earthquake related supply disruptions in Japan. 2) The
largest carmaker Maruti Suzuki has reported existing inventories could last
till about end of April, and any impact beyond that is difficult to estimate.
They currently have about 20% raw material and component import
exposure in our view, including an indirect exposure of about 10% through
their vendor system. 3) We note that direct exposure for other OEM’s under
our coverage is significantly lower (1%-5%), though a lagged impact cannot
be ruled out from potential disruptions in supply of specialty steel, plastic
and electronic components in the vendor system. 4) For Indian auto plants
of new competitors (unlisted in India) import dependence is higher due to
lower level of vendor localization.
Global production impact also tough to estimate, focus on semis
Our global auto research teams make the following observations: 1)
Japanese auto production could see a realistic downside scenario of a 10%
to 20% loss of June and September quarter production. 2) Impact on auto
production in other parts of the world is currently difficult to estimate, and
will essentially depend on the weakest link in the supply chain. We see
semiconductors, rubber products and plastics as the main component
types affected by the earthquake in Japan. 3) Semiconductors present the
largest concern due to their shorter supply chain driven by air logistics,
high utilization rates at fabs before the earthquake and long lead times in
validating additional supply. Having identified the automotive
semiconductor supply as the crucial driver, we believe developments at
Renesas, Fujitsu, and Toshiba will be the focus.
Potential impact in India over next 4-6 weeks, likely to be one-off
1) We believe there is likely to be some impact on India’s car production
over next 4-6 weeks, though visibility on magnitude is currently low. 2) For
Maruti Suzuki, our sensitivity suggests 1.4% potential impact on FY12E EPS
from 1% lower production. 3) However, we think this could be one-off in
nature with limited impact on the long run earnings potential of the
company. We believe that production will recover with normalization of
steel and auto ancillary plants in Japan.
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