Bumpy Ride For Auto Component Firms
- Date: 2009-04-12 - Word Count: 354
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Small-scale auto part makers and original equipment manufacturers (OEMs) in India are yet to find solutions to their current predicament. For over 8 months, this segment has been grappling with the adverse affects of the recession.
The demand slump and lower sales growth in the domestic and international auto market has made it difficult for Indian auto component companies to sustain their business.
Lower credit ratings from CRISIL has also impacted the credit flow to these units from banks and financial institutions, which are becoming increasingly reluctant to lend to both small and big auto parts suppliers and manufacturers
To worsen matters, the liquidity pressure and delayed payments have further aggravated the funding woes of this sector.
CRISIL lowers creditworthiness
According to a report by the Credit Rating Information Services of India Limited (CRISIL), a leading rating agency in the country, weak demand and flat growth of the auto component industry has deteriorated the creditworthiness of auto component makers and suppliers in India.
A sharp dip in the revenue growth, plunging sales figures and lengthening working capital cycles of small and mid-sized auto parts makers have compelled rating agencies to lower their credit ratings for the sector.
Reasons for the downslide
The problem of delayed payments by OEM's and auto part makers is largely attributed for their deteriorating credit quality. Rajesh S Kothari, Chairman, Rohan Automotive Equipments, says "Small auto parts suppliers are increasingly defaulting on payments to creditors, including banks since they receive late payments from international auto makers who buy their products from small vendors like us. Due to repeated defaults, loans are being denied to small auto firms by banks."
Consequently, the financial duress of small auto component makers has intensified further. "Poor ratings from CRISIL will make it even more difficult for us to secure adequate funds from banks. Since banks will approve loans on the basis of credit ratings, very few companies will have access to institutional credit," says Manu Vora, Kunal Auto Services, an auto component supplier based in Mumbai.
Given that it may take a while for companies to offset the adverse impact of economic crisis on their credit quality, companies have been advised to tread cautiously.
The demand slump and lower sales growth in the domestic and international auto market has made it difficult for Indian auto component companies to sustain their business.
Lower credit ratings from CRISIL has also impacted the credit flow to these units from banks and financial institutions, which are becoming increasingly reluctant to lend to both small and big auto parts suppliers and manufacturers
To worsen matters, the liquidity pressure and delayed payments have further aggravated the funding woes of this sector.
CRISIL lowers creditworthiness
According to a report by the Credit Rating Information Services of India Limited (CRISIL), a leading rating agency in the country, weak demand and flat growth of the auto component industry has deteriorated the creditworthiness of auto component makers and suppliers in India.
A sharp dip in the revenue growth, plunging sales figures and lengthening working capital cycles of small and mid-sized auto parts makers have compelled rating agencies to lower their credit ratings for the sector.
Reasons for the downslide
The problem of delayed payments by OEM's and auto part makers is largely attributed for their deteriorating credit quality. Rajesh S Kothari, Chairman, Rohan Automotive Equipments, says "Small auto parts suppliers are increasingly defaulting on payments to creditors, including banks since they receive late payments from international auto makers who buy their products from small vendors like us. Due to repeated defaults, loans are being denied to small auto firms by banks."
Consequently, the financial duress of small auto component makers has intensified further. "Poor ratings from CRISIL will make it even more difficult for us to secure adequate funds from banks. Since banks will approve loans on the basis of credit ratings, very few companies will have access to institutional credit," says Manu Vora, Kunal Auto Services, an auto component supplier based in Mumbai.
Given that it may take a while for companies to offset the adverse impact of economic crisis on their credit quality, companies have been advised to tread cautiously.
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David Parks is a well known author and has written articles on B2b Marketplace, B2B Portal, Measurement Calculator, suppliers, Manufactures and many other subjects. Your Article Search Directory : Find in Articles
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