Auto parts sector on recovery path
Empirical evidence gathered from auto component manufacturers in the country
shows the industry is on the path of recovery, growing faster than expected.
Leading players say that the outlook for the auto component industry is good on the
domestic front, but discouraging on the export front.
In 2008-09, the automobile industry grew 2.96 per cent to 11.17 million units but
the components industry outpaced the vehicle manufacturers with a 6 per cent
growth. Last year, the total value of auto parts sold was Rs 76,300 crore.
Momentum to continue
|
in Rs Crores
|
|
|
2007-08
|
2007-08
|
%Growth
|
|
Turnover
|
72,000
|
76,320
|
6
|
|
Exports
|
14132
|
15,000
|
6
|
|
Imports
|
20998
|
27500
|
31
|
Industry experts feel that the momentum will continue, since the recovery in the
passenger car, two-wheeler segment and light commercial vehicles seems to be
sustainable, aided by dropping interest rates and better availability of finance.
Mr Vishnu Mathur, Executive Director of ACMA, believes that the segment is doing
better now. However, there is cautious optimism and better clarity will come after
the Budget. "As of now, we cannot make any forecasts for growth," he adds.
Last year’s sales volume was affected by the downturn from the third quarter and
slowdown in exports since the second quarter. Besides, volatility in commodity prices
and foreign exchange rates added to the woes, says Mr L. Ganesh, Chairman, Rane
Group. The power cut from the third quarter and high cost of diesel added fuel to the
fire to units in Tamil Nadu. Most companies saw stability on the cost front beginning
January 2009; however, it was too late to have a significant positive effect for the
year.
The Finance Minister's assurance of reducing interest rates further will help sustain
the current growth, says Mr Mathur. Mr Ganesh sees the current year to be better than 2008-09 if the trend in the
first quarter continues. The dramatic slowdown in the third quarter of 2008-09 was across
the board. Fortunately, since last January, all segments except commercial vehicles
started recovering after inventory correction.
Cyclical downturn
The CV segment has gone into a cyclical downturn since last month (May). This is
expected to correct only by the fourth quarter this year or first quarter of next year.
"The recovery has been reasonable for the component industry," says Mr Ganesh.
The Chairman of Sona Group, Dr Surinder Kapur, says auto component manufacturers having diversified market portfolio including aftermarket are better
placed than those focusing on one segment of the vehicle industry. Even considering
the current performance levels, India is doing better than the rest of the world
except China. However, it is necessary to be much more competitive.
Mr Vijay Menon of Kholapur-based castings manufacturer Menon & Menon Pvt Ltd
agrees that the auto component industry is recovering much faster than expected.
Except CV, other segments have shown an upward trend and it will continue in the
current year.
Exports hit
Exports have been affected due to lower demand from major markets such as the US
and Europe, says Mr Mathur of ACMA. Mr Ganesh views 2009-10 as a bad year for exports since the industry is facing an
uncertain situation. The current developments in the US market have to play out.
Dr Kapur indicates that component manufacturers who predominantly concentrate on
exports or cater to the CV segment have been affected significantly.
"The momentum will sustain and the best indicator is the stock market. Besides, it
also depends on the performance of the new Government, which many people
believe that it will do so," he says.
General Motors filing bankruptcy might turn an opportunity for Indian vendors. Those
who supply to specific North American models may suffer while others stand to gain.
Adds Mr Menon that those companies depending on export market can expect lessthan-
average growth during the year since the export market is in a bad shape. The
companies exporting a large percentage of their output, particularly to the US and
Western Europe could face a prolonged period of uncertainty.
Mr E. Balaji, CEO and Director of MaFoi Management Consultants, sees seven to nine
per cent growth in terms of number of enquires from automotive industry for
recruitment, in April-May period against the previous three months.
This is more from the passenger car and two-wheeler segments and not so many
from the auto component industry. During the first three months, nobody was willing
to even discuss recruitment. Now companies are willing to hire.
Mr V.G. Ramakrishnan, Senior Director (South Asia, Middle East & North Africa),
Automotive & Transportation, Frost & Sullivan, says it would take at least four years
for the CV component manufacturers to recover. "Overall, it will be a tough year for
the component industry," he says.
It will take a long time for the industry to revive to the level of the first half of 2008-
09. For this to happen, all segments of the industry should revive. The segment that predominantly decides the
overall performance of the auto component industry is CV, which could take at least another two years to revive
to the level of the first half of 2008-09.
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