Auto parts industry sees good days ahead
After a lull of two years, positive sentiment has returned to the automotive component industry, and companies are considering investment in capacity building as they expect demand to return.
Component supplier Uno Minda Group is looking at expansion. “We are quite bullish and see that the market has bottomed out and a revival is around the corner,” Chairman and Managing Director Nirmal Minda said. “I hope that soon our capacities will be fully utilised and we need to have additional capacity.” Nirmal Minda is considering a new plant in Gujarat to manufacture alloy wheels.
Another component maker, National Engineering Industries Ltd, a CK Birla Group company, is investing Rs 500 crore towards setting up of a new plant, also in Gujarat. The component industry had been struggling for the past two years due to subdued demand, as auto makers cut back on production in a slowing economy. The vehicle manufacturing industry is now showing signs of a pickup – car sales have grown for four straight months through August, while volumes of commercial vehicles have turned positive in the past month for the first time in two-and-half years.
Capacity utilisation in the auto component segment, which has come down to 60%, is expected to rebound to 80-90% in the next two-three years. In 2013-14, the segment’s total revenue declined by 11.5% from a year earlier to $35.1 billion, leading also to major job cuts during this period. “The government has instilled confidence in the market with assurance of positive policy changes. We hope that by the fiscal year 2014-15, capacity utilisation will go up to 90%,” Harish Lakshman, president of the Automotive Component Manufacturers Association of India (ACMA), said on the sidelines of the industry body’s 54th annual conference here.
Vikram Kirloskar, vice chairman of Toyota Kirloskar Motor and president of the Society of India Automobiles Manufactures, said the component industry should be prepared for an uptake in vehicle manufacturing so that it doesn’t suffer from capacity constraint when demand picks up. Offering his support, Heavy Industries Minister Anant Geete said the government is committed to ensuring positive and conducive environment for auto manufacturers so that they can compete with their global rivals.
On extension of the current excise duty concessions beyond December, Gete said the government is already discussing the matter. “We will take the decision at an appropriate time,” he said.
Under the current scheme introduced earlier this year, small cars, scooters, motorcycles and commercial vehicles attract an 8% excise duty, compared with 12% previously. The duty on large cars is 24% compared with 27% earlier, and on mid-size cars 20%, down from 24% previously.
A joint report of ACMA and McKinsey forecast automotive component to be a $100 billion industry by 2020, compared with $35.1 billion now. The report forecasts revenue to come from both local sales and exports.
Currently, India is ranked 22 among global component exporting countries. China is at the third spot on the list led by Germany and the US. Only one Indian manufacturer features among top 100 global suppliers. According to the McKinsey report, India will jump to 9th spot in exports by 2020. “I don’t see any reasons as to why we cannot get Indian suppliers for global consumption. They are equally competent in terms of quality,” said Nigel Harris, president of Ford India.