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Pickup in passenger car space is forcing parts makers to start hiring: Harish Lakshman

Outgoing ACMA president Harish Lakshman expects the new foreign trade policy to bring some good news for the auto component industry.

Sep 15, 2014, 04.00 AM IST
Outgoing ACMA president Harish Lakshman expects the new foreign trade policy to bring some good news for the auto component industry. 
Outgoing ACMA president Harish Lakshman expects the new foreign trade policy to bring some good news for the auto component industry. 
The India-Asean free-trade agreement has benefited auto component makers in Southeast Asian countries such as Thailand because they are able to ship products at zero import duty while Indian companies have to pay tax when importing raw material, says Harish Lakshman, the outgoing president of the Automotive Component Manufacturers Association of India (ACMA).

The industry lobby group is working with the government to address this issue, and Lakshman tells Nabeel A Khan and Ketan Thakkar that he expects the new foreign trade policy to bring some good news for the sector. Edited excerpts:

Do you consider the current situation – vehicle sales have started rising after two years – as the beginning of a recovery cycle?

Definitely the sentiment has improved. Last two months’ sales in passenger vehicles and commercial vehicles are definitely encouraging. The worst is behind us and we are at the beginning of a new growth cycle. I still maintain that this year it will be moderate growth – we should not be overly excited – but I am sure 2015-16 and 2016-17 will be extremely good years for the automotive sector. Lots of capacities have been left unutilised.

How do you see this situation improving in the coming days?

There is excess capacity available. As the market picks up, more than the capacity, it will be ability to recruit the necessary manpower to get the output that will be the near-term challenge. In FY16 and FY17, you will see lot of investment going on in capex. By next year, I expect 85-90 per cent capacity utilisation, as against 65 per cent currently.

What is the kind of hiring you anticipate?

Definitely we see the recruitment drive starting sooner rather than later. Already, the pickup in the passenger car space is forcing many of us to go and start recruitment, which is good.

What have been the key learnings in the last two years?

It has been extremely difficult two years. When the Lehman Brothers happened (in 2008), we were all very worried, but the pickup happened very quickly and within six months the market revived and we had three years of boom period. This (the sales drop that followed) was unexpected. The slowdown in the economy, coupled with certain government-related matter, this hit us pretty hard, from a profitability standpoint, employment generation standpoint and excess capacity. But there have been lots of learnings. Everyone was forced to look at costs closely. Everyone worked hard on variable costs and the fixed cost.

Looking to the export market, the US market started picking up in 2011-12, so all the companies have started exporting more. The rupee depreciated to the levels of 60s (to the dollar, and that) made us more competitive. We started looking more at the outside markets, we started looking at costs. This has helped in de-risking operations.

Recently, ACMA sent delegates to the new exports market of Russia and Brazil. What has been the outcome?

We have looked at new markets like the Philippines, Vietnam, we are still looking at China; we think that there is an opportunity for Indian companies in China. This is a continuous process. However, Europe and North America will continue to be the largest markets for us. While there are lot of emerging markets where we will have sales, where growth rate may be high, but if you see the quantum of sales, it will continue to be Europe and North America.

Is FTA with Asean countries posing a challenge?

Countries like Thailand have benefited significantly from the FTA and we also have a problem with the inverted duty structure. We are working with the government to address all these. The foreign trade policy is scheduled to be launched at the end of this month. I am hoping that there will be some good news for the auto sector.

Is Southeast Asia turning out to be a major competitor for India?

On the macro level, I agree Southeast Asia is a competitor. I don’t fully agree that investments are getting diverted there. In fact, I definitely think that there has been a shift back to India, because of the exchange rate. As long as the Indian rupee is about 58 plus (to the dollar), Indian auto components will remain very competitive. And, also with China's currency appreciating and their own costs increasing, lot of companies are now looking to India than China. It is a clear trend that we are seeing.

How do you see exports going ahead?

We are looking at almost a fourfold increase (by 2020). It is a big challenge, but we are confident that given the competitiveness of our sector and attractiveness of India for global players, it will happen. We will be able to achieve our targets.

At what rate do you expect industry to grow?

It is very difficult to comment on the developing market. If you see in India, we had 20 per cent growth for two-three years and minus 5 per cent the next and reality will always be like that. You can never draw a clean straight line and say we will grow at 10 per cent or 15 per cent, there will be ups and downs; that is the nature of the business cycle. My estimate for the average CAGR for the auto industry will be around 12-13 per cent.
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