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Automobile component industry in low gear
 CHENNAI
NOVEMBER 10, 2008
Less than two years
back, the mood in the $18-billion Indian automobile
component industry was buoyant. Every component
maker worth his nuts and bolts had double digit
growth rate on his future graph. But by the end of
2008, the outlook turned bleak to say the least. L
The Automobile Component Manufacturers’ Association
(ACMA) is now knocking at the government’s doors
seeking a 2-3 years “bridge policy” to help survive
the global financial crisis.
If the industry voices can be ignored for misplaced
or unwarranted panic, the numbers cannot be misread.
The first half numbers tell the story loud and
clear. Between April and September 2008, operating
profit margin (on net sales) of the 70-odd listed
component makers in India was down to 11.11 per cent
from 12.27 per cent in the first half of 2007-08.
Net profit margin fell steeper to 3.96 per cent in
the first half of this year from 5.26 per cent in
the corresponding period of 2007-08.
The big numbers repeat this story. While sales
during the first half of this fiscal grew by 24 per
cent, the aggregated net profit of these 70-odd
listed players fell by 6.64 per cent.
“We did see this slowdown coming when the sub-prime
crisis in the US came to light. But we definitely
underestimated its impact on us,” confessed Arvind
Dham, managing director of Amtek Auto.
When the global financial crisis took shape in the
US, exporters from India believed that their hope
was in Europe. “We felt the EU was insulated. But in
September, the EU too got affected. We did not know
the gravity (of the situation),” said Dham.
Sanjay Labroo, managing director and CEO of
automotive glass maker AIS, believes the mass
lay-offs in the auto component sector are inevitable
if the current slowdown continues. “The credit
squeeze in the market has affected the commercial
vehicle makers most,” he said adding there were
reports of about 60-70 per cent contraction in
production of commercial vehicles.
In a note to the media last week, ACMA president J S
Chopra summarised the industry woes succinctly: “In
the domestic market, the crippling liquidity crunch
has slowed down vehicle demand, especially in the
commercial vehicle category. Payments from OEMs
(vehicle manufacturers) to vendors are getting
delayed, loans for capacity expansion are difficult
to secure and even disbursement of loans already
approved by the banks is being deferred.”
Domestic sales of vehicles in the first seven months
of this fiscal grew by just 5.64 per cent against
the double digit growth in the last few years. Heavy
commercial vehicle sales are down by 10 per cent
with leading truck makers like Ashok Leyland
announcing cut in production till December this
year.
Chopra added: “On the export front, global
outsourcing from large traditional markets like USA
has taken a stiff beating and has seen a reduction
of up to 30-40 per cent in many cases. The overall
exports growth of the auto component industry has
slumped to a meagre 6 per cent in the April 2008-
September 2008 period, compared with a 25 per cent
CAGR over the last five years.
On the other hand, imports of auto components
continue to rise unabated at a high growth rate of
almost 50 per cent, with total imports growing to
$5.3 billion during 2007-08. Consequently, India
today is a net importer of auto components.”
A leading tyre maker pointed out that while his
business was equally dependent on the fortunes of
the vehicle makers, he at least had the replacement
market to bank upon during difficult times. “The
component makers had a good run for the last 5-7
years, but now they are having difficulty in
adjusting to a cyclical dip. While they were
relishing the cake, we learned to live on bread,” he
said. While nearly 70 per cent of the tyre makers’
revenue comes from the replacement market, it is
less than 10 per cent for component makers.
Some of the leading component makers are giving a
positive spin to the troubled times now. They see
the current slowdown as an opportunity to improve
efficiency. The Rs 2,500 crore Anand Group, which
has one of the most diversified production
portfolios in this component business, has taken
several measures to cut costs and improve
efficiency.
To begin with, all “business class” travel has been
stopped. “This is from top to bottom, and for both
domestic and foreign travel,” said Deepak Chopra,
President and CFO of Anand Group.
Apart from these, there are plans to prune the
bottom 5-10 per cent of workers, who do not live up
to the productivity expectations. Pruning of shifts
from three to two in select plants is also on the
anvil. “We are even looking at deferring capex in
new plants that will not affect our customers,” said
Chopra.
While the growth target for this Delhi-based group
was 24-25 per cent for 2008, it has now been brought
down to 15 per cent on account of the current
slowdown. “We see some silver lining in the
replacement market. When new vehicles sales come
down, people tend to run their cars and trucks for
longer by replacing parts. There is a 15-20 per cent
growth in this segment,” said Chopra.
In the next six to eight months, some believe that
exports will pick up. “US and Europe might be in
trouble now, but severe cost pressure will force
them to source more parts from low-cost economies
like India,” said an industry analyst.
In the last four to five years, exports have acted
as a cushion for any cyclical change in the domestic
demand. During this period, the industry
consistently exported a fifth of whatever it
produced, with US and Europe being the largest
markets.
While expectations for exports to improve may create
room for hope, the domestic demand-dependent auto
component industry will have to buckle up for a
tough 12 months ahead.
Source :
Business Standard |
