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Auto Components

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Auto Components

April, 2012

Introduction

The Rs 1,600 billion (US$ 30.77 billion) Indian auto component industry derives its growth impetus from the growth in automobile industry. Industry body Society of Indian Automobile Manufacturers (SIAM) expects overall automobile sales to grow by 10-12 per cent in 2012-13 on the back of supportive Government policies, launch of new models and intensifying enthusiasm for cars among Indian consumers. Therefore, it could be expected that increase in demand for automobiles would eventually drive growth for auto parts sector.

As per industry estimates, Indian auto component industry derives 60 per cent of its turnover from sales to domestic original equipment manufacturers (OEMs), 25 per cent from sales to the domestic replacement market and around 15 per cent from exports.

Industry Profile

According to industry statistics derived by Automotive Component Manufacturers Association of India (ACMA), Engine parts form the largest segment (31 per cent) of auto part industry followed by drive transmission and steering parts (19 per cent). Suspension & braking parts and Body & Chassis account for 12 per cent each in the entire product range, followed by equipment accounting for 10 per cent of the same.

Further, estimates made by ACMA reveal that auto component exports would robustly grow at a compounded annual growth rate (CAGR) of 18.8 per cent over 2011-21, garnering about US$ 29 billion. European and North American markets account for 36 and 23 per cent of the entire industry exports, respectively, while 28 per cent of the exports are made to Asian countries.

Recovery in the European and American markets is anticipated to give an impetus to the exports market as large exporters such as Bharat Forge Ltd have indicated that apart from passenger vehicles, demand for heavy trucks has surged by around 65 per cent in 2011. Moreover, component exports to Europe, especially by large companies such as Motherson Sumi Systems Ltd, are burgeoning. Industry experts believe that India's position as one of the best-cost countries has improved the outlook for high-end passenger car sales.

India: The Global Auto Hub

Supportive Government policies, positive business environment, availability of reasonably priced talented workforce and stable outlook for the industry has made India a global hub for the international manufacturers to set up their facilities in the country.

While many Chinese firms are looking to form strategic alliances with Indian auto component companies, UK-based auto component maker Caparo Group is vying to increase its profits by more than double (to about Rs 500 crore [US$ 96.16 million]) from Indian operations by 2013. The company already has 32 operating sites in India and is exploring possibility of setting up plants for composite materials in Southern India.

German automaker Volkswagen also plans to establish four component distribution centres in India to supply parts to its dealers and service centres. As a part of this plan, the company has already commenced work on its first regional parts distribution centre (PDC) in Gurgaon.

Meanwhile, US auto major Ford has broken the ground for its US$ 1 billion-manufacturing plant at Sanand in Gujarat. The plant, to be operational by 2014, is expected to manufacture 2.4 lakh cars and 2.7 lakh engines annually for domestic and export markets. The company has already attracted 19 component manufacturers to set-up shop at the location.

Key Developments and Investments

  • Auto component manufacturer Bosch India is contemplating to nearly triple its Antilock Braking System manufacturing capacity from current 300,000 units to about 800,000 units at its Chakan plant. The company plans to achieve this target by the end of 2013 at an additional outlay of Rs 40 crore (US$ 7.69 million).
  • Chennai-based automotive conglomerate TVS Group has acquired a 90 per cent stake in Universal Components UK Ltd for Rs 100 crore (US$ 19.23 million), as part of its expansion plans. Universal Components is a wholesale distributor of commercial vehicle parts.
  • Making its debut in forging industry, textile major Raymond's auto components arm, Ring Plus Aqua has acquired 78 per cent stake in Pune-based Trinity India for a consideration of Rs 54 crore (US$ 10.38 million). Ring Plus Aqua's current profile includes auto components such as flywheel ring gears, flexplate assemblies, integral shaft bearings and sheet metal pulleys.
  • Rajkot is increasingly emerging as a hot destination for auto majors with number of them setting up their operations in Gujarat. Auto component manufacturers based in the region are planning to invest Rs 200 crore - Rs 250 crore (US$ 38.45 million -US$ 48.06 million) towards capacity expansion and automation during 2012-13.

    Home to around 500 auto component makers, the industry in Rajkot is growing at a rate of 30-40 per cent churning a turnover of around Rs 800 crore - Rs 1000 crore (US$ 153.81 million - US$ 192.27 million) annually.

Government Initiatives

The Indian Government is in the process of forming a National Automotive Board (NAB) which would become a formal set-up to look into the issue of recall of vehicles and hence improve manufacturing standards. The prospective body, to oversee technical and safety aspects of vehicles, will have representatives from all the nodal ministries and automotive bodies such as the Automotive Research Association of India (ARAI).

The Government of Tamil Nadu has also announced that it will sign several memoranda of understanding (MoU) with various automobile and auto part makers and will soon release industry-specific policies. The reforms would give a boost to the state's position as a strategic auto destination.

Road Ahead

An analysis released by TechNavio predicts that auto component market in India would grow at a CAGR of 11.7 per cent over 2011-15. Apart from surge in demand for automobiles, rise in auto financing activities would spur the growth of the sector.

Also, on the back of improving markets in the US and Europe, industry experts forecast a very positive outlook for automotive exports in 2012.

Exchange Rate Used: INR 1 = US$ 0.0192 as on April 20, 2012

References: Media Reports, Press Releases, Automotive Component Manufacturers Association of India (ACMA) publication.