Auto component makers expect robust growth ahead

Mumbai: The continuing rise in car sales for five months has given automobile component majors such as Motherson Sumi Systems reason to redraw their focus. The Noida-based company earns nearly 80 per cent of revenue from outside India, primarily Germany.

"Given the positive outlook for the Indian car market, we plan to focus on domestic sales," says G N Gauba, chief financial officer, Motherson Sumi. The maker of wiring harnesses and mirrors for cars has all major original equipment manufacturers (OEMs) as clients. It is also a leading supplier of plastic components and modules to the automobile industry. Now, it plans to increase content per car in India.

The Indian automobile industry has witnessed weak demand for almost three years. After rising by about 30 per cent annually in 2009-10 to 2010-11, growth in auto component production slowed to 14 per cent in 2011-12 and three per cent in 2012-13. It worsened with a one per cent decline in 2013-14.

However, brokerage ICICI Securities says the industry's long-term growth story remains intact with production projected to grow 11-14 per cent annually between 2013-14 and 2018-19.

"We believe component players will be a beneficiary of a cyclical turnaround in auto sales," said ICICI Securities analysts Nishant Vass and Venil Shah in a note issued on Wednesday. They saw pent-up demand and lower penetration as reasons for the revival. Besides, sentiments have improved after the elections and the direction of growth and inflation is favouring demand. Also, fuel prices have peaked after being deregulated.

Sales of nine of the country's leading automobile companies during September stood at 208,923 vehicles, seven per cent more than sales in the same month of 2013. This follows 18 per cent growth in August. Slow growth in September was expected as demand is usually feeble during Pitra Paksha, a fortnight when Hindus abstain from acquiring assets.

"We have seen offtake from OEMs improving in the past couple of months and we expect this to gather momentum close to Diwali," says Surinder Kapur, chairman of the Gurgaon-based Sona Koyo Steering Systems, India's largest maker of steering systems for cars and utility vehicles.

At $38 billion, India's auto components industry is a mere five per cent of the $800-billion global market.

Seeing India's potential as an emerging manufacturing hub, global automobile companies Volvo, Volkswagen,General Motors, Bosch and Magna are investing here.

But while suppliers for car makers are upbeat, ancillary companies dependent on commercial vehicle makers are still waiting for a revival.

"We have not seen any recovery yet but expect it to pick up in the current quarter as economic growth revives," says S G Joglekar, chief financial officer at Pune-based Bharat Forge.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.