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Auto ancillary investment seen surging 43%

The Financial Express:  January 19, 2005

Mumbai: Spurred by the buoyancy in the auto sector, investments in the auto ancillary sector are rising rapidly. The total investments by the auto ancillary companies are expected to rise by around 42.82% to Rs 2,925 crore for 2004-05 from Rs 2,048 crore in 2003-04, according to the Auto Component Manufacturers Association (ACMA). This comes on the back of a 31.87% rise in investments in the year 2003-04 over the Rs 1,553 crore invested in the year before that.

Leading the pack, is Pune-based Bharat Forge Limited. The company is currently in the midst of a $100 million capital expenditure programme which is expected to be implemented by the fourth quarter of 2004-05. On completion, Bharat Forge will augment its forging capacity to over 3.5 lakh tonnes per annum and the crankshaft capacity to over 6.5 lakh crankshafts per annum. The company is also establishing a product testing and validation facility including a full service fatigue-testing laboratory.

Amforge Industries is planning to invest around Rs 17 crore by the end of the current fiscal against Rs five to six crore last year. This company is also expected to substantially scale up its investment in 20056-06 over that of 2004-05. Another company Hi-Tech Gears is planning invest Rs 40 crore this year.

The chief driver for the investment is that the auto ancillary companies have simply run out of capacity to cater to the demands of one of the world’s fastest growing automobile markets. For instance, Bharat Forge is operating at near full capacity utilisation (1.2 lakh tonne per annum). Amforge Industries general manager Ramakanth Sharma says, “the idea behind the investments is to increase volumes to cater to existing customers as well as potential new customers.”

Why are auto ancillary companies operating at full or near full capacity? ACMA president Deep Kapuria said, “the sales of all vehicles — commercial, passenger and two wheelers have grown substantially. Further, if the Indian auto ancillary industry has to reach the aspirational size of $40 billion in the next 10 years, then players have to invest in creating substantial capacity addition.”

Bharat Forge Limited executive director Amit Kalyani puts the whole issue in perpsective, “The 90s have been a decade for IT outsourcing followed by BPO that has accelerated in the last two to three years. Manufacturing outsourcing has been the next big wave and India is very much on the radar, along with China and Eastern Europe. The strong potential areas in Indian manufacturing industry for bagging outsourced work are manufacturing of engineered goods, component manufacturing for the automobile industry and low-technology hardware.” The global auto component market is currently at $850 billion and is expected to reach $1 trillion by 2015, out of which 25-30% ($200 - $300 billion) is possible to be sourced from low cost countries such as India, China, Brazil, Mexico, Europe, etc. He adds that India is aiming to capture at least 10% of this low cost country share. The Indian auto component industry is thus at the threshold of globalisation”. Is there anything that can affect the process? “ Well domestic reforms have to keep pace with the external environment,” said Mr Kapuria. For now, though the auto ancillary party continues.

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