Component cos defer capex plans on back of weak sales

Written by Ronojoy Banerjee | Ronojoy Banerjee | New Delhi | Updated: Sep 7 2011, 07:32am hrs
After significantly ramping up capacity in the last one-year to meet a scorching growth of 30% in car sales, the $40-billion auto component industry is now having second thoughts. Leading auto component makers are either re-considering their capital expenditure plans or deferring it by months.

The development comes in the backdrop of car sales managing a measly 1.1% growth in the April-July period at 5.98 lakh units far below the expectations of the 10-12% growth projection by the apex auto body Society of Indian Automobile Manufacturers (Siam).

Chairman of the countrys leading car air-condition maker Subros Ramesh Suri said that the company has delayed its capex plans by three-four months owing to a slowdown in car sales. He said that the company does not want to keep idle capacity hence would make an investment of Rs 80 crore only by September this year against its original plans of March. Subros supplies to a wide range of original equipment manufacturers (OEMs) including Maruti Suzuki, Tata Motors and Mahindra & Mahindra.

Pune-based component manufacturer Kinetic Engineering that supplies to both commercial vehicles as well as passenger cars has invested Rs 100 crore in expanding capacity in the last two years is also seeing demand for key components from auto makers slowing down. In the last few months demand has slowed down. However, we hope that the growth would pick up, said managing director of Kinetic Engineering Ajinkya Firodia.

Chairman and managing director of Setco Automotive Harish Sheth said that predicting growth in the automotive sector is very challenging.

After experiencing a tremendous growth last year which no one expected, suddenly we are seeing a slowdown which also was least expected by the industry. This is the reason why the industry is so vary of increasing capacity, he said. He added that his firm is also going slow in its expansion plans.

In 2010-11 the component industry grew at 34.2% to reach a total turnover of $39.9 billion against $30.1 billion in the previous financial year. During the year the industry added a total capacity of $2 billion. Automotive Component Manufacturers Association (Acma) expects the industry to add capacity to the tune of $3 billion in the ongoing financial year.

A Gurgaon-based leading component maker told FE on conditions of anonymity that car makers were also slashing their growth forecasts at the backdrop of falling sales.

However, Lumax Industries and Sona Koyo still continue to remain optimistic. Senior executive director of the countrys largest head lamp maker Lumax Industries Deepak Jain said that component companies have to invest and scale up capacity with a three to four year horizon. The long-term growth projection still remains intact hence a temporary slowdown should not deter anyone, Jain said. Lumax has lined up an investment of R150 crore to set up three green field manufacturing units.

According to ratings firm Icra the short-term forecast for the industry is somber. In our view, although the fundamental growth drivers of the Indian auto and auto components industry are intact with volume growth expected to be strong over the long-term, the industrys growth prospects over the short-term remain crouched in uncertainty, Icra said.