The Hindu Business Line : Auto industry revs up capacity expansion plans

THE auto brigade seems to be in capacity expansion mode. While Maruti Udyog's announcement of its Rs 6,000-crore investment plan with parent Suzuki Motor Corporation may be making headlines, a host of other big-ticket capex investments have been firmed up for the next five years.

Even conservative estimates by market analysts put the domestic automotive industry capex investment figure at Rs 25,000 crore over the next five years.

According to the Society of Indian Automobile Manufacturers (SIAM), automotive vehicle manufacturers are set to invest a total of Rs 25,000 crore over the next five years.

Of this, about Rs 10,000 crore would be on research and development and the rest likely to be largely on capex.

On an average this translates into an investment of about Rs 5,000 crore every year for the next five years, compared to the total investment of only around Rs 1,708 crore for 2002-03.

In addition to Maruti, major investments on capacity expansion in the pipeline are Hyundai, which is expanding capacity at its Tamil Nadu plant and has also indicated the possibility of setting up a new unit, Toyota, Honda, General Motors, Mahindra & Mahindra, and Tata Motors, among others.

The scenario is similar in the auto components sector. An official from the Automotive Component Manufacturers Association (ACMA) said, "Investments on capex by automotive component companies would be around Rs 2,000 crore on an annual basis."

This would work out to about Rs 10,000 crore over the next five years.

"In fact, average capacity utilisation in the industry is close to 80 per cent now."

Key investments in the components sector include the proposed Rs 1,000-crore investment by Bosch, Rs 350 crore by Bharat Forge, Rs 200 crore by Goetze India and Rs 125 crore by Sona Koyo Steering Systems, among others.

While high growth in the domestic market is a driver for capex, market analysts said that much of the new capacity would also be utilised for exports.

In the case of auto components, for instance, a recent study by McKinsey had said that exports of auto components from India could be in the region of $20-25 billion by 2015.

Meanwhile, automotive vehicle manufacturers such as Hyundai, Maruti, and Tata Motors are already using substantial proportions of their current capacities for exports.

This trend is only likely to go forward, especially with India-made passenger cars, two-wheelers and three-wheelers finding favour in the exports markets.