Investments worth $2 billion were made in the auto components industry in India (FY10: $1.7 billion). The expectation at the start of the current year was $2.5 billion for FY11-12. But given the conditions of slowdown, will there be investments of that order?
While it's a bit early to take a call on this, the Automotive Components Manufacturers Association hopes the current slowdown in the automotive industry would not deter auto component makers from making “substantial” investments for anticipated future growth.
With a spate of automobile launches planned in the next few months – and a 14 per cent CAGR estimated in the next five years for the auto industry – the blip in the current year must not curtail investments, says Mr Srivats Ram, President, ACMA. He says that substantial investments would be needed to keep pace with growth that is likely to happen in the vehicle industry over the next five years.
“One bad year must not slow down investments,” Mr Ram told Business Line. “The last few months have seen mildly negative sentiment with fuel rate and interest rate increase and expectation of further rate increase. But basic economic fundamentals and demographic dividend will ensure that growth will return.”
The automotive industry was looking at 14-15 per cent growth in FY12 (last year growth was 26 per cent) but current circumstances would peg it at 8-12 per cent. Growth of the auto parts market will be 15 per cent (30 per cent last year).
“This depends on how the government tackles inflation and things shape up in the latter half of the year because significant sales happen then.”
Global economic factors will also impact exports – two thirds of auto parts are exported to North America and Europe. “If there is only stagnation and not a double dip, the export market may be able to squeeze through this year.”
The turnover of the auto component in the country is estimated at $26 billion, with exports accounting for $5 billion.