Auto suppliers drop expansion plans on slowing domestic demand

Roudra Bhattacharya New Delhi | Updated on November 17, 2017 Published on September 05, 2012

Shifts focus to exports, eyes acquisitions to boost toplines

Slow growth in auto sales this year has made auto component makers sharply cut down on capacity addition plans for the fiscal, with smaller investments largely headed for only research and development activities.

Auto suppliers are now focussing on consolidating investments made during the last two years and driving cost efficiencies to improve the bottom lines.

“We hope to maintain the 15-16 per cent growth of the last few years through new products and customer additions, but will not be adding any new capacity. We’re looking at diversification into related sectors such as Defence and aerospace, as the margins are shrinking in the automotive sector,” Sandeep Balooja, President of Global Business Development, Anand Automotive. Anand operates 15 joint ventures and supplies to almost all automakers.

While total investments touched $1.6-1.9 billion in 2011-12, industry experts say that reaching even $1 billion would be a tough call this fiscal. The $43-billion domestic component industry includes exports worth $7 billion.

“This is a year of hiccup, but things should improve within the next 3-4 months. People have deferred investments, but diesel vehicles and exports are driving growth a bit,” said Arvind Kapur, Managing Director, Rico Auto, and outgoing President of the Automotive Component Manufacturers Association

Added Nishant Arya, ED at JBM, “The two-wheeler market is okay, but four-wheeler is flat. Commercial vehicles sales though have dropped. The festival season should create demand.”

Lumax, one of the largest lighting part suppliers, said the target investment of Rs 100 crore for the year is unlikely to be met. “This year, we’re putting money into R&D, which is something that we have to do with the many new products being developed. Till last year, we grew at 25 per cent CAGR, but this year I think it will be 15 per cent,” said Anmol Jain, Senior ED.

Inorganic Growth

While those sitting on a cash pile are eyeing acquisitions, some companies are viewing this period as an opportunity to gather new export clients. Exports, which is usually a higher margin business, is ideal at a time when the rupee is falling versus the dollar.

Anand Group is on the search for a suitable acquisition opportunity for Group flagship firm Gabriel, while Lumax and CK-Birla Group company National Engineering Industries (NEI) are both looking for buys abroad.

“We are looking for an acquisition of about $50 million and are speaking to four companies in Eastern Europe, Spain and Germany. We are just waiting to set up plants abroad as soon as our clients go global,” said Rohit Saboo, President & CEO of NEI.


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Published on September 05, 2012
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