Economy

Amid uncertain vehicle growth outlook, auto parts makers see bright spots in non-auto businesses

G Balachandar Chennai | Updated on November 19, 2020 Published on November 19, 2020

FILE PHOTO: There is uncertainty over post-festival season sales among auto OEMs   -  REUTERS

Component manufacturers see some relief coming from segments such as wind energy and defence

Several leading auto parts makers see favourable growth outlook in some non-auto segments over the short-to-medium term, giving some cushion to improve their business performance during these challenging times.

After a disastrous Q1 in this fiscal due to the impact of Covid-19, auto component parts makers benefitted from gradual month-on-month recovery in vehicle sales from July after the lifting of lockdown and a surprise surge in sales during this festive season. However, there is uncertainty over post-festive season growth outlook among auto OEMs.

Also read: Auto parts makers see improvements in utilisation levels on vehicle demand surge

Auto OEMs are worried about the demand drivers over the medium term. Most of them admitted that pent-up demand along with reasons such as social distancing norms spurred auto sales so far. But the auto industry is clueless about demand from January 2021 period.

Also read: Passenger vehicles wholesale up 14% in October

Non-auto segment

In these uncertain times, auto parts makers such as Bharat Forge, Sundram Fasteners and Wheels India among others see some relief coming from non-auto business areas such as wind energy and defence segments.

Also read: Volumes in automobile industry to decline across segments

Bharat Forge sees promising business potential in the wind energy segment as the Pune-headquartered company has bagged orders for products such as gearboxes both for domestic and international markets. The company does about ₹50 crore worth of business annually from wind energy and marine segments. But it has orders on hand to grow it to about ₹150 crore in a year.

Also, on the defence front, Bharat Forge had successful product trials in artillery and vehicle segments. But, the pandemic has delayed the processes.

TVS group company Wheels has planned ₹41 crore capex to support growth in wind energy segment. During H1 of this fiscal, the company secured about a fifth of its revenue from industrial components segment (non-auto) supported by the Railways and wind energy segment.

Wind energy, defence

“We saw a sharp demand in the wind mill segment even during the lockdown. We expect the growth to continue into the second half of the year too,” said Srivats Ram, Managing Director of Wheels India in a recent interaction.

Another leading auto parts company, TVS group’s Sundram Fasteners, has been aggressively focusing on non-auto segment such as aerospace and defence by launching a new subsidiary as a strategy to de-risk its business model against the cyclical nature of the auto industry. While it has earmarked ₹100 crore of its capacities for defence opportunities, the company is also looking for potential acquisitions to grow the business.

In its sixth five-year plan (2020-2025), Motherson Sumi Systems, one of India’s leading auto parts makers, plans to garner 25 per cent of targeted revenue of $36 billion by 2025 from non-auto business segments that include aerospace, defence, health & medical). The Aerospace business should benefit from the off-set clause as the company has manufacturing presence across geographies.

“Auto parts makers have been diversifying into non-auto segments over these years as part of de-risking strategy. But a big change witnessed in recent years as many companies want to pursue aggressive growth in a few non-auto businesses due to favourable growth outlook over a long term. During these tough times, growth in non-auto business will give a much-needed respite for these companies,” said an auto analyst at a leading brokerage firm.

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Published on November 19, 2020
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