Indian auto parts industry’s revenues are expected to grow by 10-12 per cent between FY18 and FY22, on the back of strong demand for vehicles, higher realisations and increased content per vehicle during the period, said senior analysts of rating agency ICRA.
“Despite all capex requirements and pressures because of the new technological changes in the market, we have a stable outlook on this industry. We have projected 8-10 per cent growth for the automotive industry during this five-year period,” said Pavethra Ponniah, Vice-President and Sector Head, Corporate Ratings, ICRA.
Amid emerging trends, such as shared mobility and electric vehicles, there is still a lot of potential for the growth of automobiles in Tier-2 and Tier-3 cities. “It is not yet a saturated market for any product category,” she added.
Explaining further, Subrata Ray, Senior Group Vice-President, ICRA, pointed out that the ‘feel good factor’ on account of strong economic growth and a fair amount of traction in disposable incomes will drive the penetration levels of vehicles. India has still some distance to reach saturation levels like a few other markets.
Manufacturing demand
Over the next 3-5 years, the demand for components is likely to grow by 9-11 per cent. Demand for components would be supported by increasing localisation by Original Equipment Manufacturers (OEMs), and higher component content per vehicle, he said.
During the previous five-year period (FY14-FY18), the Indian auto component industry grew at a CAGR of about 8.3 per cent, driven by steady demand from OEMs, after-market (replacement market) and exports.
Tech transformation
He said the auto parts industry was in the midst of a technology transformation. Development of new emission technologies and safety norms would entail significant incremental investments and a ramp up in R&D or technology sourcing.
The past three years have already seen high investments for supporting new products and capacities and this is likely to continue to evolve and grow with changing regulations.
Focus on localisation of components and technologies is a key area of investment for the industry. This would require a higher R&D to sales spend for Indian ancillaries. The average R&D/Sales for top global majors is about seven per cent as against sub 1 per cent for India.
Further, capex will have to stay consistently high at 7-8 per cent of sales over the next three years as witnessed during FY16-18.” said Ponniah.
For the Indian auto component industry to grow, a supportive policy framework is also critical. Incentives for R&D investments and a supportive framework for electric vehicle transition would be imperative.