MUMBAI – With India’s auto-components industry facing many of the same challenges as the country’s beleaguered OEMs, executives are adopting survival strategies of their own.
In the fiscal year ending in March, sales by Indian parts makers fell 5.9% and profits dropped 6.3% to Rs2.2 trillion ($39.7 billion). The results reflect declining auto sales and the depreciating rupee. In response, the industry is trying to increase exports, control costs and build brand identity for their products.
“India’s auto-components industry can become extremely competitive globally, as we have the ability,” Baba Kalyani, chairman and managing director of Bharat Forge, says during a recent Automotive Components Manufacturers Association of India convention in New Delhi. “We only need the right people, modern technology and capacity to innovate.”
Pawan Goenka, the new executive director of Mahindra & Mahindra, the country’s third-largest automaker, agrees with Kalyani that competitiveness comes from innovation: “The markets are down, because for the last five years, the cutting edge of technological innovation has not happened,” Goenka says at the convention.
Indian components makers currently sell 60% of their products to domestic automakers, and 25% goes to the replacement market, according to the component manufacturers group. Exports account for the remaining 15% and have achieved a 19% compound annual growth rate over the past six years.
The sliding rupee has created additional export opportunities for Indian components makers such as Motherson Sumi Systems, which is looking for opportunities to export wiring harnesses to the U.S. and China; Rane Holdings, a large supplier to Ford and Hyundai that plans to raise export revenues from 18% to 25%; and Ashai India Glass, which aims to triple its exports.
Like India’s automakers, the parts producers also continue to struggle with sharp and unexpected shifts in government policies or plans. Bureaucratic hurdles stifle manufacturing and rising energy prices continue to eat into profit margins. Growing government deficits are slowing the overall economy.
Spokespersons list the industry’s biggest challenges as inexpensive Chinese imports, currency fluctuations that cut into profit margins and relatively small investments in product development.
Indeed, some parts makers are investing in China or elsewhere so they can export those products to India. China accounts for Rs157 billion ($2.5 billion) of the Rs877 billion ($14 billion) in auto parts imported annually into India, according to government trade statistics.
Skeptical that the local auto industry will come back, Raghupati Singhania, managing director-JK Tyre, says on the company website: “We have therefore built a presence in Mexico (by acquiring tire maker TORNEL). We are exporting from there and even India is serviced from there.”
Not all investors have gone abroad. Cooper-Standard Automotive reported 18% growth and double-digit margins in 2011 in India and performed at the same level in 2012, but expects a threefold increase in profits in the current year, Chairman and CEO Jeff Edwards says.
Sharda Motor Industries, a manufacturer of exhaust systems primarily for Mahindra, has opened a new plant in India every year for the past 12 years. The supplier last year earned Rs200 million ($3.2 million) and has a hefty cash surplus, managing director Udyan Banerjee says in remarks posted on the company website.
Tata Steel, like Tata Motors a subsidiary of the Indian manufacturing conglomerate, is expanding its portfolio by producing high-grade steel in India to replace imports. “We are commissioning a continuous annealing line to produce these steels at an investment of Rs30 billion ($491 million),” a spokesman tells WardsAuto.
Plastics manufacturers including BASF, Bayer, SRF and Dow Chemical have seen sales grow at a 25% compound annual rate over the past four years, driven by the auto industry’s increased use of plastic to reduce vehicle weight.
A recent joint study by the Confederation of Indian Industry and the A.T. Kearney management consultancy, “Building World-Class Automotive Supply Chains in India,” predicts market volatility and escalation of costs will continue till 2020. It notes Indian logistics costs are 30% higher than those of China and other global auto markets.
But it concludes double-digit growth in aftermarket sales would help the parts makers tide over the current adversities.
India’s components industry is trying to create an identity for its products. While Germany is known for outstanding engineering and China has mastered mass-production techniques, local manufacturers are trying to create a brand image of quality and affordability while avoiding the low-cost label.
“Low cost is not an advantage,” Goenka says.
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