Mumbai: With Indian auto makers facing rising inventories amid slowing demand, many component manufacturers, especially small enterprises, are increasingly facing delays in getting paid, demands for even later payment deadlines and are being forced to scale back.
Says a Gurgaon-based auto part vendor, who supplies critical components to companies such as Ashok Leyland Ltd, Eicher Motors Ltd and Force Motors Ltd: “The credit period given to the auto makers is usually 30-45 days. However, owing to the present crisis facing the industry, this period has got extended to as much as 90 days, in some cases.” He asked not to be named because of the sensitivity of the matter. Suppliers to commercial vehicle manufacturers are facing the brunt of payments delays as that segment has seen the most drastic sales declines in the past few months. Commercial vehicle sales have dropped by 36% for October from the year-ago month.
The chairman of a local auto component firm, which is a direct and indirect supplier of gearboxes and transmissions to commercial vehicle makers and has Rs200 crore in annual revenue, also said his payment cycle has, on average, gone up to 75 days from 30. “It has adversely impacted our cash flow. We have as it is been saddled with inventory at our end, because of commercial vehicle makers curtailing production,” he added while also not wanting to be identified.
Difficult part: Most small and medium auto parts manufacturing firms buy raw material from small companies and make cash payments. Any delay in payments upsets their entire business cycle. Ramesh Pathania / Mint
The turn of events has prompted the Auto Component Manufacturers’ Association, or Acma, which represents auto component firms, to write to the government for help, saying that the crippling liquidity crunch has hit vehicle demand, especially in the commercial vehicle industry.
“In the domestic market, the crippling liquidity crunch has slowed down vehicle demand, especially in the commercial vehicle industry. Payments from OEMs (original equipment manufacturers) to vendors are getting delayed, loans for capacity expansion are difficult to secure and even disbursement of loans already approved by the banks are being deferred,” said Acma in its statement.
“Of the 558 companies Acma represents, more than 300 companies fall in the small and medium enterprises scale. They have an annual turnover ranging from Rs10 crore to Rs50 crore. It’s these small and medium firms that are finding it difficult to cope with delayed payments,” said Jayant Dawar, vice-president, Acma.
Most of these companies, he said, buy raw material from small companies and typically make cash payments for such purchases. Therefore, any delay in payments for their finished products upsets their entire business cycle.
However, some suppliers with mostly overseas sales say they haven’t seen a major slowdown in payments.
Arvind Kapur, chairman of Gurgaon-based Rico Auto Industries Ltd, which does not supply to domestic commercial vehicle makers, said, “We have no issues with regards to payments from our customers and they are as prompt as before.”
Deepak Jain, executive director of New Delhi-based Lumax Industries Ltd, said though his company is not facing any payment-related issues from any of its customers, it has set up a special taskforce to recover outstanding debt of up to Rs8 crore over the next six months. “In the present context, with both the cost of finance and its availability becoming an issue, one has to generate cash from within the system. One of the ways can be to address ageing debts,” he said.
The slowdown in cash flows has also started to impact component makers’ capital expenditure plans, and they are now rationalizing productions according to the demand. In a conversation with Mint last week, L. Ganesh, chairman of the Chennai-based Rane Group, which supplies a diversifed range of components to commercial vehicles and passenger cars, said his group has trimmed its investment plans for the fiscal from Rs250 crore to Rs150 crore, and that could be trimmed further.
R.K. Behera, chairman of Pune-based RSB Transmission India Ltd, which supplies transmissions and other components to Tata Motors Ltd, among others, said his company had trimmed investment plans by more than half, from Rs300 crore to Rs140 crore.
However, most of them maintained expenditure on research and development and said projects designed specifically for upcoming models would not be altered.
Nishant Arya, a director at the New Delhi-based JBM Group, which supplies sheet metal components, skin panels and other components to Maruti Suzuki India Ltd, Tata Motors and Fiat, among others, said his company would continue work on a new skin panel facility in Ranjangaon near Pune for the Tata and Fiat models. “We had earmarked Rs250 crore for the project and there is no change in plans.”