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Business News/ Companies / Auto parts firms take a big hit in Dec quarter
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Auto parts firms take a big hit in Dec quarter

Auto parts firms take a big hit in Dec quarter

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New Delhi/Mumbai: Though an industry association report said profits shrank sharply for auto parts makers in the three months to December on the back of rising costs and shrinking orders, the worst may be over, some firms said.

A report prepared for the Auto Component Manufacturers Association of India by Icra Management Consulting Services Ltd (iMaCS) looked at the financials of 47 listed component makers that include engine makers, transmission and streering suppliers, and electrical concerns.

While sales at the surveyed firms had been rising steadily for the past five quarters, they declined sharply in the December quarter, falling 12.2% to Rs5,326 crore from Rs6,065.3 crore in the same period the year before. Compared with the September quarter, the declines are steeper.

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The group swung to a Rs106.8 crore loss last quarter, compared with a Rs264.3 crore profit in the three months to September. Margins, which had been under pressure for the last five quarters, falling from 7.8% to 3.9%, stood at an average of -2% for companies surveyed.

An industry expert attributed the fall to a cutback in production as companies attempted to clear up stock. “The last quarter was bad as companies were clearing up inventories. I believe sales would rise by 10-15% this quarter," said Anil Srivastava, chief executive of advisory firm Global Economic Advantage Pvt. Ltd.

Last quarter, car makers such as Hyundai Motor India Ltd and MahindraRenault Ltd and truck makers Tata Motors Ltd and Ashok Leyland Ltd shuttered lines and reduced shifts. The 47 companies include industry heavyweights such as Bharat Forge Ltd and Sona Koyo Steering Systems Ltd, single part makers such as ZF Steering Gear India Ltd and Autolite India Ltd as also smaller players such as Mahindra Systech and Hella India Lighting Ltd.

Sales of cars, trucks and two-wheelers have fallen in six of the last seven months with sharp declines in the last quarter. Car makers sold 421,880 units in the December quarter, down almost 10% from 467,065 units the preceding quarter. Commercial vehicle sales fell by almost half to 75,428 units.

The shrinking demand reflected on the orders placed on suppliers. For some such as the RSB Group, which supplies propeller shafts and axles for commercial vehicles, the fall in sales meant the company had to look closely at costs. RSB focused on three areas to bring down costs. Services of contractual workers were terminated and the company reduced the number of vendors it sourced supplies from.

“Lean practices at various levels" were adapted, said chairman R.K. Behera. The result: the group cut variable costs by an average of 20%.

The company has also seen an uptick in orders from Tata Motors. “Commercial vehicle sales have improved in February and we expect it to improve further in the forthcoming months," said Behera. He expects to end the fiscal with roughly the same level of sales as last year—about Rs500 crore.

Jayant Dawar, chairman of the Sandhar group of companies, also expects sales to pick up in March as buyers take advantage of depreciation benefits for commercial vehicles. “The steep decline in commodity, oil and power costs has helped companies and the crisis seems to be over."

Graphics by Ahmed Raza Khan / Mint

samar.s@livemint.com

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Published: 27 Feb 2009, 09:00 PM IST
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