New Delhi/Mumbai: The growth in exports of auto components from India is likely to dip to a five year low of 15.8% in the current fiscal year as an appreciating rupee makes it difficult for local companies to compete in overseas markets, according to data compiled by the Automotive Components Manufacturers Association (Acma). The industry group predicted that exports could decline by 25% in the next fiscal year, when the existing contracts come up for renewal.
Almost 6% of India’s nearly Rs15,000 crore a year auto parts exports is dollar-denominated, according to Acma data.
And this is being hurt by the 12.3% rise in the value of the rupee against the dollar since January. At the beginning of this year, the US dollar was worth Rs44.26, compared with Rs39.38 now.
Difficult times: Tata Motors plant in Pune. Auto parts imports are likely to grow at 35% this fiscal year, the highest in five years as Indian truck makers start importing from China and Thailand
Export contracts are typically long-term with fixed prices and yearly price-reduction clauses, which means component makers reduce the price progressively each year.
“The growth is not as high as in previous years,” said Nirmal K. Minda, managing director of the NK Minda Group, which makes lighting and switches. “This is primarily due to a slowdown in the auto markets in Europe and USA and an appreciating rupee.”
What’s made life more difficult for manufacturers is the slowdown in the domestic automobile market due to high interest rates and increasing sourcing from other low-cost markets.
Imports of auto components this fiscal year are slated to grow at 35%, the highest in five years, as Indian truck makers such as Tata Motors Ltd and Ashok Leyland Ltd start importing from China and Thailand, according to Acma.
“There are concerns both on the domestic and export fronts,” said K.K. Mital, fund manager at Escorts Asset Management Co. Ltd. “We are seeing margins stagnating and their export realisations are suffering too.”
An Acma study of the results of 40 listed parts companies for the half-year ended September showed a slowing down in revenue growth to 11%, compared with an average annual growth of 23% in the past five years.
Fifty companies in this category reported a decline in profits, it said.
The decline in the domestic auto parts sector has prompted some of the bigger companies such as Rico Auto Industries Ltd and Tata AutoComp Systems Ltd to look at building factories in China and South-East Asia to benefit from lower costs of power and other infrastructure.