The Rs880 crore auto parts group by revenue, Rico Auto Industries Ltd, said it was considering building factories in Thailand and China because a strong rupee is making it difficult for the company to remain competitive and win supply contracts with products made in India.
The company, which makes brakes systems and fuel assembly parts for car makers such as Maruti Suzuki India Ltd and Tata Motors Ltd, will announce the details of its investments in the next quarter, said its chairman and managing director Arvind Kapur.
“We have done a lot of surveys and identified paces,” said Kapur. “We are looking at starting operations in the next one-two years.”
Rico and other auto component makers such as ball bearings maker NRB Bearings Ltd and some units of Tata AutoComp Sytems Ltd are entering markets such as China and South-East Asia in a bid to take advantage of free trade agreements between India and these countries in some cases, lower costs of power and other infrastructure in others, and to follow customers such as Tata Motors and Bajaj Auto Ltd who are starting to assemble their vehicles in some of these countries.
What has, however, lent urgency to this plan is the almost 12.5% rise in the value of the rupee against the dollar since January. In January, the US dollar was worth Rs44.26 compared with 39.38 now. “In certain components, we (the Indian industry) have lost our competitive edge?to even Western countries,” said Kapur. “We are getting priced out and losing on contracts,” he added. Kapur didn’t specify the details of the kind of components.
Kapur and other Indian component makers say even their domestic sales are being threatened as local vehicle manufacturers?have?started?im-porting parts from China in a market where sales are already down?due?to?high?interest?rates.
Imports from China increased 69% to Rs1,295 crore in 2006-07, according to figures supplied by the Automotive Component Manufacturers Association of India. Overall, India imported Rs19,000 crore worth of auto parts in that year, including engine parts and gear boxes.
In the quarter ended September, the latest for which results are available, Rico reported a 7.6% dip in revenues to Rs201.5 crore as domestic customers bought fewer parts. Two-wheeler sales have dipped this year as buyers stayed away from the market due to higher lending rates, while growth in sales of commercial vehicles has slowed down to 1%.
Rico, which has an ambitious target of reaching $1 billion (Rs3,940 crore) in revenues by 2010, has entered into three joint ventures in the past year-and-a-half years with bigger parts vendors such as Magna International Inc. in an effort to access better technology and shore up its order books.
In October, the two companies announced a 50:50 joint venture to produce oil and water pumps for engines to be sold both in India and Europe from 2009. Financial details of the deal were not revealed.