Rising automobile sales in India have arrested the downtrend in the auto parts business and spurred investments. Industry lobby group Automotive Component
Manufacturers Association of India (Acma) says investments in the business are expected to touch around $20.9 billion (Rs95,095 crore) by 2015-16, from $7.7 billion in 2008-09.
Strong balance sheets and financial health have made it possible for Indian firms to invest. Industry Ebitda (earnings before interest, taxes, depreciation and amortization) margins, which were around 11-12% between 2003-05, had declined during the recession in 2008-09. But the December quarter has seen the Ebitda margins inching back.
This time round, however, most of the investments are to cash in on the growing local auto market. Global auto firms are setting up shop to make India the small-car hub for domestic and overseas markets. For example, Hyundai Motor Co. produces the i10 model for world markets in India. Similarly, Volkswagen AG, Ford Motor Co., Nissan Motor Co. and General Motors Co. are increasing their commitment to India.
Investments are taking the shape of joint ventures (JVs), with Indian companies tying up with overseas firms. For example, Hero Motors Ltd and German ZF Group will together invest around Rs80 crore in the next two years to assemble axle and chassis systems.
The trend is different from what happened during 2003-08. Then, makers of auto parts invested in capacity additions and technology to gain entry into the global supply chain and boost exports, which were more profitable compared with domestic supplies. That’s probably because exports, which constituted around 21% of the industry’s turnover, grew at a compounded rate of 30-35%, when domestic industry was growing at around 20-25%.
Global markets are far from recovery now. “An optimistic estimate would be that the developed automotive markets would recover by early 2011,” a senior executive from an auto component firm said on condition of anonymity.
However, as the world automotive markets recover, these JVs and alliances will also give Indian component makers the technological edge to get into original equipment supplies there.
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