Safety regulations for cars and motorcycles to propel demand for airbags and ABS: ICRA
Mumbai: New regulations and increasing safety awareness will fuel demand for airbags in cars and anti-lock braking systems in motorcycles, said ICRA Ltd in a research note on Monday.
ICRA estimates the market for airbags will reach Rs1,900-2,300 crore by fiscal 2018-19 from the current Rs800-900 crore, provided the new safety norms are implemented in a timely manner.
The above estimates assume that domestic passenger vehicle volumes will be around ~3.6 million units, while the cost of airbags will range between Rs6,000-7,000 across segments.
After many of the best-selling models in India failed crash tests conducted by UK-based New Car Assessment Programme (NCAP) in 2013, the government formulated a new vehicle safety assessment programme (commonly referred as BNVSAP) for the Indian market. Under these norms, passenger vehicles will receive star ratings based on how they perform under various crash tests and associated parameters. This will come into effect from October 2017 for new models and October 2018 and 2019 for all the existing models.
Although the proposed safety standards don’t make airbags mandatory, in order to achieve adequate safety ratings for frontal collision, air bags would become necessary.
“We believe this will also open up a sizeable market opportunity—Rs19 to 23 billion by FY 2020—for airbag suppliers as its penetration in passenger vehicles could increase exponentially from ~30-35% at present to around 90% in fiscal 2018-19.”
The market opportunity will be sizeable but the value addition for domestic suppliers would be low in the near term due to limited scope for backward integration and lack of technological capabilities, said ICRA.
“Our discussions with industry participants suggest that import content in airbags, which stands at 60-80% at present, is unlikely to decline significantly over the next 2-3 years as localization of key components (especially inflators) would require sizeable investments.”
However, the return on capital employed will still be comparable to other auto component segments due to limited capital expenditure requirements, the report added.sixthMAds
Meanwhile, the domestic two-wheeler industry is also likely to see the mandatory implementation of Anti-Lock Braking System (ABS) from April 2018 onwards.
The government’s decision is driven by the fact that two-wheelers are the most vulnerable segment and account for the largest proportion of road accidents as per various road safety studies. With an estimated market size of two wheelers at ~25 million units (in FY 2020), the market potential for new braking systems stands at ~Rs40 billion in fiscal 2019-20, ICRA said. Currently, only select high end bikes offer ABS as a standard fitment.