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Braces up for steady growth curve

Auto-component production is forecast to enter steady growth pace in 2016-17, aided by improved demand from vehicle makers.

Braces up for steady growth curve

The turnover of the Indian auto component industry stood at Rs.2.55 lakh crore ($39 billion) for the fiscal 2015-16, registering a growth of 8.8 per cent compared to Rs 2.34 lakh crore ($38.5 billion) in the previous fiscal. Indian auto component industry recorded a CAGR of 6 per cent over the last six years.

Indian automobile industry has reached an important milestone, clocking about 24 million units in domestic production in 2015-16. The commercial vehicle industry that had been facing muted sales has bounced back growing 12 per cent with domestic production crossing 7.8 lakh units. With meteorological department forecasting a normal monsoon combined with government’s push on infrastructure development, overall automotive and tractor sales are to gain momentum.

During this fiscal, the domestic auto component industry is expected to grow in low double digits on back of recovery in vehicle demand.

“Despite a challenging year, the auto component industry has registered a satisfactory growth of 8.8 per cent in 2015-16. Further, while overall exports from India witnessed de-growth of 9.58 per cent, the Indian auto component industry exports grew by 3.5 per cent. With signs of recovery in the auto market in the country and prospects of a better monsoon, the component sector is expected to witness growth in double digits this year,” said Arvind Balaji, President, Automotive Component Manufacturers Association (ACMA).

Industry representatives and analysts pointed out that recovery in the domestic PV market as well as strong double digit growth in M&HCV segment supported OE demand in FY2016, whereas rural-

dependent segments like motorcycle, light commercial vehicles (LCVs) and tractors remained tepid.

Rural-dependent segments like LCV, tractors and motorcycle have performed relatively better in Q4FY2016 as compared to previous quarters though full recovery is still sometime away. Supported by the 7th Pay Commission, implementation and

recovery in rural income with a good monsoon as well as overall improved customer sentiments, domestic OE demand is expected to gain a fillip in the current fiscal.

During most part of FY2016, auto ancillaries have benefitted from a steady decline in commodity prices, which has pushed their operating margin to an all-time high. However, most of the commodities, especially steel (after minimum import price restriction) and rubber prices have jumped substantially in the last month. The benefits of commodity prices have peaked out in Q3FY2016 and prices are expected to increase gradually over the next two to three quarters, said rating agency ICRA.

With increasing vehicle volumes in the country, the aftermarket segment grew by 12 per cent in 2015-16 to Rs.44,660 crore from Rs.39,875 crore in the previous fiscal.

For the fiscal 2015-16, an estimated capital investment of Rs 2700 - Rs 4000 crore ($0.44 - 0.66 billion) was witnessed in the auto component sector compared to Rs 2000 - 2800 crore ($0.33 - 0.46 billion) in 2015-16. The enhancement in investment can be attributed to better business prospects owing to improving market sentiments in 2016-17.

Vinnie Mehta, Director General, ACMA pointed out that the performance of auto component industry in 2015-16 was satisfactory.  “This is despite a less than expected performance in the passenger vehicles, two-wheelers and tractors segments. With the Make in India initiative and thrust on increased localisation by OEMs, the component industry is actively focusing on delivering enhanced quality products as well as on R&D and innovation,” he added.

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