Published media reports quotes a recent report of India Ratings & Research to suggest that the auto component industry could face subdued demand during the short-to-medium term after which the pace of growth would decline further in the 2015 financial year.
The city, which houses prominent auto component companies Pricol and LG Balakrishnan & Bros besides several smaller suppliers of the auto industry, are now reportedly looking to diversify into other product segments as a cushion against the uncertain demand from their parent industries.
The research report attributed the slump to a decline in the production at the OEM levels, a 4-6 per cent growth in the replacement market and a 7-10 per cent hike in exports. The only silver lining, according to teh report, is the growth in exports and foreign auto giants expanding localization efforts to beat the impact of a weakening Rupee.
An article published in the Hindu Business Line (Read the Full Story) quotes K. Ilango of RSM Autokast, a manufacturer of brake drums for trucks and trailers, to suggest that barring the two big companies in Coimbatore, claims that bottomlines of the rest of the suppliers were suffering though big time even as the toplines were contracting by 10 per cent.
He claimed that the recent move of the Tamil Nadu Government to deny VAT credit for sales made outside the State has pushed up the cost of production. This had eroded the cost competitiveness of the component producers here who have to “work with very little margin or lose market share”.
The drop in orders had mostly hit tier-I suppliers whereas the tier-II and III suppliers had looked at other avenues to mitigate the impact of the slowdown. Among the suppliers, the two-wheeler component makers escaped relatively unscathed since that sector witnessed 'positive growth’ this year.