Fresh investments in auto components sector to hit five-year low | SupportBiz


Fresh investments in auto components sector to hit five-year low

According to data collected by the Automotive Component Manufacturers Association (ACMA), fresh investment in automobile component sector is going to be the lowest in five years (since 2008-09) in the current financial year, owing to nine-month slump in car sales in the domestic industry, reports Business Standard.

“From what we envisaged in terms of capex investment six months back, resources are being scaled back by at least 40-45 per cent across the industry. Last year, a little more than a billion dollars were invested in the auto component sector, but this financial year, it would be considerably lower than that,” said Harish Lakshman, president, ACMA.

Baba Kalyani, chairman and managing director, Bharat Forge told Business Standard that, the company is careful before making any future investment since its existing one was underutilized. “We are now recalibrating our future investments. There is no sense in making investments today when you have already made investments which are not being utilised,” he said. According to him, the problems faced by auto component manufactures are bigger than original equipment manufacturers (OEMs) since they utilize the investments in production before receiving orders. “OEMs invest as they see demand. Component manufacturers invest ahead of demand. Hence, we all have invested years ago. We have a bigger problem because we have huge capacities sitting idle with no off-take,” added Kalyani.

While companies like Rane Group is holding back about 50 per cent of its planned investments of Rs 550 crore in the face of the slowdown, Sona Koyo Steering Systems is reviewing capex plans on a monthly basis. “The devaluation of the rupee has made Indian exports more competitive. Exports would account for 10 per cent of our revenues this financial year, up from four per cent a year earlier. Over the next three years, we plan to scale it up to 18 per cent. We are looking for export opportunities, especially in the United States for off-highway vehicles,” said Sanjuy Kapur, vice-chairman and managing director, Sona Koyo Steering Sytems.

Tarang Jain, managing director of Varroc Engineering held Rupee's 13 per cent slide against the dollar responsible for weak exports. As per business strategy, the company seeks to increase exports out of India to emerging markets such as Southeast Asia. “Varroc is looking at increasing the share of exports to 25-33 per cent of its India business from 15 per cent at present,” he informed.