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Indian Auto Components Industry: Brief Introduction (and downloadable Report)
Indian auto component industry is robustly driven by the growth in demand for automobiles. The sector has become a lucrative business proposition for global players, majorly owing to two factors. First, needless to say, the demand for automobiles is increasing day by day in the country. India, a market with high potential for the automobiles sector, is expected to witness a three-fold increase in demand for automobiles by 2020. Secondly, all major global auto-makers are establishing their bases here due to highly positive business environment, favourable policies and government support.
According to a study by UK-based global financial advisory firm-Rothschild, India would become the third largest auto industry by volumes after China and the US by 2015. This would give immense support to the growth of ancillary sector as well.
Major developments, investments and Government initiatives relating to the sector are discussed hereafter.
Indian Auto Components Industry Profile
According to a recent study by the Automotive Component Manufacturers' Association of India (ACMA), original equipment manufacturers (OEMs) account for 41 per cent of the auto components consumed in the Indian aftermarket.
The study estimated current size of Indian components business at Rs 24,800 crore (US$ 4.87 billion), 49.7 per cent of which is formed by two-wheeler segment. Passenger vehicles, commercial vehicles and three-wheelers follow with 24.7 per cent, 23.1 per cent and 2.5 per cent of the share respectively.
According to Arvind Kapur, President, ACMA, a large market in Indian spares business is dominated by organised, semi-organised and a number of small, unorganised players. He thus acknowledged the need for a process of accreditation to ensure better customer service.
The study further projected that OEM-authorised network of service stations would account for 20-30 per cent of the Indian auto components market by 2017 while that of multi-brand organised service chains would grow to 5-10 per cent from 1-2 per cent. Similarly semi-organised service centres’ and unorganised garages’ market share would be 20-30 per cent and 45-55 per cent, respectively, in 2017.
India – The Global Auto Hub
Canada is looking for substantial investment opportunities in Indian auto components market through the comprehensive economic partnership agreement (CEPA) which is being discussed and negotiated by the two Governments. The agreement is likely to get finalised by 2013. If fructified, the agreement would facilitate an annual increase of economic output in two countries by almost US$ 6 billion and boost the two-way trade by 50 per cent.
UK sees immense potential in the Indian auto ancillary sector, especially in the city of Rajkot as it is known for auto components manufacturing. Peter Beckingham, British Deputy High Commissioner for Western India, also indicated possible ventures between UK and Rajkot companies in near future.
According to industry sources, Rajkot's auto component industry, with over 500 manufacturers aggregating a net turnover of around Rs 1,500 crore (US$ 294.5 million), grows at an annual rate of 15-20 per cent.
Furthermore, 60 French automobile component suppliers are contemplating on business opportunities to set up a vendor park near Sanand in Ahmedabad district. The proposed vendor park would accommodate tier-1 and tier-2 auto-component suppliers who would supply spares to the recent auto entrants in the State and even to others.
Sanand is already home to a number of global auto-makers, like Ford and Peugeot.
Indian Auto Components Industry: Key Developments and Investments
Global private equity (PE) firm Actis PE has bought 10-13 per cent stake in Indian auto component manufacturer Endurance Technologies for about US$ 71 million. Endurance Technologies is a part of the automotive component major Endurance Group and caters to companies like Bajaj, Yamaha, Suzuki, Honda Motorcycles and Scooters and Royal Enfield. Global car makers such as Daimler, Audi, Fiat and Porsche are the company's customers in passenger car segment.
German auto component maker Schaeffler Group is on an expansion spree in India. The company plans to invest over Rs 1,000 crore (US$ 196 million) during 2012-15 in the country to set up a manufacturing facility and to expand its existing plants. To support its growth, the company would also double the number of its engineers and recruit 1, 200 employees in the country.
Federal-Mogul's new facility in Chennai will commence its operations by March 2012. The plant, being set up for producing braking and friction materials, will initially focus on after market products like linings and brake pads. Federal Mogul is a global automotive components manufacturer.
Government Initiatives
The Government of India is in the process of forming a National Automotive Board (NAB) which would become a formal set-up to look into the issue of recall of vehicles and hence improve manufacturing standards. The prospective body, to oversee technical and safety aspects of vehicles, will have representatives from all the nodal ministries and automotive bodies such as the Automotive Research Association of India (ARAI).
The Government of Gujarat has always been on a high to promote its industrial space especially it's the automobile sector. In order to boost the State Government's efforts in this regard, Gujarat Government's Industrial Extension Bureau, along with Automotive Components Manufacturers Association, French Vehicles Equipment Industries (FIEV) and French auto-major Peugeot, organised a seminar and business meeting on January 9, 2011 wherein 60 French automobile component makers were briefed on opportunities to set up vendor park near Sanand (Gujarat's auto hub) in Ahmedabad district.
Similarly, the Government of Gujarat has also announced its plan to disburse 240 acres of land at Sanand to the All India Plastic Manufacturers Association (AIPMA) to set up a plastic park that could attract an investment of about Rs 5000 crore (US$ 981.65 million). The Government's move marks its eye for detail as the measure has come in the light of the fact that a finished car would require about 150 kgs of plastic.
Road Ahead
Ratings agency Fitch has maintained a stable outlook towards the Indian auto components industry for the year 2012. The industry is expected to perform well owing to OEM’s robust demand for localised spares.
According to a report by ACMA, the Indian auto component industry would garner US$ 113 billion of turnover by 2020-21, growing at a compounded annual growth rate (CAGR) of 11 per cent through 2011-21. Not only domestic demand, India is poised to scale new heights in terms of exports as well as the report estimates exports to be worth US$ 29 billion by 2020-21, growing at a CAGR of 18.8 per cent through the forecast period.
Exchange Rate Used: INR 1 = US$ 0.0196 as on January 17, 2012
To download 40-page report, please click here.
Source: IBEF - GAI
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