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Business News/ Industry / Manufacturing/  Component manufacturers see investments returning to peak
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Component manufacturers see investments returning to peak

Auto sales started recovering in past four months, component suppliers anticipate making up loss in earnings and profitability

Cumulative investment in auto components sector had come down sharply in last two years, experts said. Photo: MintPremium
Cumulative investment in auto components sector had come down sharply in last two years, experts said. Photo: Mint

New Delhi: Encouraged by the signs of a revival in the automobile market, component makers—most of whom had deferred investments in capacity creation because of a slump in demand—are gradually returning close to the investment levels of the peak years, Harish Lakshman, president of the Automotive Component Manufacturers Association of India, said on the sidelines of the lobby group’s 54th national conference in New Delhi.

Auto sales in India have started recovering in the past four months, after declining for nine consecutive months before that, and component suppliers, who typically bear the brunt in a slowing market, anticipate making up the loss in earnings and profitability.

The cumulative investment in the auto components sector has come down drastically in the last two years from a peak of $1.5 billion to $800 million, according to Lakshman. He expects it to come back to the early peak levels in fiscal 2015-16.

In a sharp contrast to the previous year, the mood at the industry’s annual conference was upbeat. Growth plans and expansion, and not job cuts and excess capacities, dominated the day-long session.

“We are very happy and hope festival season helps to keep continuous growth. Last two years were very difficult and we now look forward to a healthy future," Vikram Kirloskar, president of lobby group Society of Indian Automobile Manufacturers (Siam), told delegates. “The recovery is slow but sure."

Car sales expanded 12.54% to 213,915 units in August compared with the year-ago period, according to Siam. Two-wheeler sales rose at a faster pace of 19% to 1.3 million units in the same period.

The address by cabinet ministers in the new government, who shared the government’s strong intent to improve infrastructure and road safety and cut red tape, added to the overall optimism.

“We are doing everything possible to improve economic macro scenarios in sectors like manufacturing, infrastructure, tourism and housing which is an important focus for this government," said Piyush Goyal, minister of state for power, coal and new and renewable energy.

Roads minister Nitin Gadkari said total exports from the auto industry stood at 62,000 crore per year and that the government wished to double it to 1.25 trillion.

“The government will completely back companies in this sector and help clear any hurdles that come in the way," he added.

“Backed by the performance of two-wheelers and Maruti Suzuki India Ltd, we have seen an increase of 20% in our overall production," said Rohit Saboo, chief executive and president at National Engineering Industries Ltd. To meet the increasing demand the company has set up a fourth plant. Saboo said the firm had set aside 500 crore over the next three years, but owing to the recent surge in demand, this investment will be done in two years.

Nirmal K. Minda, chairman, NK Minda Group, said that his firm went slow on investments due to sluggish market condition but plans to move ahead with it. “With the GDP (gross domestic product) growth coming back on track, we are now very confident," he said. Minda Group plans to invest 700-800 crore over the next three years for capacity enhancement and adding new product lines.

For some, particularly those with an export-led business model, the depreciating rupee turned out to be a saviour. Bangalore-based Sansera Engineering Pvt. Ltd, for instance, saw its exports revenue soar from 30 crore to 200 crore in the last three years, according to joint managing director F.R. Singhvi.

“The slowdown has made us more disciplined. The depreciating rupee helped exports."

shally.s@livemint.com

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Published: 12 Sep 2014, 01:06 AM IST
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