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| Auto parts sector to see major investment this decade |
| BS Reporter / New Delhi Aug 28, 2010, 00:39 IST |
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A robust growth outlook for vehicle sales has prompted Indian component manufacturers to plan a combined investment of $3.5 billion (around Rs 16,000 crore) every year for the next 10 years to meet the upwardly revised production targets of automakers, according to industry body Automotive Component Manufacturers' Association (ACMA).
Large, medium and small-size component vendors, who are presently forced to operate at over 100 per cent capacity, are already scrambling to ramp up production. The proposed investment increase comes after automakers that include Mahindra & Mahindra, Bajaj Auto, Hero Honda, Tata Motors and Maruti Suzuki saw their production unable to match rising demand as a result of component supply shortfalls.
“We have never really invested the volume of money expected to be invested now, especially the kind of technology that is going to be used. There is an assumption in the industry that keeping the price index in mind, we could invest something like $3-3.5 billion every year,” said ACMA President Jayant Davar.
Among the component companies that will be making large investments are Jamna Auto, Mahindra Systech, Lumax Industries, Rane Group, Gabriel India, Subros and Asahi India. They supply manufacturers of cars, 2&3-wheelers and commercial vehicles.
“We are doubling capacities in castings and forging, as well as stamping by 25-30 per cent. There will probably be an investment of Rs 350-400 crore over the next one year,” confirmed Hemant Luthra, president, Mahindra Systech. An arm of M&M, Mahindra Systech is the umbrella entity under which falls a number of component-making companies. Around 25 per cent of its production goes to M&M.
Lighting equipment provider Lumax is setting up two new capacities at a cost of Rs 200 crore for the Tata Nano and Toyota Etios, among several other models. Anmol Jain, senior executive director, Lumax, said, “We are setting up the two plants to meet demand in Sanand (Gujarat) and Bangalore. We are also planning to set up a research and development centre in the NCR.”
The bad news is that as fresh component capacities are being set up only now, these will be commissioned after a gap of at least one year. Simultaneously, vehicle manufacturers are also making huge investments to set up new capacities of their own and launch new models in the domestic market. Companies such Tata Motors, Maruti Suzuki, Bajaj Auto, Hero Honda, Toyota, Nissan, Renault, M&M have decided to add fresh capacities to meet the demand of 2013-15.
As reported in Business Standard yesterday, companies such as Maruti Suzuki are introducing innovative ways — including introducing flexi-lines and worker multi-skilling — to overcome capacity constraints in the interim.
The component making industry’s share to total GDP is expected to rise to 3.6 per cent from the present 2.1 per cent. It is estimated that domestic turnover could touch Rs 4 lakh crore ($80 billion), while exports may hit another Rs 1.4 lakh crore ($29 billion).
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