Auto component makers to invest Rs 9,000 cr in capex

The burgeoning demand for automobiles in India and revival in demand in markets abroad has put pressure on auto component manufacturers. The 500-odd manufacturers in India, big and small, are together investing Rs 9,000 crore in 2010-11 for setting up new capacities and upgrading the existing ones. This is nearly 33 per cent higher than 2009-10, when they put in Rs 6,750 crore.

“Demand has far outstripped supply, primarily because of several new models launched in the domestic market and slow but steady recovery in demand from overseas. Moreover, since penetration levels continue to be low in India, capacity is likely to go up by 20-25 per cent this year, at an estimated investment of nearly Rs 9,000 crore. This would be in tandem with the growth estimates for the sector,” said Jayant Davar, president, Automotive Component Manufacturers Association (Acma).

Motherson Sumi Systems has earmarked an investment of Rs 230-300 crore in India of its total capex of Rs 500-550 crore for 2010-11, Tata AutoComp Systems (Taco), is investing Rs 300 crore in the current year to build new plants and upgrade technology.

“Demand is quite robust at this time and as people continue to upgrade to new models, we expect the growth momentum to continue in the future as well. Since there is a lead time before a final product hits the road, we are investing Rs 230-300 crore in the current financial year to set up new plants that will meet the future demand of the industry,” said Pankaj Mittal, chief operating officer, Motherson Sumi.

According to Davar, the Indian auto industry's output is getting affected by five to seven per cent due to supply shortage in components. “Further, there is scarcity of tyres and batteries coming from China, as they are seeking an unreasonable price hike to cash on the boom,” he added.

However, inflationary pressure is a problem. If commodity prices continue to surge, future investments in the sector could be impacted.

“High levels of inflation in India and the appreciation of the rupee will significantly dent the wafer-thin margins. While the industry is investing to catch up with the demand, they need to find a way of reaching the threshold levels of return on their investment in view of inflation in commodity prices, power, fuel and manpower cost,” added Srivats Ram, managing director, Wheels India, and vice-president of Acma.