We expect auto components sector to grow 5-6% in FY15: Harish Lakshman

Q&A with outgoing president, ACMA

Through the past two years, automobile and auto component manufacturers have battled slow sales, undertaking a series of cost-cutting measures.

Even as sales in the domestic market have started improving through the last three months, outgoing ACMA President Harish Lakshman tells Sharmistha Mukherjee stakeholders in the sector are focusing more on global markets to offset business risks. Edited excerpts:

Automobile sales have seen an uptick through the past few months. What is the outlook for the auto component manufacturers?

The sentiment has definitely improved through the past three months. Two-wheelers continue to show positive growth, a very good sign. As far as passenger vehicles are concerned, sales have started picking up after a gap of two years. But only certain manufacturers are seeing a rise; the recovery isn’t across the board.

In the commercial vehicles segment, a revival is expected in the third quarter. This financial year, there will be moderate growth in sales, but FY16 should be very good for the automobile and ancillary sectors.

Given the optimism, what are your projections for the auto components sector?

Last financial year, the turnover of the auto components sector declined two% to $35 billion. In FY15, we expect the sector to grow five-six%. That said, we hope our turnover will increase threefold to touch the $110-billion mark by 2020.

Through the past two years, auto component makers have been focusing more on exports to offset the slowdown in India. How have component exports fared?

The US market has stabilised. Europe, too, has seen some improvement. We have been able to penetrate new markets in South America and Africa. The exchange rate has been favourable.

If the rupee stays at the 58/dollar mark, Indian auto component manufacturers can compete effectively with China and Korea.

Last financial year, our exports grew about six% to $10.2 billion. Today, exports account for 29% of our component production. By 2020, we expect revenue from exports to grow fourfold to about $40 billion.

Europe and the US will continue to be our largest markets, but growth will be faster in emerging geographies-- the Association of Southeast Asian Nations, Latin America and North Africa. This financial year, we expect exports to increase 9-10%. One of the automobile sector’s concerns is the fact that while exports have increased, component imports have grown at a faster pace.

Through the past two years, the gap between component exports and imports has narrowed. While exports increased to $10.2 billion from $9.7 billion in FY13, imports declined 6.3% -- from $13.7 billion to $12.8 billion. With the Indian automobile market expanding, all manufacturers have focused on increasing localisation.

What kind of investment is being made to increase localisation?

The level of investment research & development (R&D) capability has been a concern. Traditionally, Indian component manufacturers do not spend significant amounts on R&D. In Europe, four-five% of net sales are ploughed back into R&D; in India, this stands at less than 1%.

As an industry body, we have been encouraging manufacturers to invest in R&D; else, we will lose in the long term. We have been working to increase awareness about this. Also, we have requested the government for an interest subvention scheme to encourage investment in this area.

What is the capital expenditure the component sector is set to see?

On an average, we see capital expenditure of about $1.5 billion a year. Last year, it was about $800 million. This year, it will be comparatively higher, but usual levels won’t be touched before FY16. On an average, capacity utilisation across the chain is about 75%. It will take about a year or two to fill the capacity available.

What were ACMA’s major focus areas last financial year?

The sector has gone through difficult times. It was a challenge keeping motivation levels high. Through last year, we engaged more with the membership. We also visited automobile clusters in Ahmedabad, Coimbatore, Jamshedpur, etc, to give them confidence.

At a sector level, we increased the number of training programmes for employees. We undertook a number of trips to the US, Dubai, Indonesia, China, etc, to gauge and tap into opportunities available globally.

We have been engaging with the government to help evolve favourable trade and tax policies. As a sector, we have also examined and worked on opportunities to diversify into other sectors where synergies exist, such as aerospace, defence and railways, to offset business risks.