Fear of loss inundates Chennai auto components industry

Material, less production and apprehension of falling under NPA are main worries for the companies

Even as the city of Chennai has managed to limp back to normalcy, industries like Small and Medium Enterprises (SMEs) finding it hard to come to terms with the disasters caused by recent floods.

Auto components segment that contributes nearly 28% to state's economy and 15-18% to the country's $38.5-billion industry is looking for a way out of distress.

Arvind Balaji, President, Automobile Components Manufactures Association (ACMA) and Vinnie Mehta, Director General, ACMA say recent rains and the resultant floods in many parts have had an adverse impact on businesses.

Close to 60% employees are believed to be affected. Two to three weeks of production remains slow with severe impact on cash flows, the duo said.

While they did not put out any number in terms of loss, industry pegs the loss at about Rs 2,000 crore. Besides production loss, many units will also report investment loss.

An automobile company official said as the industry started seeing some positive growth after 2-3 years, many enterprises have invested in new machinery and each would cost minimum of Rs 1 crore. These machines are now fully or partially gone, though it may be covered by insurance, it will be partial only.

The $494-million Rane Group's Chairman L Ganesh said considering slowdown in two wheeler segment there is surplus capacity in any case. So any service demand for damaged vehicles will be not be an issue.

Queried about impact on group's plants, he said, damage was mostly to three plants of Rane TRW Steering division and eat Belt & Airbag division and Rane NSK. These are all located at GST road.

The compnay with interest in autocomponents has about three days of full and 7-10 days of part production. A number of machines have been damaged and the company is restoring them especially the electrical systems. Large number of computers and other office equipment were also damaged. 

"Small vendors were affected worse than us and we are supporting them as required. Part production was restarted as early as we could and will reach normalcy in a few days," said Ganesh.

The other problem the entrepreneurs are going to face is how they would pay the interest for the loans they have taken for the investments. If they are going to default, they will come under NPA, which means funding future investments will be a challenge.

"There have been incidences of line stoppages/delays at the customer end both nationally and globally which might be detrimental to the image of the industry," said Balaji.

He added, besides production loss, the units also will report ramp up losses going upward. The losses are still being estimated.

According to him, it will take another 2-3 weeks for the industry to come out of the impact in addition to the ramp up losses going forward.

Based on the impact of losses the association would make appropriate representation to the Government. Industry is trying its best to support the demand, they said.

Cash flow and starting the units at the least possible time and meeting customer demand are the priority now. Many small units are still reeling, impacting the supply chain, said Balaji.

According to the RTO, there are about 25 lakh two-wheelers in Chennai as on May 1, 2015. Number of two-wheelers were about 35.09 lakh, number of cars were about 7.44 lakh and autorikshaws were 82,400 units.

A leading two-wheeler dealer said if one took half of these vehicles for servicing there would be not enough manpower (according to estimates there are 8,000 mechanics Chennai) or service centres to cater to the demand.

Besides, the components industry doesn't have capacity to cater to sudden surge in the demand.

It may be noted, the state government had announced free servicing facility by two-wheeler and three-wheeler makers including TVS, Bajaj, Yamaha, Royal Enfield in Chennai through 200 special service centres spread across flood-hit districts including Chennai, Cuddalore, Tiruvallur and Kanchipuram for ten days.