Huge opportunity for Indian auto component suppliers

The Indian automobile component industry is going through a huge trend shift and backed by skilled manpower and technological competence, it has the opportunity to become the next automobile ancillary hub in Asia by 2020.

A report by Edelweiss Financial Services ‘Auto Components: The Future’ covering over 30 top auto component manufacturers across the country said the industry, pegged at US $ 38 billion is estimated to grow at a 17 per cent compounded annual growth rate (CAGR) to US$ 115 billion by 2021. Over the same period, exports which contribute 17 per cent of sales, are expected to increase to 26 per cent.

Vinay Khattar, Head – Research, Edelweiss Financial Services, told this correspondent that most Indian players are now graduating from being component suppliers to system or module suppliers. ‘Modularization’ is where the supplier makes not just single parts or components but entire modules,

International revenues of some of companies now contribute over 50 per cent of sales when compared to a mere 10 per cent in 2002. “Indian auto companies are now truly global,’’ Mr. Khattar said.

An emerging trend is of consolidation of suppliers and Indian original equipment manufacturers (OEMs) or automobile makers are actively looking to reduce suppliers over the next few years. “So more business for fewer players. Already from around 30,000 suppliers in the 1990s, consolidation has resulted in this coming to 3000-3,500 levels now and this will continue to consolidate.’’ he said.

Besides, Indian companies have been scaling up through acquisitions to build scale as is the case in the global auto component industry. Mr. Khattar said a large number of acquisitions were in Europe. “More than 60 per cent of acquisitions have been in Europe as the automobile industry there was fragmented following the slowdown and presented attractive valuations.’’

Other emerging trends which could benefit the Indian auto component industry are more stringent implementation of emission and safety norms. E.g. it is expected that airbags would be made compulsory for all automobiles after 2017 presenting Rs 1,500 crore opportunity.