The auto components and engine parts sectors are facing two vital issues, that is, acceptance of highly-priced BSVI vehicles and slowdown in the automobile sector. It would take at least six to eight quarters to bounce back, Ram Venkataramani, Managing Director of IP Rings Ltd. of The Amalgamations Group, told The Hindu. Edited excerpts:
What is the impact of COVID-19 on the engine components sector?
The auto and auto components sector has been under some strain since the last quarter of 2018. In FY20, we witnessed a degrowth of about 15%, with some segments like medium and heavy commercial vehicles (M&HCV) more severely affected. Engine component manufacturers were under added pressure due to the transition to BSVI emission norms by April 2020. This had called for significant fresh investments to be made in materials and non destructive testing equipment. The auto and component sectors, like other sectors, are expected to be quite severely impacted due the COVID-19 crisis. Most domestic original equipment manufacturers (OEMs) expect a 15-25% drop in demand depending on the segment. The aftermarket, which is another source of revenue for engine parts makers has been steadily declining since the quality of the parts have been improving and replacement cycles have been getting longer. Major export markets such as Europe and North America have also been impacted and haven’t yet returned to normalcy. FY21 is going to be a challenging year.
Auto industry is down for several quarters. What is your action plan?
As you are aware, the auto component companies in the Amalgamations Group are mainly involved in engine parts and we have been feeling the downturn since September 2018 due to the above reasons. We took quite a few austerity measures in FY20 such as cost reduction activities, productivity improvements using automation and digitisation.
However, this crisis has made us think zero. Meaning address everything from a zero base. Question every cost, every process. Adopt digital across every function, develop contactless processes to ensure the safety/health of our stakeholders and improve productivity. We continue to invest in new product development and hope to emerge as a healthier organisation.
Have you sought help from the Centre or state governments?
Industry bodies like ACMA and SIAM have requested support from the government in a few areas. There has been a long standing request to reduce GST on vehicles and some auto components which are now taxed at the highest rate of 28%. A scrappage policy to take more polluting vehicles off the road has also been proposed. Both these actions will help in stimulating demand. Post the COVID-19 crisis, the industry has sought help from the government for payment of wages with support from ESI funds or alternate means to ensure that the livelihood of migrant workers are protected while not over burdening the micro, small and medium enterprises (MSME’s), who form almost 70% of the auto component industry. We have also requested that export schemes like the Merchandise Exports from India Scheme are left undisturbed and supported so that we can capitalise on some of the opportunities created by decisions in the U.S. and EU involving resourcing away from China.
What is the production schedule planned by your sector?
The first quarter is expected to be very subdued. Delayed openings, start up and ramp up issues, inventories from March could mean that schedules will probably be as low as 20% to 30% of what was budgeted for first quarter. Assuming that government steps in with some stimulus package, infrastructure projects, etc., and there are no further surprises, we can expect steady improvements second half onwards. However, as mentioned, we are planning for a reduction of about 25% depending on the segment for FY20.
How long you think it will take auto component sector to bounce back?
Some experts say that the auto and component sectors will be one of the later segments to see revival since it is a discretionary purchase. FY19 was a peak year for the industry and the general expectation is that it could take up to six to eight quarters to see those numbers.
Have you witnessed any cancellation of orders so far?
No, not really. Of course there has been a suspension of operations and the OEM customers have started to release new schedules after taking the ground realities into consideration. However some export markets like Japan, Korea and certain parts of the north American markets are beginning to pressurise their Indian suppliers to commence operations and begin supplies.
