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Auto parts makers wait for industry to rev up

Initial indications from customers of auto parts have been reasonably bullish. But one cannot get carried away as “things can easily go wrong,” says Rane Group Chairman, Mr L Ganesh, referring to the global recession of 2008 which still haunts the auto ancillary industry.

“We will watch the first two quarters and manage our fixed cost and capex accordingly,” says Mr Ganesh.

Mr Sunjay Kapur, Managing Director, Sono Koyo Steering System, says: “We are carefully watching the developments on the macro-economic front; the economy's growth will clearly define the way ahead.”

Vehicle sales in the country this year have not picked up as expected. Tractors have seen a slowdown, while passenger cars and commercial vehicles have had a modest start.

The industry is still vulnerable to fluctuations in exchange rates and raw material prices, says Mr Vinnie Mehta, Executive Director, Automotive Component Manufacturers Association of India. “We expect the component industry to grow a modest 8-10 per cent this year, compared to 14 per cent last year.” Component makers can derive confidence from the fact that several vehicle makers have announced big investments in the country for the next 3-4 years.

“Component makers have to build capacity to meet future demand,” says Mr Mehta.

Rane plans to spend INR 230 crore on capacity addition in its plants. MM Forgings will pump in INR 40 crore to push its forging plants in Tamil Nadu towards peak performance. Sona Koyo is investing INR 115 crore on capacity creation and new plants in India and overseas “to meet customer projections.”

While the Tier 1 players are building capacity, Mr Kumar Kandasamy, Senior Director, Deloitte, says there could be a lag at the lower end of the chain (Tier 2 and Tier 3 suppliers).

“Increasing power costs and people shortage are also likely to leave a sharper impact this year.”

Despite the wobbly US and European economies, part-makers are bullish on exports.

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