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Indian auto component slowdown looms ahead

BS reported that while component makers are beginning to brace themselves because of a drop in car sales, high inflation and interest rates are also stalling expansion plans.

With the automobile industry in the country reeling under the effects of a sudden slowdown in demand, leading component makers are either re considering their capital expenditure plans or deferring it by months.

The development comes in the backdrop of passenger car sales declining by 1.36% to 909,283 units between April and September 2011. Sales in the domestic market in the first six months of the fiscal have been far below expectations, forcing industry body Society of Indian Automobile Manufacturers to revise growth projections for the passenger cars segment to 2% to 4% from the earlier 10% to 12%.

Chairman of the country's leading car air conditioner maker Mr Subros Ramesh Suri said that the company has delayed its CAPEX plans owing to a slowdown in car sales. The company does not want to keep idle capacity and hence has deferred plans of making an investment originally scheduled to have been infused in March this year. Subros supplies to a wide range of original equipment manufacturers including Maruti Suzuki, TATA Motors and Mahindra & Mahindra.

Mr Harish Sheth MD of Setco Automotive echoes Mr Suri's thoughts, saying that "After experiencing a tremendous growth last year, we are seeing an unprecedented slowdown in the industry. This is the reason why the industry is so wary of increasing capacity."

He added that his firm is also going slow in its expansion plans. The component industry had grown by a whopping 34.2% to record a turnover of USD 39.9 billion in the last financial year.

High levels of inflation and rising interest rates have tightened availability of liquidity in the economy. This has proved to be an added dampener to capacity expansion projects in the component industry.

Mr Arvind Kapur president of ACMA said that "Some auto component manufacturers are deferring investments in capacity expansion programs because of high cost of funding. But the real concern is to make credit available to tier II and tier III suppliers. If they do not invest in capacity, over the long term this would choke the supply chain."

(Source:Business Standard)