Indian auto parts suppliers eye business from aerospace, defence sectors

The Indian automotive component industry is gunning for new avenues of growth and is eyeing the defence and aviation sectors. Having had to face tough times over the past couple of years, as a result of the market slowdown, this move by some suppliers could also be seen as a hedge against a slowdown although market sentiment has considerably improved since May.

According to the the Automotive Component Manufacturers Association of India (ACMA), the turnover of the Indian auto component industry has registered a decline of 2 percent in FY2013-14 to Rs 211,765 crore. The EBITDA (earnings before interest, taxes, depreciation, and amortisation) margins of about 100 listed component vendors are also down by 12-10 percent.

Further exports, which have grown by 16.7 percent during 2013-14, reported total business of Rs 61,487 crore as against Rs 52,690 crore during FY2012-13. The trend signals a slowdown in the domestic market, which is now making a number of automotive component manufacturers to look at other possible growth avenues. Aerospace and defence stand as the two most suitable sectors which not only offer synergies with auto component production but also opens up a vast sea of opportunities, possibly with better profit margins as compared to the automotive vertical.

Basic reasons, as understood, behind this paradigm shift arose out of the policy paralysis and indecision at the earlier government level, which led to flagging vehicle sales, high interest rates, currency fluctuations, rising raw material prices, squeezed-out profit margins, high capital costs, and idle production facilities.

QUALITY PRODUCTS FROM INDIA

It is understood that as automotive component vendors, to a large extent, depend upon the OEMs, the risks associated with the industry cycles percolates down the value chain. Harish Lakshman, president, ACMA, told Autocar Professional that “India is slowly emerging as a preferred investment destination for high-end manufacturing.  The auto component industry in India successfully supplies to all global major auto OEMs in India as well as abroad, meeting their stringent quality and delivery norms. The expertise developed by the domestic component manufacturers in heavy engineering and precision manufacturing can be leveraged to supply to the fast-growing aerospace and defence sectors in India. This will help mitigate the risk of industry cyclicality in the automotive industry.”

There are a number of big, small and medium players, which are already catering to the demands of the aerospace and defence industry. Among the OEMs, Tata Motors, Mahindra & Mahindra (M&M), and Ashok Leyland are the three biggest players vying for orders from defence.

Tata Motors’ wholly-owned subsidiary Tata Automobiles (TAL) is known to have recently supplied its first advanced composite floor beam for the Boeing 787-9 Dreamliner to Boeing. “This is a major milestone in TAL’s progression towards world-class cost-effective offerings in the aerospace market,” stated a release from Tata Motors. It is to be noted that TAL does not manufacture components for automotive, but does tap the opportunities in the aerospace domain.

Another big automotive player, M&M, with its arm Mahindra Aerospace, caters to the aerospace vertical. From making components for the aerospace segment, Mahindra Aerospace also manufactures small, single-engined, 8-seater aircrafts. The company is soon going to globally launch its single-engined 10-seater aircrafts and will supply them to its customers in USA and Europe.

Arvind Mehra, executive director and Global CEO, Mahindra Aerospace, said: “Mahindra has been a pioneer in the globalisation of the Indian automotive industry with a strong emphasis on empowering domestic design capabilities and leveraging frugal innovation. What India could achieve in the auto industry, we believe, can and should be repeated in aviation. As a nation we are under-represented in global aerospace product development and manufacture, and the Group took a bold decision back in 2007 to enter into this challenging industry. Today there are more than 200 Mahindra Airvan 8 aircrafts operating around the globe, and we are about to introduce the Airvan 10 turboprop -- coming soon to an airfield near you. In 2008 we also decided we must invest in India’s ecosystem for aero-structure. Our 25,000 square metre factory is now online near Bangalore and will soon start producing aero-components for the most respected names in the global aircraft market.”

SYNERGIES WITH AUTOMOTIVE

Speaking on the synergies between the automotive and aerospace industries, Mehra said: “Ultimately the materials and quality requirements of this industry differ significantly from the automotive space but professional systems and processes, innovative supply chain development and best practices in production controls are all areas where the auto industry can educate the aerospace industry. The right mix can be a potent recipe to create disruptive solutions that transform lives and lead the market in enterprise and innovation.”

Meanwhile, the Gurgaon-based JBM Group, which is a well-known automotive component manufacturer and supplier, is planning to venture into the aerospace domain in the near future. According to Nishant Arya, executive director, JBM Group, “The move towards the aviation and defence sectors is a natural progression for auto component manufacturers. We are very well poised in this regard as we understand the safety, quality and precision norms required to be adhered to for a domain like aviation. The government is very bullish on this sector and is scouting for competent partners who can bring in expertise, innovation and technological edge to promote localisation of parts and services. We are exploring opportunities globally in this direction and shall finalise once we arrive at a strategic fit with the right partner, where we can leverage our experience and competence that we have attained in the industry over these years”.

Firms such as Bharat Forge, Timken India, MRF Tyres, Shriram Group, Lucas-TVS, Tamboli Castings, Amtek Group and many others are already supplying to the aerospace and defence sectors.

Meanwhile, ACMA is hosting the first Aerospace & Defence Summit on the theme of ‘Opportunities and Challenges for the Indian auto component industry’ on Monday, August 4, at Hotel Shangri-La, Janpath, New Delhi. For registration details, contact: Mayank Nigam (mayank.nigam@acma.in)