Indian auto components industry clocks $43.5bn revenue in FY2017

Announcing its annual performance figures in New Delhi today, apex component industry body ACMA hinted at a sizeable growth for the Indian automotive components industry for the fiscal ended March 2017.

The overall turnover for the industry stood at Rs 292,184 crore, a double-digit growth of 14.3 percent (FY2016: 255,600 crore), and a CAGR pegged at 7 percent over the last six fiscals from FY2012. 

According to Vinnie Mehta, director general, ACMA, "With demand set to grow in the near future across segments in the industry, and especially with the four-wheeler sector's growth outlook of 8 percent, the graph for the components industry is set to grow further between a sustained 10-12 percent for the next 2-3 years."

The cumulative revenue is a resultant of component supply to the OEs, aftermarket and exports. Out of the OE space, supplies to the PV sector is the major contributor with a major share of 49 percent, followed by the two-wheeler industry with 22 percent, and M&HCVs, LCVs contributing 11 percent and 8 percent respectively.

Exports scenario 

The business from exports, closing at Rs 73,128 crore also experienced an upward trend, albeit marginally by 3.1 percent (FY2016: 70,090 crore), owing to the sizeable and vibrant domestic market, buzzing with a lot of demand. 

Europe (36%) continues to be the top destination, followed by North America (26%), Africa (6%) and Latin America (4%). Key products shipped out included rubber products, steering parts, chassis components, bumpers, and engine and transmission parts. The US emerged out to be the top source of revenue coming in from exports for the industry, contributing a sizeable 22 percent, followed by Germany (7%), Turkey (6.2%), the UK (5.1%) and Italy (4.1%). 

According to Rattan Kapur, president, ACMA, "Despite the tough challenges abroad, the exports from India have remained stable in the ended fiscal, FY2017. While the Latin American market continues to pose more opportunities, there has been a decrease in exports to the UK, owing to the Brexit, and lack of security or no clarity for the future of policies and business."

Imports 

The auto components industry saw its imports remaining almost flat with a marginal drop of 0.1 percent to close with net revenue of Rs 90,571 crore (FY2016: 90,662 crore). While imports from Asia grew by 2.4 percent, those from North America dipped by 14.6 percent and from Europe, it fell by 7.3 percent on account of European cars not currently faring well in the domestic market.  

According to Rattan Kapur, "A whole lot of nationalist movement is happening in the Indian automotive industry, which is making companies look towards localisation in a big way and decrease on their import content."

Major imports come in from Asia, which contributes 61 percent, with supplies from China topping the charts at 26.4 percent, followed by Japan (11.7%) and Thailand (6.9%). The numbers from China pose to be a cause of a concern, as a lot of the supplies come into the aftermarket, which, in India, is in a highly unorganised state already.  

Aftermarket atmosphere

The revenue of the Indian components industry from its supplies to the aftermarket grew substantially by 25.6 percent, to close at Rs 56,096 crore (FY2016: Rs 44,660 crore). 

While there is a rising trend in this area, the government's high tax of 28 percent on components with the GST, could again see spurious parts being preferred over in the highly uncontrolled aftermarket space of auto components in the country. 

The AMP 2026

With the Automotive Mission Plan 2026 aiming to scale up the annual revenues of the industry to 200bn dollars, a substantial 5 times of the closing numbers for FY2016, also seeing growth of exports to 80bn dollars, the industry does foresee some challenges lying ahead.

With the major Bharat-VI emission transition peeping through the window, to get implemented in 2020, and the government's recent push towards electric mobility has now brought in a double challenge for the industry. 

According to Vinnie Mehta, "The competence and exposure of the Indian auto components industry is very high in regards to IC-engined vehicles, with 45-50 percent of the total components being produced belonging to the powertrain area itself. The auto components industry will have to be prepared for the imminent e-mobility, but, at this juncture, the BS-IV to BS-VI transition is by no means a small change and requires investments in technology, absorption and skill development. Hence, a long-term stable technology-agnostic roadmap, driven by a sound regulatory framework is the need of the hour."

According to Rattan Kapur, "As far as AMP 2026 goes, if the govt is serious about EVs, then there is a total disruption in the near horizon. The volume target of 5 million will have to be revisited, as the share of pure IC engine parts will shrink by a dramatic 70 percent, posing a huge threat to the current nature of operations of the industry. With all of this aside, a shift in mobility technology has to happen, and it should happen. We support the government in this. But, when it happens is the absolute question."

"We are in discussion with the government to make this transition smoother, and have requested them to clarify the norms or what kind of pollution levels are required. We want the government to come out with a clear-cut policy on what sort of pollution norms are required, and then, leave the rest for the industry to brainstorm and decide what technologies to bring in, be it hybrids, electrics, PHEVs or fuel-cells", he added. 

The GST impact

The rollout of the most reformative economic tax structure in July 2017 in the country was no easy, given the size and scale of the Indian industry. There have been huge positives in the form of upto 50 percent improvement in transit times across states, as well as a decline in corruption on erstwhile state entry checkposts.

On the other hand, while the transition has been largely smooth for Tier-I majors, Tier-IIs and Tier-IIIs have been undergoing trainings from the ACMA Centre for Technology, to have better understanding of the new tax structure. 

Industry 4.0 development

With the industry looking towards higher scales and more revenue in future, adoption of technology at the shopfloor also has to play a key role into this vision.

With Tier-IIs and Tier-IIIs being the major predicaments into seeing such a phenomenon being adopted at mass level not anytime before the next 3-5 years, ACMA is eyeing to utilise the time and leverage industry-academia collaboration to move in this direction.

It has recently signed an MoU with IIT-Delhi and the Automobile Association of India (AAI) to set up a centre of excellence, having its focus on developing new technologies for process control and bringing more automation in the production room. 

Moreover, another collation between IIT-Powai and the Kirloskar Research Centre is also on the cards channelise development in this area.