Boom time for auto sector

The Indian automotive component industry’s potential of reaching $40 billion revenue by 2015 as suggested by an ACMA-McKinsey study could well be realised by tapping the global sourcing market as well as the huge demand from domestic automobile manufacturers who are in the process of expanding capacities and launching new models. The component sector is confident that with such frenetic pace in investments, revenues could comfortably touch the figured targeted by ACMA-McKinsey. For the record, the industry grew from $2.4 billion in 1997 to $8.7 billion in 2004-05.

Clearly, the $40 billion mark means taking a giant step forward. ACMA-McKinsey have said that India can also achieve a 3-4 per cent share of the potential sourcing market (estimated by at $700 billion) by 2015. At a recent meeting in New Delhi, Kamal Nath, commerce minister, said multinationals like General Motors, Suzuki, Nissan and Honda had committed to investing in India in the near future. He referred to GM’s agreement with the Maharashtra government to invest $300 million in a new plant as well as Nissan and Suzuki’s intent to pump in $800 million at Manesar.

Honda plans to invest $200 million in its Greater Noida facility. Sources say that it is also working on a new City for launch in 2008-09. Its parent company in Japan has already indicated that it will invest Rs 3,000 crore in India over the next decade. GM, it may be mentioned here, will also enhance capacity at its existing plant in Halol, Gujarat. While BMW will roll out its cars from Chennai, the next big news is expected from Volkswagen which has apparently zeroed in on Chakan near Pune.

Indian manufacturers have also drawn up big plans. The Mahindra-Renault venture will produce around 50,000 Logan cars in the first year of its launch. The M&M multi-utility vehicle Ingenio (code named Model U) is also expected to do sales of 50,000 unit in the first year of its launch. Of course, there is the big investment by Tata Motors to produce the Rs 1-lakh small car in a Rs 1,000 crore plant in West Bengal. The company has also earmarked a substantial outlay for its Uttaranchal facility which will see at least 100,000 units of the Ace produced. According to sources, the initial projected output was twice as much but has since been trimmed. Tata Motors has also announced its intent to enter into a joint venture with Fiat to produce cars and engines at Ranjangaon near Pune which could involve an investment of nearly Rs 2,000 crore.

##### HUGE OPPORTUNITY

Bajaj Auto is readying its one million unit two-wheeler plant in Uttaranchal (it just announced a Rs 2,000 crore plan for a light commercial vehicle and new generation three-wheelers at Chakan) while Piaggio’s Quargo, that will be the direct competitor to the Ace, will roll out from the Baramati plant this year. This is not all. Hero Honda and its vendors will invest nearly Rs 2,000 crore in Uttaranchal. Needless to add, all this is the best piece of news to vendors. The icing on the cake is the possibility of India becoming well and truly a hub for small cars. It is only a matter of time before it overtakes Japan to become the largest manufacturing point for Suzuki.

“It would be a huge opportunity if India becomes an export hub for more carmakers as it would lead to a big boom in the parts industry. India has in it to be the cheapest and fastest producer of cars. This was evident when Tata Motors came out with the Indica. Mahindra Scorpio is the lest expensive vehicle in its category worldwide. The Tata Ace was out in no time,” says Rajesh Jain of Neolite, a leading supplier of automotive and home lighting to several OEMs in India and abroad. The company is setting up a plant in Uttaranchal. According to him, the country has the potential to grab 40 percent of the $700 billion global component market. The ball has already been set rolling with the kind of organic and inorganic growth being seen.

The Rs 545 crore Nirmal Minda group is also looking at fresh investments in Uttaranchal for a battery plant. It will make switches and horns in a different block within the same premises. “Around 16 suppliers are going along with Bajaj to Uttaranchal and we are one of them,” says Nirmal Minda, managing director, who has set his company a turnover target of Rs 5,500 crore by 2015.

Deepak Jain of Lumax Industries is also setting up shop in Uttaranchal to cater to Tata Motors while an associate company will meet the needs of Bajaj Auto. Lumax will set up two independent plants. Deepak Jain is very excited about the investments being lined up by automobile manufacturers. Clearly, the momentum came after the Budget sops on small cars. “The direction is right and the pace of implementation will depend on additional investments both by OEMs and vendors. The government also needs to pay attention to infrastructure,” he says.

##### Masahiro Takedagawa, CEO of Honda Siel Cars India, is also upbeat. It may be mentioned here, as an aside, that he is operating officer of South Asia which means also overseeing operations in neigbouring Bangladesh, Pakistan and Sri Lanka. Honda, as is well known, is the leader in the Indian two-wheeler market and believes that its two arms here could account for a near 60 percent combined share in 2010. As for cars, Honda Siel has targeted the one lakh mark in 2007 and over 1.5 lakh units by 2010. The parent company has also set up a new company, Honda Motor India, to consolidate the parts business across the automobile and power products business areas for more synergy.

Avtec (the entity created by spinning off Hindustan Motors’ powertrain business at Pithampur in Madhya Pradesh) is also on expansion mode. The company has two factories and is in the process of commissioning a third plant in Chennai that will be dedicated to exports. The names mentioned in this article form only a miniscule percentage of a much bigger list. What has emerged clearly is that it is going to be a heady time for vehicle and component makers. From the viewpoint of employment, it is the best piece of news to the growing list of young engineers.

The other spinoff is the obvious decentralisation that is happening as a result. No longer are companies making a beeline for a couple of prospective states. Who would have thought that Bengal would be home to the prestigious Tata Rs 1-lakh car plan? There are worries even now on the land acquisition front for ths project but the picture will become clearer by the end of this month. Uttaranchal and Himachal Pradesh are the next big growth zones. Maharashtra, which was languishing for many years, is now back with a bang. Punjab has offered generous incentives to VW and could even emerge the alternative to the Tata small car should there be issues with Bengal.