ACMA estimates cumulative 30-35 percent drop for industry between FY2019-FY2021

India’s auto component industry has reported a 12 percent fall, to Rs 349,000 crore, during financial year FY2020. The significant drop, after a 14.5 percent growth in the previous financial year, is primarily due to the ongoing global Coronavirus pandemic. The pandemic has pushed back the industry by two years. The Indian component industry’s turnover during FY2018 was Rs 345,000  crore.

“Essentially, the pre-Covid slow growth got fast tracked,” says Deepak Jain, president, Automotive Components Manufacturers Association of India (ACMA). Jain is hopeful though that this year’s festive demand “could be as good as the last festive season”. The industry performance during last year’s festive season wasn’t much to celebrate about, but given the Covid-triggered unprecedented challenges which include a six-week production shutdown, any improvement in demand now is more welcome than pre-Covid times. Though ACMA is cautiously optimistic for some positives during the festive season, it doesn’t expect growth during the current financial year. Jain says that the industry turnover could see a cumulative drop of 30-35 percent between FY2019 and FY2021.

A key factor, or green shoot, that fuels Jain’s hopes are “visible buoyancy in rural markets and the tractor segment”. It’s also a result of the direct benefit transfer under various interventions by the government. Boost to the agricultural space is helping rural, and some semi-urban markets. While tractor makers have reasons to celebrate, two-wheeler and passenger vehicle OEMs also feel hopeful as these markets are leading the demand revival so far. It’s not clear though whether the demand revival will continue till the festive season as some segments may already be seeing some drop at the retail level.

ACMA is also betting on the government’s growing focus on promoting local manufacturing at a large scale, across industries. “The focus on local manufacturing over the last three months is also a massive green shoot. If that (high growth in manufacturing) happens, there will be big returns in the next two to three months,” says Jain. It will also bring big benefits for the automotive industry, which saw a rise in import content in vehicles as the domestic supply chain was not prepared to leapfrog from BS IV to BS VI within only a little over three years. With increased efforts to be more self-sufficient, it won’t be surprising to see at least some of the key Indian component manufacturers export BSVI/Euro6 components in the next couple of years. “The domestic industry is working with OEMs. Within a couple of years, BSVI will be significantly localised,” says Vinnie Mehta, director  general, ACMA.  A larger goal is for India to be in the ‘Top 3’ in each category of automotive components, says Jain while adding that in a few categories India is already number one.

Along with efforts to localise components, there are also efforts to reduce the dependence on China as a sourcing base. Though there’s a 12 percent YoY drop in imports from China in FY20, from $4.6 billion (over Rs. 34,000 crore) to $4.0 billion (over Rs. 29,000 crore), it still tops the list of countries the Indian automotive industry imports from. The Coronavirus outbreak in China’s Wuhan, that started impacting production schedules in India as early as late January 2020, is also making industry players to develop alternate sourcing bases while also trying to localise various components and systems.

Silver linings
While the component industry’s businesses linked to OEMs struggle for growth, its aftermarket business sees growth, albeit a small one, during FY20. This could also reflect a growing ownership lifecycle as many consumers may be delaying plans to replace their existing vehicles due to economic reasons or uncertainty in various fronts. The Indian aftermarket clocked a turnover of Rs. 69,381 crore, a 3 percent YoY growth over the previous year.  

At the industry level, as much as it is an extremely challenging phase, it has also offered new opportunities and taught new and more efficient ways of doing business. Reducing the breakeven point of businesses being a key one. “This pandemic has also thrown a lot of cost improvement ideas which were not there earlier,” says Jain who is also the CMD of Tier 1 supplier Lumax Industries. ACMA members may have already implemented some of these ideas as Jain says that no ACMA member has filed for bankruptcy. The Tier2 and Tier3 suppliers are facing the heat more but Jain says that the Tier1s along with OEMs are offering them support.

While the automotive industry is looking for change in fortune, the biggest change will be the introduction of a vaccine to prevent Covid. While efforts to that end are on, Jain says the industry wants to bounce back stronger as it did after the 2008-09 global recession.

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