The $56.5 billion automobile component industry is expected to end the current financial year on a negative note as challenges continue to prevail in the broader economy. Industry observers expect things to become relatively better in the second half of the fiscal when the industry recovers from the ongoing consumption slowdown, pushing up production and sales.
“Overall, our estimate is that we will have a de-growth in the current fiscal because we have already de-grown by 10 per cent in the April-September period. I do not think it is possible to catch up (in the second half) in the current situation,” said ACMA president Deepak Jain, hoping that the performance would be better than the first half. He also said that sales are likely to bounce back with the BS-VI transition come April this year and noted that the component industry will have to adopt a wait-and-watch policy.
“..the expected launches of BS-VI compliant models during the period would help the automobile companies generate better sales,” Jain said. There would be more value addition by component makers “so, it will definitely give you the value impact, if not the volume impact,” he added.
The auto component industry’s turnover stood at Rs 39.5 lakh crore in FY19, registering a slower growth of about 14.5 per cent on year. The auto ancillary industry witnessed a declining sales growth in the second half of FY19 and recorded a further contraction of about 3.1 per cent, 7.4 per cent and 21.7 per cent during Q4 FY19, Q1 FY20 and Q2 FY20. A similar trend was also seen for the tyres and allied industries where net sales witnessed a plunge in the second half of FY19 and further declined during Q1 FY20.
Net sales of the tyres and allied industry witnessed a growth of 2.5 per cent in Q1 FY20 as against a growth of about 10.6 per cent in Q1 FY19.
“With new stringent emission norms and electric vehicles production in the domestic market, a range of new component is expected to enter the market driving the demand. Compliance to BS-VI will also help discover newer export markets for their components,” said analysts at Care Ratings.