Automobile component industry in low gear

Less than two years back, the mood in the $18-billion Indian automobile component industry was buoyant. Every component maker worth his nuts and bolts had double digit growth rate on his future graph.

But by the end of 2008, the outlook turned bleak to say the least.

The Automobile Component Manufacturers’ Association (ACMA) is now knocking at the government’s doors seeking a 2-3 years “bridge policy” to help survive the global financial crisis.

If the industry voices can be ignored for misplaced or unwarranted panic, the numbers cannot be misread. The first half numbers tell the story loud and clear. Between April and September 2008, operating profit margin (on net sales) of the 70-odd listed component makers in India was down to 11.11 per cent from 12.27 per cent in the first half of 2007-08. Net profit margin fell steeper to 3.96 per cent in the first half of this year from 5.26 per cent in the corresponding period of 2007-08.

The big numbers repeat this story. While sales during the first half of this fiscal grew by 24 per cent, the aggregated net profit of these 70-odd listed players fell by 6.64 per cent.

“We did see this slowdown coming when the sub-prime crisis in the US came to light. But we definitely underestimated its impact on us,” confessed Arvind Dham, managing director of Amtek Auto.

When the global financial crisis took shape in the US, exporters from India believed that their hope was in Europe. “We felt the EU was insulated. But in September, the EU too got affected. We did not know the gravity (of the situation),” said Dham.

Sanjay Labroo, managing director and CEO of automotive glass maker AIS, believes the mass lay-offs in the auto component sector are inevitable if the current slowdown continues. “The credit squeeze in the market has affected the commercial vehicle makers most,” he said adding there were reports of about 60-70 per cent contraction in production of commercial vehicles.

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