Mumbai: A bouyant domestic market and a wave of alliances between local auto firms and foreign players are expected to increase business for parts players, even as the outlook for the global sector remains grim.
General Motors and Chinese partner SAIC Motor Corp have teamed up to make small cars and commercial vehicles in India, while Volkswagen took a stake in Suzuki Motor, tapping the Japanese firm's expertise in small cars and dominance in India.
"Whenever such alliances happen there is always value to be achieved at the supply chain level. This would happen over a period of time. But it all depends on how they leverage it," said Vishnu Mathur, Executive Director at the Automotive Component Manufacturers Association (ACMA).
Global auto makers view India as a manufacturing haven for auto components due to the cost advantage it offers in casting and forgings and are increasing their sourcing from India.
"The low cost advantage is still there with India. So companies planning to outsource components can take advantage of this," said Vaishali Jajoo, analyst at Angel Broking.
"In the last one year the industry has been relying mainly on the domestic market," Jajoo said.
Successive stimulus packages and a resilient economy have boosted sales of consumer products including cars.
The auto component industry is expected to grow to between $33 billion and $40 billion by 2016 from $19 billion in 2008-09, the brokerage Firstcall India said, adding that increased investments in the sector would aid the growth.
The Investment Commission has set a target of attracting foreign investment worth $5 billion for the next seven years to increase India's share in the global auto components market from the existing 0.9 percent to 2.5 percent by 2015.
Apart from General Motors and Volkswagen, Europe's second-biggest carmaker PSA Peugeot Citroen is also exploring various entry routes.
"Down the line, all ancillary firms would be benefited from these ventures, so we also stand to gain," said Santosh Singhi, chief financial officer at Amtek Auto Ltd, adding that he was waiting for a production schedule (from Volkswagen and Maruti) to plan production.
Others were waiting for clarity on what the global tie-ups could mean for India.
"It takes time to know what kind of synergies will come. I think the orders (from the recent tie-ups) may come down to the vendor side within a year," said NK Minda, managing director at Minda Industries.
But nagging worries persist over the health of US and European markets where Indian players export much of their products. While domestic sales are rising at a healthy pace, exports would take much longer to revive, officials say.
"The domestic market is picking up very well...but the worry is on exports, which are down 30 percent in the first half," ACMA's Mathur said. "In the second half you may see some growth as the previous year's growth was very low".
Bureau Report
First Published: Wednesday, December 16, 2009, 15:27