Component sector growth rate to dip this fiscal, says ACMA
Amid the nose-diving sales and production in the automotive industry, its ancillary industry-the auto component industry- is also bearing the brunt of it.
But, it can find solace in the form of the safety norms that are set to come into play in July and October this year, along with the BS-VI norm in April 2020.
“In Q4 FY19, due to the existing high dealer inventory levels, players undertook production cuts which cascaded to the auto component manufacturers. We expect muted production to continue up until H1FY20. The only silver lining for auto component manufacturers is the safety norms which will be implemented in July and October, which will increase the component intensity of vehicles. Hence despite the slow volume growth, the value growth for the component sector is expected to be slightly better,” Hetal Gandhi – Director, CRISIL Research told BusinessLine.
These components are required to adhere to safety norms which include antilock braking systems (ABS), airbags, sensors for seat belt reminders, reverse parking sensors, speed limit reminders and a manual override switch for central locking systems, she said.
Vinnie Mehta, Director General, Automotive Component Manufacturers Association of India (ACMA) also affirmed that the industry has been facing pressure due to the slowdown in the automobiles sector.
ACMA is the apex body representing the interest of the Indian auto component industry-
Mehta also said that the implementation of the safety norms will be a good business opportunity and have a positive impact on the auto component industry.
“Keeping in mind the upcoming BS-VI norms, component manufacturers in the exhaust treatment space along with players in engine (fuel injection systems replacing the archaic carburettor in two wheelers) and electrical/electronic system (electronic control unit, transmission control unit, sensors, wiring) are likely to benefit in many ways. These automotive component segments contribute around 30 per cent of the total auto component production in India,” said Gandhi.
This would lead to an increase in cost for OEMs (additional revenue for auto ancillary industry) in all vehicle segments, she added.
Ashish Modani, Vice President and Co-Head, Corporate Ratings, ICRA, said that post BS-VI, certain components like Selective Catalytic Reduction (SCR) systems and/or Lean NOx Trap (LNT) will become prevalent, especially in diesel vehicles. This will benefit the auto component manufacturers.
“A lot of additional components are to be added to the diesel vehicles post BS-6. Despite the preference for petrol vehicles instead of diesel which is imminent in the passenger vehicle (PV) segment, the role of diesel vehicles in the commercial vehicle (CV) segment is going to remain intact. So, those auto component manufacturers supplying to the CV segment is set to benefit,” he explained.
Even in the backdrop of such benefits, the BS-VI norms and its implications for diesel vehicles also pose certain disadvantages for the auto component manufacturers.
The auto component manufacturers involved in manufacturing diesel engines for small cars are likely to be at a disadvantage owing to the discontinuation of the small car diesel offering by major passenger car OEMs, said Gandhi.
This was affirmed by Modani, who pointed out that the share of diesel vehicles in the PV segment has come down from 58 per cent in FY2013 to 36 per cent now, with it likely to fall under 25 per cent going forward.
Most of the diesel players also use ferrous casting, instead of the aluminium casting used in petrol vehicles. Concomitantly, to a certain extent, there may an impact on the the ferrous casting suppliers , he said. At present, turbocharger penetration in diesel PVs is about 100 per cent whereas its penetration in petrol PVs is much lower.
“The shift from diesel to petrol will also weigh on demand of turbo-chargers as well, especially in PVs,” he added.
On whether the impact of the auto sector slowdown on the auto component sector will be offset by these new norms, Mehta said that unless the sale of vehicles picks up and the market improves, these opportunities will not help the auto component industry.
With the advancement of purchases before the enforcement of the BS-VI norm, he said that the second half of the current fiscal year is likely to witness better auto sales, with the auto component sales also benefitting in accordance.
Mehta said that the auto-component industry is expected to grow at around 8 per cent this fiscal, slightly lower than the expected FY19 rates.