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Banking On Exports | Businessworld

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AUTO COMPONENTS 14 Jan 2012

Banking On Exports
Higher revenues from exports offset the increase in production costs
Vishal Krishna

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The $30-billion auto components industry is going through a peculiar phase right now. Even though car sales are down, the auto ancillary industry, which fell by 30 per cent during 2011-12, has bounced back in the past two months. There is caution in the market. There is moderate growth for manufacturers and the industry showed some growth last month, says S.K. Behera, vice-chairman of the Rs 1,500-crore Pune-based RSB Transmission, which makes forged components and transmissions for Ashok Leyland and Tata Motors. Continuous increase in exports seems to have brought the change. At 15 per cent, exports still comprise a small part of the total revenues of industry. However, they are increasing considerably. While rupee depreciation has affected imports badly, exporters are making hay. A Crisil report states that companies in the automobile sector generally suffer from the rupees fall because they import components and raw material. So higher commodity prices impact their bottom lines. However, the report states that higher revenues from exports for some of these companies partly offset the increase in production costs. Auto component manufacturers such as Behera also agree. The rupee depreciation has been offset by exports, he says. The automobile industry expects to grow at 2-3 per cent this year. Ancillary companies that BW spoke to have a positive outlook. They hope to be in the black this year and growth could be as high as 20 per cent if these companies manage to push exports to 25 per cent. Problems in southern and eastern Europe have led global auto small and medium business (SMB) units to explore the Indian market. Resnova, an axle maker from Italy, says that India is the growth market along with Latin America, Russia and Australia for commercial vehicles. Banks in Europe are not able to fund the commercial segment because of the prevailing financial crisis, but there are opportunities in the rest of the world, says Claudio Mascialino, president of the $20-million Resnova. India has strong potential as a market and appetite for growth is enormous in this decade, says Mascialino. The steady growth in commercial vehicle sales in Europe is also working to the advantage of Indian autocomponent manufacturers who want to tap European markets. We are seeing our spare parts business grow, says Jasbir Ryait, chairman of G.S. Auto, a Tier-1 supplier to Tata Motors and Ashok Leyland. According to him, all the new trucks sold in 2009 will need spares and this will help grow business for ancillary companies. Auto ancillary companies are set to grow and the road to growth is already being funded. RSB Transmission is spending Rs 60 crore on a new foundry, while G.S. Auto is investing Rs 50 crore on a new plant. LGB, which supplies forged components to original equipment manufacturers (OEMs) such as Bajaj Auto and Hero MotoCorp has also invested close to Rs 120 crore since 2011 in new CNC machines and plants. There is a lot of investment going in to create products that will save fuel for the commercial and passenger vehicle industry both in India and globally, says P. Kaniappan, whole-time director at Wabco, a Tier-1 supplier of vehicle control systems for global auto OEMs. He adds that a steady growth is expected over the course of this year. (This story was published in Businessworld Issue Dated 23-01-2012)

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7/15/2012 3:24 PM