The Hindu Business Line : Auto parts industry begins fiscal on a note of ‘cautious optimism’

Chennai, April 4 After the “worst ever” year ended with some encouraging signs, the auto components industry is beginning the new financial year on a note of “cautious optimism”.

Thanks to all segments of the automobile industry, save medium and heavy duty commercial vehicles, showing some signs of improvement in sales, the sense of despondency that was seen in the auto components industry around the turn of the year has yielded space to some confidence.

Companies that depend more on commercial vehicles or exports are less optimistic than others whose customer base is broader. Engine component manufacturers (such as Rane and India Pistons) are better off, because their products go into stationary engines. The stationary engines business is booming, thanks to the need for gensets to power telecom towers. Mahindra & Mahindra is a major player in this sector. It sold 40,000 engines in 2007-08; its 2008-09 sales are expected to be around 55,000 engines.

“We are a bit more optimistic,” says Mr N. Venkataramani, Managing Director, India Pistons. “If you take 2007-08 as ‘100’, 2008-09 was around ‘85’ and 2009-10 will be probably ‘90’.”

India Pistons, Mr Venkataramani said, even had to turn down a few export orders, those for products whose production lines were overloaded.

Challenging year

Others said they looked forward to a better but, nevertheless, challenging year.

“I think it would be safer to watch the April-June performance before calling this a recovery. Exports are still bad,” says Mr L. Ganesh, Chairman, Rane Group.

Mr Arvind Balaji, Joint Managing Director, Lucas-TVS, feels that while ‘commercial vehicles’ may take a year to recover, “we are heartened by the strength of the passenger car and two-wheeler market”. Between April 2008 and February 2009, the passenger car and two-wheeler market grew 2.43 per cent and 2.65 per cent, respectively.

Most players in the industry believe that the market has bottomed out and an upswing, albeit feeble, is on the cards. “There is a feeling in our company that the worst has probably passed. However, we are working on operating plans that also factor in severe fluctuations in the market,” says Mr Balaji.

TVS group’s Wheels India Ltd says its schedules reflect a pick up in all segments. The company’s Managing Director, Mr Srivats Ram, expects growth in passenger cars and two-wheelers, but sees no positive swing in the truck segment. “We will get a better idea of where the industry is going only by the middle of the year,” Mr Ram told Business Line.

The worst part of last year was the suddenness with which the slump hit the manufacturers. This year, at least, that will not happen. In 2008-09, the first half was very good, but the second, terrible. “This year, I expect the trend to be the reverse,” said one official of the TVS group’s Brakes India.

De-risking

There have been two key takeaways from last year’s experience. First is the discovery of opportunities for de-risking and the second, vigorous process improvements, at the shop floor level, which will stay beyond this downturn.

Dr Surinder Kapur, Chairman, Sona Koyo Steering, says that while cost cutting may help companies survive in the short term, the current slowdown has underlined the imperatives of de-risking in terms of diversifications. Sona, he said, is examining opportunities, but did not want to disclose details as yet.

Wheels India has discovered it could make steel structures for the power sector and is chalking out investment plans. Lucas-TVS began looking at opportunities in defence and aerospace a few years ago and has recently won a contract to supply electrical equipment to the aerospace industry, according to Mr Balaji.

As for shop-floor level process improvements, companies have discovered a gold mine in this.

“We never realised there was so much energy saving potential,” says Mr Venkataramani of India Pistons. The company has drawn up a master plan to bring about process improvements, which when implemented, would save 30 per cent of floor space.

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