Component makers defer $2 billion investment plan amid automobile slowdown in India

10, Dec. 2019

A Volkswagen car dealership in the northern Indian city of Gurugram.  Contract manufacturing demand in India fell consistently for over 11 months through October compared to the same period last year.
A Volkswagen car dealership in the northern Indian city of Gurugram. Contract manufacturing demand in India fell consistently for over 11 months through October compared to the same period last year.

By Atul Ranjan

NEW DELHI, NNA- India’s auto component industry has put on hold combined expenditures of roughly $2 billion at least through March because of a slowdown in automotive manufacturing, with more deferrals likely through 2022, credit rating agency ICRA Ltd. said.

The unit of credit rating agency Moody’s Investors Service Inc. gave the estimate in a presentation last Wednesday, citing data of Automotive Component Manufacturers Association of India.

Low demand for vehicles, a liquidity crunch and lack of clarity on policies for the electrification of vehicles have cramped the component sector’s growth, an association official said last week.

The country’s non-banking financial companies (NBFCs), one of the key lenders to auto sector which finance 70 percent of new two wheelers and 60 percent of new commercial vehicles purchases in the country, are struggling to raise funds for lending making vehicle financing difficult and affecting sales, according to credit rating agency Acuité Ratings & Research Ltd.’s October report on India’s automobile sector.

Forty-five component firms, which account for over 30 percent of the $57.2 billion industry for secondary automotive parts, tracked by Moody’s Investors Service also indicated they would defer capital expenditure into March. The expenses would fund capacity expansions.

Those firms are likely to spend 15 percent less in the three fiscal years ending in 2022 compared to the previous three, ICRA group Vice President Subrata Roy told NNA. They spent a combined 220 billion rupees ($3.1 billion) over the past three years, he said.

Weak demand though fiscal 2021 would account for the drop, ICRA Vice President Pavethra Ponniah said during a presentation. Demand from original equipment manufacturers has fallen about 16 percent over the 11 months through October compared to the same period last year.

Capacity utilization is down to 50 percent in Oct.-Nov. compared to the same period last year, with some firms reporting even less, said Vinnie Mehta, director general of the manufacturing association.

Industry turnover fell 10 percent to $26.2 billion from April to September this year compared to $29.1 billion during the same period last year, the association says.

“Considering the auto component industry grows on the back of the vehicle industry, a current 15 to 20 percent cut in vehicle production has…adversely impacted the auto components industry performance and investments,” manufacturing association President Deepak Jain said in a statement last Friday.