The recent IPO of Sansera Engineering Ltd (NS:
) drew our attention to the Indian auto component industry. The Indian auto component industry is a vital part of the Original Equipment Manufacturer (or OEMs) value chain. It has grown at a healthy rate over the last few years. However, the industry remains highly fragmented, with most companies in India and very few foreign companies operating in this space. The organized vertical of the Indian auto component industry consists of OEMs who manufacture high-value precision instruments. At the same time, the unorganized portion includes low-valued products catering to aftermarket services.
The Indian auto-components industry grew at a 6% CAGR over the five years (FY2016 to FY2020). The industry size in monetary terms reached $49.3 billion in FY2020 and is anticipated to touch $200 billion by FY2026. The industry accounts for a 2.3% share in India's GDP and is slated to become 3rd most prominent in the world by 2025. It provides direct and indirect employment to nearly 15 lac persons. The industry's significant growth include:
1. Growing purchasing power
2. Rising disposable income
3. A vast domestic market
4. A stable government policy framework
5. Rapidly developing infrastructure across the country
The auto component industry is projected to grow by double digits in FY2022 due to solid growth prospects in most automotive industry segments.
Indian Auto Component Industry Exports
The several sub-sectors of the Indian auto component industry include Engine Parts, Electrical Parts, Drive Transmission & Steering Parts, Suspension and Braking Parts, Equipment, etc. The major categories of global exports of auto components cover Gear Boxes, Drive Axles, Steering Wheels, Steering Columns & Steering Boxes, Road Wheels & Parts & Accessories, Suspension Shock Absorbers, Clutches & Parts Thereof, Bumpers and Parts Thereof and Radiators. The Indian auto component industry exports were valued at $14.5 billion in FY2020. Automotive component exports are anticipated to grow at 23.9% CAGR to reach $80 billion by 2026 as per Automobile Component Manufacturers Association (or ACMA). The major export locations include Germany, UK, the USA, Italy, and Thailand. The aftermarket segment includes tire, battery, brake parts, which is expected to reach $32 billion by 2026 from $9.8 billion at present.
Now let us take a quick look at global exports of auto components. You should note that gearboxes and drive axles are the two prime commodities that are exported globally. Auto components' worldwide exports saw a significant downturn in Calendar Year 2020 / CY2020 on a year-on-year basis. Exports were a mere 30% to 40% of CY2019's levels in CY2020 for products like steering wheels, steering columns, road wheels, and steering boxes. The same was lower by almost 33% for other products such as gearboxes in CY2020. Few auto components like suspension shock absorbers, clutches & bumpers, and drive axles reported a sharp fall to the extent of 40% to 50% in CY2020's global exports. India's share in each of the major categories of global exports was less than 1.5% in CY2019. The same rose in CY2020, with some commodity categories such as road wheels and radiators witnessing 100% growth in exports year-on-year. But, the overall increase in value terms was negligible. The global auto components industry stepped backwards by a decade last year. It was due to the covid-19 induced trade restrictions resulting in CY2020 exports for all significant categories lower than CY2011 levels.
Government Initiatives and Future Outlook
In November 2020, the Government of India notified the Production Linked Incentive (or PLI) scheme for automobile and auto components with Rs 57,042 crore over five years. The Government has also rolled out an Automotive Mission Plan (or AMP) 2016-26, which should improve the automotive industry. The plan is expected to increase the contribution of the Indian auto industry to the GDP by more than 12%. As the world shifts towards electric, electronic and hybrid cars, it should lead to newer verticals and opportunities for auto-component manufacturers. As of March 2021, there were 1,800 charging stations, which are expected to reach 4,00,000 by 2026. With a focus on systematic R&D, the Indian auto-component manufacturers should benefit from the globalization of the industry.
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