Auto parts companies shift into top gear

‘‘Most manufacturers now realise the need to be prepared for reduction in import tariff and FTA with Thailand,’’ says Mumbai auto analyst Rashi Talwar. ‘‘Instead of viewing them as threats, some manufacturers have realised the potential of exploiting these treaties by either acquiring or establishing new venture in other countries.’’

In fact, McKinsey and Co has said that Indian auto parts industry has a potential to reach $33-40 billion by 2015 and create 2.5 to 3 million additional jobs in India. Net sales of listed auto part companies shot up by 28.1 per cent in the first quarter of 2004-05. The operating profit margins were 17.9 per cent.

Stock market punters have already sensed a big boom in the auto parts industry as evident from the share prices of these companies (See chart).

Says an analyst from Motilal Oswal: ‘‘Current price corrections and earnings make valuations compelling for the entire sector.

But there are downsides too. ‘‘Any increase in interest rates and fuel costs could dampen the growth of the automobile industry, which in turn can hit the auto component industry,’’ says a ICRA analyst.

Of Indian companies, TVS group firm Sundaram Fastners has already announced a greenfield project in China, while Bharat Forge has acquired European firm Carl Dan Pedenghaus. Rico Auto is setting up a new plant in Thailand and looking for an acquisition in the West.

Motherson Sumi is also looking for an acquisition via its European arm, HAG Austria. ‘‘Bharat Forge is actively looking for acquisitions in China,’’ Talwar adds.

Sundaram Fastners has increased its shareholding in Malaysian firm RBI Autoparts from 30 per cent to 50 per cent. TVS will use this facility to enter the growing Asean market.