DECEMBER 23: Indian automotive component industry is expected to witness consolidation with a spate of mergers and acquisitions (M&A), says a study by rating firm ICRA."Size of the organisations is expected to become a critical feature and to have better economies of scale the components industry is expected to see increased merger and acquisitions," ICRA industry report on Indian automotive components said.It said there have been quite a few M&A and alliances in the domestic Rs 12,600 crore industry and the trend is expected to intensify in the future.A recent pointer to this trend is the decision of Sundaram Fastners to pick up a stake in Autolec Industries and the decision of Stanley Electric of Japan to take controlling stake in Lumax Industries.The activity is expected to increase in line with the global trends of consolidation for increasing competitiveness, it said. "More demanding requirements of the new vehicles manufacturers and export markets, the need for investments in technological upgrade and quality improvements along with global consolidation is likely to result in some sort of realignment in the Indian automotive component industry as well," the report said.ICRA expects that the structural transformation in the component industry which would put pressure on the companies profit margins would also lead to increased consolidation.Due to the changing structure of the industry, ICRA feels that auto components industry to be dominated by the top 25 companies who would have the size, resources and the capability to become tier-I suppliers ie, selling directly to the Original Equipment Manufacturers (OEMs).Currently, in the Rs 12,600 crore industry, there are close to 400 players in the organised components sector with unorganised sector consisting of over 5,000 players.It said with newer vehicle models now being introduced at a faster pace and quality and technology assuming critical dimensions, the realignment for the unorganised sector are not too bright."Unorganised sector with market share of close to 22 per cent is considerably important but its size has shrunk over the time as it caters only to the replacement market," ICRA said.
