Auto parts revenue growth seen halving

Domestic economy has slowed down…secondly we are working with a higher base so expect lower growth,Srivatsa Ram,president of Automotive Components Manufacturers Association (ACMA) said.

Stubbornly high inflation in India and a series of rate hikes to tame it have made credit costlier impacting car sales.

Car sales in the country,the world’s second-fastest growing major auto market after China,fell 16 percent in July,their first drop in two-and-half years,after rising a breakneck 30 percent in 2010.

India’s economy grew 7.7 percent in the three months through June,its weakest in six quarters,with further sluggishness looming as a spate of interest rate increases,high inflation and weak global conditions take a toll.

The Reserve Bank of India has raised interest rates 11 times since March 2010. A section of analysts expect the central bank to increase rates by a further 25 basis points in its policy review on Sept 16.

The Society of Indian Automobile Manufacturers has cut its growth estimate for the Indian car market for FY12 to 10-12 percent from the earlier 16-18 percent,as higher interest rates and rising vehicle costs keep demand subdued.

The auto ancillary industry which added $2 billion to $2.25 billion in capacity in FY11,expects to add a similar quantum of capacity this fiscal year,as commitments had already been made last year due to a supply crunch with the original equipment manufacturers.

However,some companies have started postponing capex plans on account of the economic downturn.

When you saw the downturn taking place a lot of people have actually postponed their investments,said ACMA Vice-President Arvind Kapur,adding some firms had started to defer investments over the past five-six months.

Kapur said some companies were diverting investments meant for four-wheelers to two-wheelers,a category still witnessing strong growth,while others are deploying investments earmarked for the local market in exports.