With new technology advances in auto sector, component manufacturers are also evolving as competitive manufacturers. The emergence of sustainable mobility backed by introduction of electric vehicles (EVs) has opened doors for component manufacturers to tap the growing demand of the new EV market and IoT-based technologies. Darshini Kansara, in this article analyse automotive component segment landscape.

India’s domestic automobile production stood at 30.9 million vehicles during FY19, registering a growth of about 6.3 per cent y-o-y. The Indian auto component industry is ancillary to the automobile industry. Demand swings in any of the auto segments, commercial vehicles, cars, two and three-wheelers) have a direct impact on the auto ancillary demand. Indian Auto Component Industry is transforming itself from a low-volume, highly fragmented one into a competitive industry backed by strengths like technology, efficiency and evolving value chain. The industry mainly caters to 2 segments – (1) Original Equipment manufacturers (OEM); (2) Replacement market (Aftermarket). During FY19, OEM continued to dominate the auto component market contributing about 55-57 per cent of the industry turnover followed by the export market at about 25-27 per cent. Domestic aftermarket (replacement market) accounted for about 15-16 per cent of the industry.

The auto component sector is largely unorganised with about 10,000 players largely catering to the tier III, IV and replacement markets while about 800-1,000 players in the organised market cater to tier I, II and the OEMs. The demand from replacement market is low, owing to the high cost of genuine component parts. Unorganised players mainly dominated the replacement market, which were mostly Tier III/IV component manufacturers.

However, in terms of turnover, organised market holds about 80-85 per cent share while the remaining comes from the unorganised players. The Indian auto component industry, a highly fragmented industry, valued at around Rs 4 trillion (USD 56.5 billion) in FY19, witnessed a growth of
14.5 per cent on y-o-y basis and a CAGR growth of about 10 per cent between FY15 and FY19. Itis valued at about 2.3 per cent of India’s Gross Domestic Product (GDP), 25 per cent to manufacturing GDP and employed approximately 50 lakh persons as of FY19. The industry is transformingand the entry of new players in last few years has led to surge in the size of the auto component industry.

Indian Auto Component
Industry

The auto component industry turnover stood at Rs 3,959 billion (USD 56.5 billion) in FY19, registering a slower growth of about 14.5 per cent y-o-y vis-à-vis a sharp growth of about 18.3 per cent y-o-y in FY18. Auto component turnover increased, however at a slower pace in line with the slower growth of about 6.3 per cent in automobile production growth during the year.

The size of Indian export of auto components stood at Rs 1,060 billion (USD 15.6 billion) in FY19 witnessing a growth of about 17.1 per cent on a y-o-y basis vis-à-vis a healthy growth of about 24 per cent in FY18. The exports turnover increased at a CAGR of about 11.5 per cent between FY15 and FY19. Exports share in turnover has largely remained consistent at about 26 to 28 per cent during the period. The industry exports auto components to over 150 countries with USA accounting for the largest share of about 25 per cent followed by Germany (7 per cent) and UK (5 per cent) as of FY19. Key auto components exported from India include gear boxes and parts, hydraulic power steering systems and steering gear systems and parts, parts of diesel engines, drive-axles and parts, suspension systems and parts, brakes and servo-brakes, spark ignition and parts, among various other components.

Exports& Imports –FY19

Nearly 30-35 per cent of the auto components used by OEMs are imported. The share of imported consumption has marginally declined to about 31 per cent for the last 3 years from the 35 per cent prior to FY17. China has been a major exporter of auto components to India.

India is estimated to have imported Rs 1,237 billion (USD 17.6 billion) worth auto components in FY19 as against the aggregate turnover of around Rs 3,959 billion (USD 56.5 billion), registering a CAGR growth of around 10.5 per cent from Rs 829 billion (USD 13.5 billion) in FY15. The major components imported into India include piston rings, brake assembly, bimetal bearings, transmission shafts, wheel rims, motor cycle parts etc.

In FY19, imports from top
10 countries comprised over 60 per cent of India’s imports of auto components. Region wise, share of Asia was the highest at 61 per cent. This was followed by Europe comprising
about 29 per cent of India’s imports. About 8 per cent imports of auto components came from North America. Africa and Latin America formed the remaining share of the Indian imports of auto components.

Component wise market
segmentation

The industry over the years has integrated capability of manufacturing the entire range of auto components required to manufacture vehicles. Engine and drive transmission parts together contribute about 50 per cent of the auto component industry production. Engine and exhaust parts, which constitute about 26 per cent of the production, mainly comprise pistons, engine valves, carburettors, fuel injection systems, camshafts, crankshafts and cooling systems. Drive transmission parts, which constitute over 17 per cent of the total production, include axle assembly, steering parts and clutch assembly. Component wise market shares have remained largely stable over the past few years.

Financial performance of Auto ancilliary players

Auto component manufacturer’s profitability is sensitive to the changes in raw material cost as it forms the bulk (about 60 per cent) of net sales. In FY19, India’s annual automobile production stood at 30.9mn vehicles as against 29.1mn in FY18, registering a slower growth of 6.3 per cent y-o-y vis-à-vis a growth of about 14.8 per cent y-o-y during the corresponding period previous year. In line, auto comp turnover slowed down and witnessed a growth of about 10.4 per cent y-o-y vis-à-vis a growth of about 17.6 per cent during FY18 led by subdued muted demand from the automobiles industry.

In line with the overall aggregate turnover of the industry, the net sales of auto comp and tyres have witnessed a slowdown. The auto ancillary industry witnessed a declining sales growth in H2 FY19 and further witnessed negative growth of about 3.1 per cent, 7.4 per cent and 21.7 per cent during Q4 FY19, Q1 FY20 and Q2 FY20. Similar trend was also seen for the tyres and allied industry where net sales witnessed a slowed in H2 FY19 and declined during Q1 FY20. Net sales of tyres and allied industry witnessed a growth of 2.5 per cent in Q1 FY20 vis-à-vis a growth of about 10.6 per cent during Q1 FY19.

In FY19, increase in steel, aluminium and plastics costs along with subdued demand, the margins of the players remained under pressure on a y-o-y basis. Going forward in FY20, we expect the margins to continue to remain under pressure with on back of weak demand from the OEMs. However, lower metal (steel and aluminium) price is expected to marginally restrict this contraction.

Outlook – Negative

• On the back of overall slowdown in auto segment and weak near term outlook, growth challenges remain for auto component industry going forward.
• With new stringent emission norms and electric vehicles production in the domestic market, a range of updated as well as new auto comps is expected to enter the market driving the demand. Compliance to BS VI will also help discover newer export markets for their components. At the same time, capex on technology advancement and product capabilities may continue to remain high exerting pressure on companies’ cashflow.
• Component manufacturers supplying across segments and having diverse revenue source from aftermarkets, exports besides OEMs may weather the current slowdown better than players with concentrated product or geographic profile.

About the author:

Darshini Kansara works as a Deputy Manager—Industry Research at CARE Ratings. She has about 7 years of experience in the industry research and has been tracking various consumer centric industries such as automotive and auto comps, hospitality & tourism, textiles, retail & e-commerce, BFSI, etc on a regular basis.