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Indian Auto Component Industry
Indian Auto Component Industry
Indian Auto Component Industry: Volume gains but margin pains
Say automobiles and India is echoedOn the back of fast growing economy and lower penetration, the global automobile manufacturers are foreseeing humungous opportunities in India. Every other global original equipment manufacturer (OEM) is boasting of significant India plans. Local OEMs too are aggressive in comprehending the opportunities and have chalked out expansion plans to encash the domestic opportunity. Indias low cost advantage would drive automobile exports as well. Buoyancy in the automobile industry would translate into healthy growth for the ancillary auto component industry as well in the next 4 5 years. The low cost advantage would also drive component exports from India.( http://www.bharatbook.com/detail.asp?id=144305&rt=Indian-Auto-Component-Industry.html )
Factors such as abundant low cost labour, local availability of steel, aluminium and natural rubber, strong ancillary industry and 100 per cent FDI allowed in the sector in addition to bright demand outlook has attracted global auto majors to set up significant capacities in India The investments in component manufacturing is replicating this trend. Many global auto manufacturers are not only sourcing components from local players for their India operations but also for their overseas production. In many other cases, the global automobile manufacturers are setting up component manufacturing facilities in India for their local as well as overseas operations Thus, India is not only eyed as the hub for automobile production but also the epicentre to source components as well.
The opportunity on demand side would come along with various challenges on profitability side. Increasing intensity of competition amongst the automobile manufacturers would not allow full pass-through of the rising input costs. The pressure of competition would be percolated down to the fragmented auto component industry with weak bargaining power. The component manufacturers find it difficult to pass on the rising costs to the cost-sensitive replacement market. Thus opportunities on volume front could easily be overshadowed with the margin pressure. The top-line growth may not fully percolate down to the bottom-line. Thus, the players need to be innovative in reducing their costs and improving their productivity to maximize the profitability.
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