The Indian automotive aftermarket for parts is expected to reach around Rs 39,000 - 44,000 crore by 2015 from the current Rs 24,000 crore, while the industry would require around 1.3 million skilled people, according to a report from McKinsey & Co.
The industry representatives meanwhile have asked for 'industry' status for the auto parts sector on the basis of number of jobs the industry created and the volume of revenue it generated for the exchequer.
According to a CII Report prepared by McKinsey & Company and titled ‘Opportunities in the Indian Automotive Aftermarket,’ which was released at the CII Auto Serve 2010 Conference, the automotive aftermarket in India is growing 11 per cent per year, and is at an inflection point with the increase in vehicle parts, more complex parts, price sensitive customers, and expansion of global suppliers in terms of sourcing and distribution presence in India.
The report estimated that the market demand for parts and services was set to double over the next five years. “Companies across the value chain will require significant additional investments in capital to double their capacity, as well as to enhance their capabilities to produce parts for and service a wider variety and complexity of vehicles,” it said.
The report also noted that there was a threat of margins coming down with the maturing of the market, and the automotive aftermarket players have to proactively pursue certain initiatives such as evaluating additional ways of capturing value, expanding service networks, developing branded generic parts, integrating forward and building scale to sustain profitability.
The aftermarket parts business is highly profitable for original equipment manufacturers (OEMs) and it is imperative for them to place adequate importance on expanding this business, said the report. It was estimated aftermarket contributes around 24 per cent in revenues of OEMs, but a sizable 55 per cent to profits.
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OEMs and distributors should develop branded generics to capture the cost advantage in the growing independent market, which is worth around Rs 3,000-4,000 crore.
According to the report, around 30 per cent of the market comprises spurious parts. After making adjustments for the spurious parts market, the manufacturing revenue pool of around Rs 10,500 crore is roughly shared by OEMs (39 per cent), OESs (34 per cent) and generic manufacturers (27 per cent).
Distributors, who typically enjoy margins of around 15 per cent, have a profit pool of around Rs 2,500 crore. OEM’s sales units and distributors enjoy a slightly higher share of the market at 55 per cent compared to independent distributors at 45 per cent.
The production of parts is split between OEM, original equipment suppliers (OES) and generic manufacturers. Commercial vehicles, which include multi-axle vehicles, light commercial vehicles, buses and trailers account for roughly 22 per cent of this market (Rs 4,500-5,500 crore), with Maharashtra, Tamil Nadu, Gujarat and Kerala accounting for over 40 per cent.
The car market is estimated at Rs 6,000-7,000 crore (34 per cent of the market) with Maharashtra, Andhra Pradesh, Delhi and Tamil Nadu cumulatively accounting for about 40 per cent of the share.
Meanwhile, the manpower requirement, which was estimated by KPMG Advisory Services Ltd, said to be around 1.3 million by 2015.