The demand for complicated castings, which are 35-40 per cent of all auto components, has surpassed supply.
V Mahadevan, managing director of Hinduja Foundries and ex-president of the Institute of Indian Foundrymen, said foundry demand had resumed after two years. This was a direct result of the dramatic turnaround in the automobile sector, after 18 months of economic setback.
The auto sector moves in step with economic growth. India’s Gross Domestic Product grew at 8.8 per cent in the fourth quarter and an average 7.2 per cent for the full year, 2009-10. With the economy expected to grow at nearly the same rate in the near future, the auto sector should also grow well. And, foundries forge parts for use in all vehicles.
Mahadevan believes the growing demand for foundries’ products will continue for at least two years. The industry is made up of 4,500 foundries that produce seven million tonnes of castings. Many are tiny, small and medium-scale units.
The trouble is, due to the recent slowdown, foundries are apprehensive on capacity expansion. Said Rajendra Kankaria, chairman and managing director, Uma Precision: “The capacity with us is of 2007 levels and it will take some time for additional capacity to come up. There are at least five-six months to go before supply matches demand. The shortfall is across all component segments.”
Some units plan expansion...
A few have started capacity expansion. Hinduja’s Rs 50-crore new project near Hyderabad, for instance, is coming on stream. This will increase overall production capacity 40-50 per cent, taking it to 168,000 tonnes by the next financial year. Similarly, Tulsi Castings and Machining Ltd, a ductile iron components manufacturer and exporter, plans its third high-pressure moulding line and automisation at the existing plant in Sangli, Maharashtra, with an investment of Rs 60 crore. This would enable it to more than double production capacity to 50,000 tonnes, from the existing 24,000 tonnes per annum. Operations would begin from June.
...but demand remains too high
Meanwhile, auto component makers are grappling with the surge in demand, with all vehicle makers reporting higher sales. Passenger vehicle sales jumped 48.5 per cent, two-wheelers 35 per cent and commercial vehicles 98 per cent during October-December.
Ashok Taneja, managing director and CEO, Shriram Piston and Rings, said: “Traditionally, February and March are the slow months. But, this time, demand was even higher. It's natural for component makers to be unable to gear up for demand, considering the volatility in the market. Suppliers are making investments with caution.”
Also read:Jan 15: Auto component makers go slow on new investments
