Uma Precision, a Pune-based automotive components maker, just had its working capital limit suddenly pruned by its banks, without a notice. The company’s two new facilities, in which it has invested Rs 23 crore, are lying idle. The company’s two biggest customers are Tata Motors and Mahindra & Mahindra, both of which have cut production.
Bajaj Auto, too, has cut production, sending its ancillary units into a tizzy.
“Banks are curtailing my borrowing limit without even intimating me. They have actually frozen disbursement of my loans. I have no money to give to my creditors... To make matter worse, banks are demanding a repayment of the loan soon despite the company paying its installments regularly. Demand and payment from OEMs (original equipment manufacturers, such as, Tata Motors and M&M) have dried up considerably,” said Rajendra Kankaria, chairman and managing director, Uma Precision. The company fears that it will post a loss of Rs 12-13 crore this financial year.
Auto component companies — especially the mid-size and small ones — are facing an uphill task to stay afloat as banks have become tight-fisted in giving credit and vehicle makers are cutting orders to combat the slowdown in sales.
According to industry estimates, as many as 25 automotive component manufacturers in Pune have already shut shop. Besides, 50 foundry units across the country are believed to have shut shop due to delayed payments from customers, while another 100 are on the verge of collapse.
The writing is on the wall. “According to the trend analysis undertaken every quarter for the sector, the industry has recorded dismal growth so far. We are on the brink of going into a recession. Small and medium enterprises are the worst hit. Even getting working capital is impossible as banks are delaying disbursement of loans,” said Vishnu Mathur, executive-director, Auto Component Manufacturers Association, or ACMA.
The automotive sector, which registered a compounded annual growth rate (CAGR) of about 22 per cent in the last five-six years, expects growth to slow down dramatically to about 6 per cent this financial year.
While manufacturers are holding orders, they are also delaying payments for work already undertaken. “Almost half of my capacity is sitting idle. Customers (auto companies) are holding back payment for 90-100 days as against the usual period of 45 days. Our raw material suppliers are asking for advance payments as they too fear defaults. We feel sandwiched. Liquidity is not a big issue now as we have a good relationship with banks, but I doubt how long it will last,” says Atul Shrikhande, managing director of Tejas International, which operates foundry units in and around Pune.
Endurance Technologies, which makes high-technology aluminum casting products for Bajaj Auto and Tata Motors, has cut production by 30 to 40 per cent. The company’s vice-president (marketing), Biswajit Choudhury, said, “The situation is really difficult for us. We have cut production as well as inventory across all our product range. The demand has slowed down drastically and vehicle sales are not happening.”
Vanaz Engineers, a Pune-based company that designs fuel systems for vehicles, said its clients had put orders on hold, forcing it to either cut production or stop it completely.
