Two-wheeler slowdown hurting auto-component manufacturers

Companies are cutting down on expansion plans.

The two wheeler industry in India, that in volume terms, contributes three-fourth of all vehicles sold in the country, has become the party spoiler for the $15 billion auto-component industry.

Two wheeler sales in India has been decelerating in the last few months and in the first seven months of this financial year, domestic sales fell by nearly 9 per cent.

Motorcycle and step-throughs sales, that account for 80 per cent of all two-wheelers sold in the country, witnessed 14 per cent fall in sales during the same period.

Component-makers, particularly those who supply exclusively to two-wheeler manufacturers, are already feeling the heat. Of the 550-odd members of Automotive Component Manufacturers Association, an estimated 50-70 are exclusive two-wheeler parts makers.

Earlier in an interview to Business Standard, Sanjay Labroo, president of ACMA, admitted that these component-makers are the ones who would be most affected and there is very little they can do other than wait for the interest rates in the automobile finance trade to soften a bit.

Foreseeing no major respite coming in the short-term, some parts makers have re-drafted their growth numbers.

Deepak Jain, executive director of Lumax Industries, that makes head lamps for the major two-wheeler makers like Hero Honda and Bajaj Auto, said, "Despite growing at 30 per cent last year, we have projected our growth for this fiscal at 10 per cent."

Lumax has earmarked Rs 200 crore for its on-going expansion plans of which Rs 60 crore was allocated for increasing its supply base for the two wheeler industry. "(Since the slow-down) this has been brought down to Rs 25 crore."

Jain hopes that this current lull in the two-wheeler market is only a passing phase. He, like several of his peers who make parts for the entire automobile industry, is trying to keep the growth numbers in the black by increasing their exposure to passenger cars and commercial vehicles.

He says that curtailing investment in the two-wheeler sector and consolidating the product-mix in favour of four wheelers is one pro-active step that should see them through this rough patch, he adds.

Ashok Taneja, former president of ACMA and managing director of Shriram Pistons says that there is very little component-makers, who focus only on two wheeler industry, can do. "We (Shriram Pistons) are not affected thanks to our flexible product mix."

The interim strategy to take cover behind the four-wheeler and commercial vehicle business might help. During the first seven months of this fiscal, the domestic passenger vehicle sales grew by 13 per cent while light commercial vehicle grew by a modest 4 per cent.

Deep Kapuria, chairman and managing director of Hi-Tech Gears, who is also spearheading ACMA's globalisation roadmap, agrees that the slowdown in the two wheeler industry is only a passing phase.

"I don't see this going beyond the next four quarters. The time is perfect for small and medium enterprises among the components makers to do a lot of internal work like eliminating wastages. However curtailing investment, I would say, is not a very wise thing to do."

Kapuria's says his company had seen this slowdown coming and in its three-year plan that envisages investing Rs 100 crore, of which only 20 per cent is allocated to the two-wheeler industry.

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FROM BAD TO WORSE

Two-wheeler sales in the first seven months fall by 9 per cent. Motorcycle sales fell by 14 per cent.

Major component makers for two-wheelers are taking cover behind cars and commercial vehicles that have continued to grow.

Parts makers feel the negative growth is only a passing phase and will not exceed beyond a year from now.

Opportune time to reduce internal wastage when the time and reason are compelling to do so.