Auto parts makers see improvements in utilisation levels on vehicle demand surge

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Even as the full-year demand outlook is weak, auto parts makers have seen good improvements in capacity utilisation in August, helped by improvements in vehicle demand and more relaxations imposed by the government on the back of Covid-19.

Most of the auto components makers have reported utilisation levels crossing 50-60 per cent in August due to growth in sales of passenger vehicles along with two-wheelers and tractors.

Suppliers of parts to tractors and two-wheeler companies have been improving their utilisation levels much better than others.

Capacity utilisation

Gabriel India (GIL), a leading player in the automotive suspension segment and secures about two-thirds of its revenues from two-wheeler segment, appears to be on a stronger footing with improving two-wheeler sales.

The auto industry has requested for at least a temporary GST rate reduction to 18 per cent from 28 per cent to mitigate an increase in costs in the past few quarters (due to the introduction of safety features like ABS/CBS, implementation of BS-VI norms, hike in registration fees & road tax by some States).

Minda Industries’ capacity utilisation increased to about 80 per cent in August, helped by growing demand for two-wheelers and tractors. The company is also going ahead to commission its two-wheeler alloy wheel plant this month.

Slow and steady rebound

Though auto component makers that have a major share with the commercial vehicle industry are still battling with lower capacity, most of the players expect the August momentum to continue for the next couple of the months in view of the festival season.

“In the past month, we have seen a massive rebound to almost 100 per cent in most segments, which is indeed heartening. We now look forward to the upcoming festival season and the industry to achieve a significant level of normalcy by November 2020,” Deepak Jain, President, ACMA, said.

Given the upcoming festival season and the line-up of new launches, expected inventory build-up by vehicle makers and dealers will be positive for parts makers.

While the recovery in domestic business is expected to be gradual for component makers, the realignment of global supply chain may throw some opportunities for Indian auto component manufacturers to explore new avenues of growth in the coming months.

Key areas

A Mckinsey report on the Indian auto component industry has indicated that the domestic industry could focus on four key areas for future growth. It can build on its strengths to capture the import substitution opportunity in an import basket worth $12 billion. This will also help exports triple to $45 billion by 2026.

The auto parts industry should also collaborate to open up growth opportunities in the adjacent sectors such as power, communication equipment and consumer electronics.

Indian component makers need to focus on product design optimisation in order to be competitive – by minimising costs. Lastly, they should embrace digital, analytics and automation across their business value chain.

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