Auto ancillaries plan $365.8 M capex soon

By agencies   |   Monday, 25 April 2005, 07:00 Hrs
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MUMBAI: A growth of 30 percent in automobile sales in 2004-05 is encouraging ancillary majors to invest heavily in capacity expansions. Ancillary companies such as Amtek Auto, Bharat Forge, Omax Auto, Rico and Sundaram Clayton will spend around $365.8 million (Rs 16 billion) in creating new capacities over the next 2-3 years.

Amtek and Bharat Forge are planning a capex of Rs 3.96 billion and Rs 4.58 billion respectively in the next two years, while Omax Auto is devising a capex of Rs 1.14 billion. The planned capital expenditure for Rico Auto stands at Rs 4 billion while Sundaram Clayton intends to spend Rs 2.25 billion over the next 2-3 years.

Resurgence in all segments of the auto industry and the surge in outsourcing by overseas players have helped auto components units absorb excess capacity. Large capital outlays, stringent quality standards and appropriate manufacturing systems and processes hold the key to success in the global sourcing business, say analysts.

The larger ancillary companies have benefited from strong demand for commercial vehicles, passenger cars and two-wheelers. Exports worked as an additional driver and most auto components companies have been able to protect their profitability despite rising metal prices, mainly of steel, said an official from a leading components company.

The last financial year was a breakthrough period for the industry, with output touching $6.7 billion from $4 billion in ‘02-03. Exports also touched the $1billion mark from $800 million in the previous year.

Although exports of auto spares from the country account for just 0.25 percent of the global auto components industry sales, what is heartening is the fact that they make up around 10 percent of total sales of auto ancillaries in India, market sources said. This year, the upswing in demand is continuing despite pressure on margins due to spiraling input costs and pressure from OEMs to further reduce costs.

The components industry has come a long way from catering to just domestic demand. A spate of acquisitions, along with exports, mark the sector’s next phase. From Bharat Forge’s acquisition of CDP in Germany to Amtek Auto’s acquisition of GWK in the U.K., and Sundaram Fasteners buying Cramlington Precision Forge, ancillary firms are reaching out to the global markets.

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