Auto Suppliers Feel The Heat Of The Slowdown In H1 FY2020

The deterrent downturn in the Indian Automotive Industry has taken an adverse hit on the businesses of auto component manufacturers. Automotive Component Manufacturers Association (ACMA) of India, the apex body that represents the component suppliers posted a de-growth of 10.1 per cent in the revenue generated in the first half of FY2020 at Rs. 1.79 lakh crore as compared to Rs. 1.99 lakh crore a year ago. Revenue from the OEM side during the same period went down by 15.2 per cent at Rs. 1.50 lakh crore as compared to Rs. 1.77 lakh crore in the same period last year. That said, the aftermarket industry has shown some silver lining posting a growth of 4 per cent at Rs. 35,096 crore between April 2019 and September 2019 as compared to Rs. 33,746 crore in the same period a year ago.

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The revenue generated from the OEM business has the highest contribution in the overall turnover of component makers and the prolonged slowdown in the industry has taken a toll on the business. ACMA had earlier projected over 100,000 job losses in the industry by August 2019 which the body says has already happened. Deepak Jain, President, ACMA also said that the revenue loss has also affected the capital expenditure (CAPEX) by component makers in a bid to keep up with the operational expenditure (OPEX). The body has projected a CAPEX loss of $1.5 billion which in turn has dented the investment made on innovation and new technologies.

ACMA had earlier projected over 100,000 job losses in the industry by August 2019 which the body says has already happened

Demand for vehicles in the country have been subdued for a year now due to various reasons such as rise in input cost, soaring fuel prices which ultimately has made automobiles dearer along with liquidity crunch which reduced the credit availability in the market. Auto Component makers have also invested about Rs. 35,000 crore in the BS6 transition which limits them from investing further in any new technology. Jain has also requested that the government charge 18 per cent GST on all components which will help them to keep a check on the cost at a time the industry is under such pressure and is yet to undergo the BS6 transition.

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There is a positive aspect though. The industry is able to sustain growth in exports by recording an uptick of 2.7 per cent at Rs. 51,397 crore in H1 FY202 as compared to Rs. 50,034 crore in the same period last year. The April to September period was also the pre festive season period when the industry witnessed the most regressive downturn in a decade and the OEM business took the worst hit, explaining why the revenue generated by the local component business went down significantly.