By DK Aggarwal
The automobile sector, which is one of the key drivers of India’s economy, accounting for around 4 per cent of GDP, has been seeing an uptick, boosted by a long-awaited recovery in consumption, which is reflected in sales of two-wheelers, four-wheelers and tractors.
As per the Automotive Component Manufacturers Association of India (ACMA), the auto component sector grew at 18.3 per cent in 2017-18 owing to the overall growth in auto demand. Automobile is one of the most capital-intensive sectors, with enthusiasm for re-investment in capex and research and development at regular intervals. The industry is planning Rs 58,000 crore capex in two years.
Starting this financial year, M&M intends to spend a record Rs 15,000 crore until 2020-21, including Rs 10,000 crore on capital expenditure. Maruti Suzuki intends to spend Rs 5,000 crore, nearly 50 per cent more than last year’s Rs 3,400 crore.
Across the globe, the automotive sector is slowly taking a different pace with changing customer perception with regards to the automotive landscape. Nowadays, consumers are better informed, requiring auto companies to be technologically updated to cater the growing consumer demand.
Also, the sector is opting for inorganic route to ensure equilibrium in investment, support current growth cycles and prepare for future global disruptions.
Meanwhile, automakers are bolstering up investments for new launches and capacity upgrades to tap growing demand. Keeping pace with the changing times, automakers are launching new models every now and then.
India is prominently emerging as an auto exporter and has strong export growth expectations for the near future. Going forward, the sector is well-positioned for growth, servicing both domestic demand and, increasingly, export opportunities. The sector is set to witness major changes in the form of electric vehicles (EVs), shared mobility, Bharat Stage-VI emission and better safety norms.
Keeping in tune with the changing times, automakers are launching new models. As per Grant Thornton and Automotive Component Manufacturers Association (ACMA) of India, deal volumes have remained steady with 18 transactions in 2018 worth $500 million. Going forward, we may see some more consolidation or alliances driven by the need for access to better technology, manufacturing facilities, service and distribution networks.
Meanwhile, it could also be seen that companies such as Maruti Suzuki and Ashok Leyland are benefiting from stronger demand by passing on higher prices to consumers. Factors such as rising prosperity, easier access to finance and increasing affordability, festive demand would continue to support growth in the sector.
Companies such as Maruti Suzuki, Ashok Leyland, M&M, Bajaj Auto, Hero MotoCorp, Suprajit Ancillary and Minda Corporation and others are likely to see good growth going forward.
(The author is Chairman and MD, SMC Investments and Advisors Ltd. Views and recommendations expressed in this section are his own and do not represent those of ETMarkets.com. Please consult your financial advisor before taking any position)
Source: Economic Times