New Delhi: Domestic sales of cars and two wheelers are projected to slow down in the new fiscal year but the makers of critical auto components are going on full steam with capital expenditure. Many have continued to seal deals for land acquisition – typically the toughest part in beginning a greenfield project – in FY24 and even after the new fiscal year commenced. Others have marched on by announcing new joint ventures and other expansion plans, in a bid to acquire technical knowhow and get into new product lines. The upshot is that in FY25, auto component makers remain optimistic about the India growth story and hopeful on the export front. So what explains this dichotomy between vehicle sales forecast and growing capex by component makers? A large part of the latter’s optimism stems from the exponential growth in electric vehicles (EVs); the component OEMs are also investing in long gestation projects, which will come onstream in FY26 and beyond to take care of projected surge in vehicle sales. The growing trend of premiumisation has also propelled capex plans of component OEMs, as margins improve.
For FY25, ICRA has projected that its sample of 45 auto ancillaries with aggregate annual revenue of INR 2.7 lakh crore to grow by 5-7%. This is a moderation over the FY24 growth but several factors will aid the sector. These include rising supplies to new platforms because of vendor diversification initiatives by global OEMs, higher value addition due to increased outsourcing by global Tier-I companies and the OEMs, and aftermarket demand potential in overseas markets with the ageing of vehicles and increased sale of used vehicles. In FY25, ICRA also expects margins of the component makers to improve year-on-year to 11.5-12%, surpassing pre-Covid19 levels.
Meanwhile analysts at a Mumbai-based brokerage have said that India’s auto component industry grew by more than a third or 33% growth in FY23 and for FY24, growth was likely in the “mid-teens”. “We believe the domestic component industry is well placed to benefit from multiple local and global factors…Driven by significant growth opportunities going forward, the auto component industry is expected to invest around USD 6.5-7.0 billion over the next five years for capacity expansion and technology upgradation, which is nearly double the USD 3.5-4.0 billion invested in the last five years. Given its own inherent strengths and the multiple tailwinds highlighted above, we expect this growth momentum for the industry to continue in the foreseeable future. Hence, we also expect the auto component industry to continue to outperform the core auto industry growth in the coming years.”Here are some top component OEMs and their capex priorities:
Uno Minda:
Uno Minda, which supplies switches, lighting products and castings to vehicle OEMs, has been proactively securing land parcels in all major automobile hubs across the country “to be ready to meet growing demand”, as per Group CFO Sunil Bohra. Last year, it acquired 86 acres in Khed City Industrial Park, Pune and 37 acres in Hosur, Tamil Nadu. Now, it has further acquired 94 acres in Kharkhoda, Haryana and one of the greenfield facilities coming up here would be a 1.2 lakh per month alloy wheel plant, on which work has started. Bohra said the company continues to evaluate more land at other locations. The project capex of the company for FY25 is INR 850-900 crore.
Lumax Industries:
Lumax is the lead lighting supplier for OEMs and after faster-than-expected ramp up at its Chakan manufacturing facility in the first phase, the company is now already talking of commissioning the second phase by Q4 of FY25. Also on the anvil is a new manufacturing facility in Sanand, Gujarat, for advanced lighting solutions. At Chakan, Lumax is targeting over 90% capacity utilisation in FY25 from about 60% utilisation at the end of FY24. In the current fiscal, the company is eyeing at least a growth of 25% in topline, with a large part of growth coming from industry wide new model launches. Joint MD Anmol Jain said recently that Lumax will be supplying lighting products for the new Maruti EV and its new SUV platform, the new EV from Mahindra & Mahindra and three models of Volkswagen. Capex for FY25 is INR 250-300 crore.
Motherson Sumi Wiring:
The company is setting up a new facility within its existing Pune plant to cater to the new business from leading SUV-focused OEMs (up to 10K units/month), with supplies set to commence soon. An analyst said that Motherson has emerged as the sole supplier for several of these OEMs’ passenger vehicle models, including upcoming launches. It is also the sole supplier for some upcoming new EVs. The wiring harness content in a car (typically about 1.5-2% of the vehicle’s price) has increased as new features are getting introduced in vehicles. Also increasing premiumization (content in an SUV 1.5 times that in a sedan and SUVs are growing leaps and bounds whereas sedan sales are declining) and faster electrification (here again content per vehicle is far more than comparable ICE vehicles) have helped the sale of wiring harness. The companies’ capex will be around INR 125 crore.
Minda Corporation:
Much like its peers, this company is also adding capacities and enhancing its capabilities across all product segments – vehicle access products, EV products, driver information systems etc. Earlier this month, it entered into a 50:50 JV with Taiwanese company HSIN Chong Machinery for making automotive sunroofs and closure systems. A greenfield facility for this JV will be set up in the current fiscal year, as per Executive Director Aakash Minda.
