India could become a global auto parts manufacturing hub

0
152

[google-translator]

Russia’s invasion of Ukraine has made auto component manufacturers in India pivot their business models to source more parts from within the country.

Leading parts makers such as Lumax, Sona Comstar, Minda Industries, and Sandhar Technologies have been forced to look at other de-risking options due to rising input costs, thereby giving the country an opportunity to become a major manufacturing hub.

While several Southeast Asian nations are wooing these companies as well, India provides a unique opportunity to auto original equipment manufacturers (OEMs) since it already has an established manufacturing base.

Auto component makers have already started processing more parts within the country, in addition to holding larger inventories, creating buffer stocks and entering into long-term contracts.

ICRA

Earlier, the lead cycle for such contracts was shorter, but the ongoing supply disruption has stretched that to about nine months for some components. This has become untenable and resulted in auto component players sourcing more from within the country.

“Now, because of the multiple disruptions and volatility, the forecasting and ordering cycle keeps changing,” said Deepak Jain, managing director of Lumax Industries.

From holding a day’s inventory, auto component makers have started stocking up for up to one week.

“It’s no longer the ‘just in time’ inventory, as we are now more into the old traditional modes of manufacturing,” said Nirmal Minda, managing director of Minda Industries, another leading component maker.

Component makers are also de-risking the supply chain through deep localisation.

Recently announced production-linked incentive schemes for ACC battery and auto components also give India an opportunity to become a major manufacturing hub.

“With newer disruptive technologies like electric, hybrid, green hydrogen coming up, it forces us to manage the future as well as the present,” Jain said.

“It’s a daily work management making speedy decisions to run the production line,” Minda added.

The Russia-Ukraine conflict has led to the cost of raw materials, especially steel, hitting the roof. It has threatened the survival of micro, small and medium enterprises as well as tier 2 and tier 3 suppliers.

“The current situation, in the backdrop of several headwinds, has added to our woes and could derail the recovery of our economy and industry,” said Sunjay Kapur, chairman of Sona Comstar. “Fuel prices have also started to rise by the day which will stoke inflation and adversely impact the cost of ownership of vehicles.”

The demand for passenger vehicles and growth in commercial vehicles may be sustained, but Kapur pointed out that “we are far from the industry’s best performance in 2018-19.”

Jayant Davar, founder of Sandhar Technologies, said the situation has become dire and profitability has also been affected. “PVs & CVs demand is a silver lining despite all odds on the supply side,” he added.

While the inventory carrying cost is high, the interest cost is low, somewhat cushioning the net impact, said Kavan Mukhtar, head, auto practice at PwC.

Source link

LEAVE A REPLY

Please enter your comment!
Please enter your name here