With auto companies hitting the skids, the pain is now spreading to the component sector. In its media release on Thursday, Automotive Component Manufacturers’ Association said growth in the sector slowed down to 14.5% in FY19 due to decline in overall vehicle sales, beginning from the second half. With the unprecedented slowdown in auto sales and the current 15-20% cut in vehicle production, there is a crisis situation in the component sector. “If the trend continues, an estimated 10 lakh people could be laid off,” said Ram Venkataramani, president, ACMA.
Earlier this week, the Indian arm of German component maker Bosch announced a five-day production cut in its Tamil Nadu unit and two days in Karnataka, to adjust production to demand.
The management commentary of most component firms after the Q4FY19 results was cautious.
Meanwhile, its not rosy in overseas markets too. A third of the country’s component exports are to Europe. And, the European Automobile Manufacturers’ Association has cut growth estimates for passenger car registrations in calendar year 2019 to -1% from its earlier +1%. Car dealers in the US are reporting a slowdown after a prolonged uptrend. Even the Chinese auto firm SAIC Motor Company Ltd has forecast a drop in annual sales for the first time in at least 14 years.
To be sure, Indian component firms have been riding cushy on exports. News of a global slowdown is bound to hurt companies such as Motherson Sumi Systems Ltd and Bharat Forge Ltd (large in the listed universe) who have a high reliance on Europe and US markets. Stress on margins in international operations was seen in the last two quarters of FY19.
The Street had already seen this coming and punished component stocks. Since April, Bosch Ltd lost 19.31% while Bharat Forge and Motherson lost 15.8% and 26.3% respectively. Even the more recently listed firms isuch as Varroc Engineering Ltd and Endurance Technologies lost 24.9% and 18.13% respectively.
This may well be the beginning of a sharper drop ahead, if auto demand does not revive.
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