September 6, 2011 / 12:57 PM / 6 years ago

FOCUS-India auto parts makers defer investment plans

* Manufacturers postpone capex as demand for cars slows

* Higher interest rate slowing car sales

* Industry growth seen halving this year

By Sanjeev Choudhary and Anurag Kotoky

NEW DELHI, Sept 6 (Reuters) - A few auto parts makers in India are deferring expansion plans as high interest rates and fuel costs crimp demand for cars at home and growth concerns overseas adds to the uncertainty.

The $39.9 billion Indian auto parts industry in FY12 is expected to grow 12-15 percent, less than half the last year’s rate of 33 percent, the apex industry body Automotive Components Manufacturers Association (ACMA) had said last week.

Minda Industries , which counts India’s top car maker Maruti Suzuki and others such as Tata Motors , Ford Motor and General Motors , as its clients, has halved its FY12 capex plan to 400 million rupees.

“The growth is not as good as it used to be. It’s better to wait and watch,” Chairman Nirmal K. Minda said.

Minda Industries manufactures switches, panel controls and CNG and LPG kit for cars, and has deferred 60 percent of 5 billion rupees it was planning to spend on adding capacity and new product lines in two years.

Subros Ltd , another auto parts maker which supplies to Maruti, Tata Motors and Mahindra and Mahindra , too has delayed by 3-4 months its 800-million-rupee investment plans for FY12.

“The auto sector has seen demand slowdown. That’s why there is no point in having idle capacity,” said Chairman Ramesh Suri.

Auto parts maker Tata AutoComp System, part of the $68 billion Tata group, has withdrawn its sale document to raise at least $245 million through an IPO due to poor market conditions, a source told Reuters on Tuesday.

Cars sales dropped 16 percent in July, first drop in two-and-half years, after growing a breakneck 30 percent in 2010 in Asia’s third-largest economy and has prompted industry body to raise the possibility of cutting forecast for FY12.

“If someone says slowdown is temporary, then it is too optimistic to talk about,” said Pawan Goenka, chief of auto industry body SIAM and president of auto unit of utility vehicle maker Mahindra & Mahindra.

A series of rate hikes by the central bank - eleven since March 2010 - to tame a stubbornly high inflation has made credit costlier in the world’s second-fastest growing major auto market where most people depend on credit for car purchase.

The rate hikes and high inflation have slowed the Indian economy that grew 7.7 percent in the three months through June, its weakest in six quarters, and further weakening is expected as inflation refuses to subside and global uncertainty remains.


A section of the auto parts industry, however, sees the current slowdown as temporary and are on track to invest to expand capacity.

Rico Auto Industries Ltd said it was not changing its 300-million-rupee expansion plan for the current fiscal year.

“It’s a temporary blip. The sector goes through cycle but mid- and long-term prospects are very good,” said Managing Director Arvind Kapur.

Steering maker Sona Koyo said it’s on track to meet its capex plan of 1 billion rupees in the current fiscal year and is not worried by the current slowdown.

Kapur said companies that have diversified clients and product lines are likely to be less pessimistic in the current situation.

“If you are dependent too much on a single customer or product and that doesn’t do well, you are dead,” Kapur said. (Editing by Rajesh Pandathil)

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