Edelweiss Financial Services Limited, released its thematic Research Report titled ‘Auto Components: The Future – Mega Trends Mega Factors’ highlighting the recent as well as future trends in the $38 billion auto components sector in India.
The scope of the Edelweiss Wealth Research Report primarily covers:
- Supplier consolidation & increased bargaining power
- ‘Make in India’ – India Auto Export Hub and
- Attaining scale through global acquisitions.
- Predicting India to be the next auto ancillary hub in Asia by 2020 – Exports currently contribute 17% to the auto component industry and is expected to increase to 26% to the industry by 2021.
- More business for few players – OEM’s drive to source from a few players has engineered a paradigm shift in the industry.
- Indian OEM’s are actively looking to reduce suppliers over the next 4-5 years. For instance , Tata Motors is planning to reduce the number of suppliers by 1/3 in 3-4 years
- Debunking the myth – ‘ Auto component companies don’t have bargaining power’ – Profitability (measured by ROCE) for global Component player = OEM in 2013, Vs lower profitability even a decade ago.
- Global tier-1 suppliers have filed >50% patents of the total patent pool between OEM and component suppliers, with a few Tier-1 suppliers surpassing OEM on this count.
- Indian auto component companies’ profitability has improved over last decade.
- International Revenues now contribute 51% to Indian Auto component companies Vs 12% in 2002 – Indian companies are now truly global
- Ability to manage acquisition brings scale. Global auto components have scaled up through acquisition. Indian companies following global suite.
- Indian auto component companies have been able to turnaround acquired companies and scale up revenues. Strategy to manage acquisitions have changed.
- Government regulations on emission (BSIV) and safety (ABS, airbag) will benefit players like Bosch, WABCO etc. Advancement in technology will lead to higher realization.