Capex Inundation In Indian Auto Sector

On the sidelines of the annual convention of Automobile Component Manufacturers Association of India (ACMA) on Wednesday, September 5, 2012 and the annual convention of the Society of Industrial Automobile Manufacturers (SIAM) on Thursday, September 6, 2012, a number of automobile and component manufacturers announced their capex plans for the coming years. Most of them, maintaining a bullish stance on the Indian economy and on the future of automobile growth in India, are gearing up their product portfolios and production capacities while some are using India as an export hub.

Automobile parts manufacturer Rico Auto Industries and steering systems major Sona Group announced plans to invest Rs 50 crore and Rs 100 crore respectively for this year. While Rico Auto plans to put into place three new plants - two in Bawal and one in Chennai, the Sona Group intends to set up two new plants at Dharuhera and a facility in Gujarat that would specifically cater to Maruti Suzuki India Limited (MSIL).

Speaking of which, MSIL signed a pact recently with the Gujarat government for setting up a Rs 4,000 crore manufacturing facility. The company plans an initial capacity of 2,50,000 units and the set-up will be done by 2015-16. Apart from this, the company has been expecting the third assembly line at the Manesar plant to be operational by 2013-14. Other big spenders include Mahindra & Mahindra (M&M) which plans to make an investment of Rs 5,000 crore by 2016 towards the development of new products and capacity expansion. The company also announced Rs 2,500 crore of investment in the group’s subsidiaries.

Though the two aforementioned announcements came in a few months ago, the media was binging with capital expenditure announcements coming in from various other players. Force Motors said they would invest Rs 1,000 crore over the next three years, which includes opening a plant with evaluations of the location in process. The company presently has two plants - one at Akurdi, Maharashtra and one in Pithampur, Madhya Pradesh. Commenting on the product front, Force Motors’ chairman Abhay Firodia said, “We are very focused on our van segment and though we have SUV and trucks, the rural utility vehicles and vans remain our main focus. In about a year from now we will launch a new van.”

Among others, Ford Motors said they would build on their capacity to build 4,50,000 cars and 6,00,000 engines by 2015. They plan to make India an export hub for shipping engines to Europe, Thailand, etc. Though the company has not gained volumes in India like other players, the company exports about 40 per cent of the engines produced and 25 per cent of the cars. Toyota Kirloskar plans to increase production at its Bangalore plant by 1,00,000 cars by investing Rs 900 crore.

Though the Indian automobile scene looks extremely sluggish in the near term largely due to macro economic conditions, investors and manufacturers are bullish about the long term prospects of the sector. With an interest rate reversal and better output on the industrial and agricultural front, the outlook of the industry will take a U turn.