ET NowIn a chat with ET Now, Harish Lakshman, MD, Rane TRW Steering & President, ACMA, shares his outlook for the auto sector. Excerpts:
ET Now: The SIAM data, of late, has been showing encouraging signs for the auto sector. How are the trends shaping up for the auto ancillary space?
Harish Lakshman: Ever since the elections, sentiments have improved and in the last couple of months, we have seen some pickup in the passenger car segment, which is the largest segment within various automotive sectors. The two wheeler market has also been consistently doing well over the last six-seven months. So with passenger car demand picking up, clearly the market is going to look up as we go forward. Also, with the new government and improving sentiment on some of the policy expectations, I believe that the worst is behind us and we will see positive growth going forward.
ET Now: Can you confidently say that the worst is over for the auto ancillary sector?
Harish Lakshman: I would definitely say that the worst is behind us. However, I must also caution that for the auto component industry, the commercial vehicle segment is also a very large and important sector, and we are yet to see any pickup there. However, the drivers for that sector are different from the passenger car market. The latter is largely sentiment-driven and interest rates matter. Whereas for commercial vehicle, the infrastructure projects play a huge factor in its pickup. Therefore, unless the mining activity starts with gusto and we see road building, we will not see the commercial sector pick up. It is important for us to see the commercial sector to turn around. I definitely believe the worst is behind us and expect that towards Q3, we will see that a pick up in the commercial sector as well.
ET Now: How have the exports been in domestic side of the business?
Harish Lakshman: The last two-and-a-half years have been difficult for the entire sector. The only positive story to have played out consistently over the last three years is the exports growth, which has been steadily growing for the component sector because of the pickup in North America as well as Europe. Coupled with the depreciation of the Indian rupee, the scenario makes us extremely competitive in the global markets. We expect this trend to continue.
Secondly, the farm equipment sector revived last year itself. The year before the last was a tough year, but the last year saw a double digit growth and we are seeing positive growth continuing in that sector as well. Thirdly, the two wheeler sector has also been steadily growing over the last one year. It has been the passenger car and commercial vehicle that has been reeling under a negative sentiment. Although now the passenger car has started picking up and we see commercial segment also doing good in the near future.
ET Now: Give us a flavour for inquiries which are coming from large OEM players and how does the pipeline look like?
Harish Lakshman: The order books consist of the schedule that the customers release on us for all the existing products - whether it is Maruti Dzire, Ertiga, Honda’s new City and Mobilio etc. Clearly, the order book is looking better than ever, in the recent past, which is a positive sign.
ET Now: Can you also share with us the capacity utilisation levels in the sectors and how do you see that shaping up at industry level?
Harish Lakshman: I will have to caution that it is a theoretical number because utilisation depends on the supplier and the segment that they cater to. Therefore, a supplier to the commercial vehicle sector mainly will have a capacity utilisation around 60%. However, for a predominantly two wheeler supplier, the capacity utilisation will be close to 85% to 90%. But if you ask me to generalise, I would say at an industry level, the capacity utilisation would be around 70% to 75%.
ET Now: What according to you is going to lead the growth in the next three to four years?
Harish Lakshman: In the next three-four years, I expect the export growth to continue. However, the main story will be the domestic market. I firmly believe that both 2015-2016 and 2016-2017 will be extremely good years for the auto sector in the Indian market. In fact, many pundits are forecasting that from the next 10-year perspective, India will be the fastest growing automotive market in the world, even faster than China.
ET Now: The SIAM data, of late, has been showing encouraging signs for the auto sector. How are the trends shaping up for the auto ancillary space?
Harish Lakshman: Ever since the elections, sentiments have improved and in the last couple of months, we have seen some pickup in the passenger car segment, which is the largest segment within various automotive sectors. The two wheeler market has also been consistently doing well over the last six-seven months. So with passenger car demand picking up, clearly the market is going to look up as we go forward. Also, with the new government and improving sentiment on some of the policy expectations, I believe that the worst is behind us and we will see positive growth going forward.
ET Now: Can you confidently say that the worst is over for the auto ancillary sector?
Harish Lakshman: I would definitely say that the worst is behind us. However, I must also caution that for the auto component industry, the commercial vehicle segment is also a very large and important sector, and we are yet to see any pickup there. However, the drivers for that sector are different from the passenger car market. The latter is largely sentiment-driven and interest rates matter. Whereas for commercial vehicle, the infrastructure projects play a huge factor in its pickup. Therefore, unless the mining activity starts with gusto and we see road building, we will not see the commercial sector pick up. It is important for us to see the commercial sector to turn around. I definitely believe the worst is behind us and expect that towards Q3, we will see that a pick up in the commercial sector as well.
ET Now: How have the exports been in domestic side of the business?
Harish Lakshman: The last two-and-a-half years have been difficult for the entire sector. The only positive story to have played out consistently over the last three years is the exports growth, which has been steadily growing for the component sector because of the pickup in North America as well as Europe. Coupled with the depreciation of the Indian rupee, the scenario makes us extremely competitive in the global markets. We expect this trend to continue.
Secondly, the farm equipment sector revived last year itself. The year before the last was a tough year, but the last year saw a double digit growth and we are seeing positive growth continuing in that sector as well. Thirdly, the two wheeler sector has also been steadily growing over the last one year. It has been the passenger car and commercial vehicle that has been reeling under a negative sentiment. Although now the passenger car has started picking up and we see commercial segment also doing good in the near future.
ET Now: Give us a flavour for inquiries which are coming from large OEM players and how does the pipeline look like?
Harish Lakshman: The order books consist of the schedule that the customers release on us for all the existing products - whether it is Maruti Dzire, Ertiga, Honda’s new City and Mobilio etc. Clearly, the order book is looking better than ever, in the recent past, which is a positive sign.
Harish Lakshman: I will have to caution that it is a theoretical number because utilisation depends on the supplier and the segment that they cater to. Therefore, a supplier to the commercial vehicle sector mainly will have a capacity utilisation around 60%. However, for a predominantly two wheeler supplier, the capacity utilisation will be close to 85% to 90%. But if you ask me to generalise, I would say at an industry level, the capacity utilisation would be around 70% to 75%.
ET Now: What according to you is going to lead the growth in the next three to four years?
Harish Lakshman: In the next three-four years, I expect the export growth to continue. However, the main story will be the domestic market. I firmly believe that both 2015-2016 and 2016-2017 will be extremely good years for the auto sector in the Indian market. In fact, many pundits are forecasting that from the next 10-year perspective, India will be the fastest growing automotive market in the world, even faster than China.
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