The auto component industry has to keep in tandem with the vehicle industry. When original equipment manufacturers (OEMs) reduce production days, the component industry does not want to build up inventory, so it makes proportionate cuts in terms of working hours and production, which will lead to job losses.
I don't think anyone is closing down. It is definitely a slowdown -- for nearly 10 months now -- which the industry is concerned about. Last time (2009 and 2014), the government had intervened to revive auto sales after a slump with measures such as excise duty cut and announcement of JNNRUM for bus replacement scheme.
The government should intervene now with measures such as cutting the goods and services tax (GST) rate to 18 per cent across the entire auto and auto component sector.
Which auto clusters are the worst affected?
It is across geographies. Perhaps geographies such as Jamshedpur, which are dependent on just one segment of the industry (commercial vehicle, in the case of Jamshedpur), would be facing a greater challenge. Other geographies are more spread out in terms of a diversified portfolio, with exposure to other segments.
What are your expectations on revival?
A better monsoon, the upcoming festival season and better liquidity in the market will help revive some segments, especially cars and two-wheelers, which are more consumer-oriented.
Are you worried about units turning NPAs?
Significant investments were made by the component industry to upgrade the facilities and capabilities to BS-VI. Vehicle and component makers, together, have invested around Rs 60,000-70,000 crore for this shift. It is time for us to speak to the government for its intervention for the revival of the auto sector before we talk about any other significant impact that could be there.
It is too early to say whether these units will become NPAs. We have spoken about potential job losses and potential NPAs, among other things. These things are possible in theory.
How is credit availability at present?
The lack of credit availability is one of the significant factors that has contributed to the drop in sales. Lending to the MSME sector has also been somewhat difficult and expensive in the past year. We are all hoping that things will improve.
How have the margins been impacted due to the slow down?
It is not that absolute margins have come down. The margins have been impacted because of the investments that have been made. When the overall sales is down, it will translate into a disproportionate reduction in margins because of the increased fixed cost that has been incurred by the component company. Once the volumes come back, we are all confident that this will bounce back.
If you see the overall macro-economic scenario in India, it continues to be positive. We are all quite confident that, ultimately, in the short- to medium-term, things will revive. It could be led by consumer-oriented products.