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Feb 24, 2011 at 05:39pm IST

Budget View - Auto parts firms eye tech boost

Mumbai: India's auto parts makers want the government's help to upgrade technology and spur investments to boost capacity, but analysts do not see the budget for 2011-12 to be tabled in parliament on February 28 taking much steps in this direction.

On the contrary, the expectation is that of a modest increase in excise duty on vehicles that may push up prices.

In 2010-11 thus far, component makers have witnessed an increase in sales, but going ahead rising input costs are seen weighing on margins. Adding to this is the lack of technological prowess, the companies say.

Budget View - Auto parts firms eye tech boost

India's auto parts makers want the government's help to upgrade technology.

"We have got to be competitive, let's not get excited because our toplines are growing. Bottomlines are not growing in sync," said Arvind Kapur, Managing Director at Rico Auto Industries.

"At the moment we don't have enough technology. We are importing technology and asking Japanese or Europeans to give us their technology. We need to create it ourselves".

The Auto Component Manufacturers Association (ACMA) has reiterated the need for a technology up gradation and development fund, which was ignored by the finance minister last year.

The industry urgently needs a corpus of 75 billion rupees to be spent over five years and to be provided as soft loans, said Vinnie Mehta, executive director at ACMA.

He said the industry body has asked for an initial corpus of 10 billion rupees in 2011/12.

Industry participants also said the sector was facing capacity constraints due to customs duty on raw materials and lack of easy access to key inputs such as steel.

"The government should encourage a lot more steel mills to come into India and make specialty steels so that we also get enough supply," said Harshbeena S Zaveri, managing director at NRB Bearings.

ACMA has sought zero import duty on steel and aluminum alloys - currently around 5 percent - which account for almost 60 percent of raw material costs of auto parts makers. Analysts, however, do not expect the government to comply and instead predict a 2 percent increase in excise duty on select categories.

"A further hike in excise duty is expected resulting in impact on volumes for all the major OEM's (original equipment manufacturers)," brokerage KR Choksey said in a report.

In the 2010-11 budgets, the finance minister had announced a 2 percent increase in excise duty on large cars and sports and multi-utility vehicles.

Surjit Arora, analyst at Prabhudas Lilladher said that while an increase in excise duty can be "slightly negative", other macro factors such as spending on rural schemes and infrastructure can rise which would be a welcome move.

He said the budget would be "neutral" for the industry.

Auto sales in India hit a record high in January, defying expectations of a slowdown, powered by a growing middle class, easier access to loans and a wider choice of models.

In 2010, vehicle sales in the country, one of the fastest growing auto markets in the world, grew 31 percent. But tyre companies, whose revenues have benefited hugely from the domestic auto boom, are nonetheless a worried lot.

Prices of natural rubber, the industry's key raw material, has skyrocketed of late, hitting profitability and the industry has responded by asking the government to allow duty-free import of 200,000 MT of natural rubber for FY12 to ease supply.

"Even if entire domestic natural rubber (NR) production is consumed domestically, the availability still will fall short of meeting the growing NR requirements of the domestic industry," said the Automotive Tyre Manufacturers Association, adding natural rubber import is "a necessity and not a choice".

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