In what could be witnessed as a key lesson learnt from the global economic meltdown, auto component majors have started diversifying their reach and are venturing into other sunrise sectors, not only to generate more revenues but also to protect themselves from the cyclical nature of auto business. Auto parts giants such as Bharat Forge, Lucas TVS, India Pistons, Caparo Fasteners, Sterling Tools and Lakshmi Precision Tools, among others have already started to spread their reach to other sectors and it is believed that other firms will soon follow suit.

Similar engineering and manufacturing expertise

Industry players believe that sectors such as defence, aviation, power etc offer new growth opportunities for auto component firms as the aforementioned sectors require similar expertise in terms of manufacturing and engineering as that of the auto sector. In this context, K R Trivedi, managing director of Trivedi Enterprises, a small-sized manufacturer of automotive parts in Kolkata, says, “These sectors too are increasingly looking for companies based in the country to source their parts because manufacturing costs in India is much less as compared to other countries. Therefore, it is ideal for auto component firms to venture into the aforementioned sectors as no major investments are required to supply the latter with the necessary components.” It is to be noted that over the past few years, global aviation giants such as Boeing and Airbus have been increasingly sourcing their components from India. In fact, recently, Boeing has also expressed its plans to collaborate with different Indian companies to source its aircraft components.

A recent report released by PricewaterhouseCoopers on aerospace and defence sector states that auto part manufacturers are looking to increase their presence in aircraft component production particularly tyre manufacturing, precision engineering, aircraft lighting etc. According to S S Das, proprietor of Perfect Autotech, a mid-sized manufacturer of automotive parts in Cuttack, says, “From business perspective, profit margins in these sectors are much higher than that of the auto sector. Therefore, auto parts manufacturers will be able to increase revenues by foraying into defence, aerospace and power sectors, among others.”

For example, Super Auto Forge has forayed into the power sector and has tied up with players such as Siemens and ABB in this regard. Similarly, Wheels India Limited (WIL) has started to manufacture steel structure parts for power plants and has set up a plant in Pune for the same. “It is very difficult to predict how the economy will shape up in future. Therefore, it is better not to depend entirely on one segment. Most companies suffered during the economic crisis, because their entire business model focussed on one sector,” comments Murli Iyer, director of New Auto Parts, a small-sized manufacturer of auto ancillary units in Chennai.

Knowledge of core competencies

However, industry players also believe that it is important for auto ancillary manufacturers to be aware of their core competencies before venturing into other sectors. “Highly advanced technology is required by sectors such as aerospace, defence and power as opposed to the automotive sector. Therefore, it is important for the company to know whether it can incorporate such superior technology in its products or not,” says Anamika Bhandari, director of Superior Auto Tech, a small-sized manufacturer of automotive parts in Imphal. Meanwhile, it has also been observed that in possessing such superior technological expertise, players from South India have a competitive edge over their northern counterparts.

Arup Choudhury