Budget 2012: Auto components will not worsen further

Budget Highlights

• Increased excise duty by 2 per cent on auto components

• Retained the custom duty rates on auto components

• Basic customs duty on non-alloy HR and CR coils hiked from 5 per cent to 7.5 per cent. HR. This can lead to more pricing power for steel, and increase in steel cost of the auto sector

• To Set up Rs 5,000 crore India Opportunities Venture Fund with SIDBI

• Policy requiring Ministries and CPSEs to make a minimum of 20 per cent of their annual purchases from Medium & Small Enterprises (MSEs) approved. Of this, 4 per cent earmarked for procurement from MSEs owned by SC/ST entrepreneurs

• Increase in excise duty by 2 per cent on two wheelers, three wheelers, cars and commercial vehicles

• Excise duty reduced from 10 per cent to 6 per cent on specified parts of hybrid vehicles

• Extended weighted deduction of 200 per cent for R&D expenditure in an inhouse facility for a further period of 5 years beyond March 31, 2012

• Proposal to provide weighted deduction at 150 per cent of expenditure incurred on skill development in manufacturing sector

• No change in the corporate income tax rates

Budget Expectations Not Met

• Eliminate customs duty on alloy steel and secondary aluminum alloy

• Reduce customs duty on SS wirecloth stripe from 10 per cent to 5 per cent and on washcoat from 7.5 per cent to 5 per cent used for manufacture of catalytic converters and their parts

• To allow input credit on diesel procured for internal power generation & industrial use by manufacturing unit

• To provide 100 per cent Cenvat Credit on capital goods in year of purchase. Currently 50 per cent Cenvat Credit is allowed on capital goods in year of purchase, balance 50 per cent to be availed in subsequent years

• No interest for differential excise duty paid due to price increase subsequent to sale of goods in case supplies made to OEM's

• Phase out central sales tax by either removing it or reducing it from 2 per cent to 1 per cent pending GST

• Reduce corporate tax rate for domestic companies from current 32.445 per cent (including surcharge of 5 per cent and education cess 3 per cent) to 30 per cent

• Increase depreciation rate on capital goods from current 15 per cent to 25 per cent to encourage investments. It has also recommended charging a higher depreciation rate for domestically manufactured capital goods

• To extend weighted deduction for in house R&D that expires on 31st March 2012

• To provide 100 per cent tax benefit on corporate social responsibility activities

Budget Impact

The impact of hike in excise duty on auto components, depends on which segment a player caters to. In respect of supplies to OEM, there is no direct impact, as hike in excise duty is a pass through item.  The indirect impact can happen through easing of demand for auto, which can in turn affect demand for auto component. Given the relatively marginal impact of the hike on vehicle prices, this impact is marginal.

In respect of supplies to after sales/replacement market, there will be a pressure on margins.

The players have to hike prices to offset the hike in service tax and excise duties.  But in certain segments this may not be possible to due to intense competition from unorganised players and imports.  In such cases, the players have to partially absorb the increase in costs, and can only pass on a part of the hike.

In respect of auto component exports, we expect the Ministry of Commerce and Industry to hike duty draw back rates in June 2012, factoring in higher service tax and excise duty.  In the process, the margins for exporters can actually improve, depending on the extent of hike in duty draw back rates.

Within auto component manufacturers, players catering to commercial vehicles may be in comparative better position owing to large allocation to infrastructure industry - the prime customer for CVs.

Nonetheless, government's focus on MSEs augurs well for the auto component industry as 70 per cent of the companies in industry are MSEs. Also extension of 200 per cent weighted deduction on in-house R&D will continue to encourage companies to work towards innovative auto parts- a need for the industry especially to be recognized globally. Further introduction of weighed deduction on expenditure incurred on skill development would benefit all the auto parts players as skill training is basic pre-requisite for these companies in manufacturing field.

Outlook

The hike in customs duty on HR/CR coils may lead to marginal increase in domestic prices.  As regards hike in excise duties, it will be neutral for supplies to OEM, negative for supplies to replacement market, and turn positive for auto component exports.

The good news is the retention of the customs duty on auto parts at the existing levels. The countervailing duty equivalent to domestic excise duty is now 12 per cent from 10 per cent earlier. The auto component industry is already facing issues with growing imports as 21 per cent of domestic demand is met through imports. Though this step may not lower the imports, it at least wouldn't worsen the situation.

(Source : http://www.rediff.com/business/report/budget-2012-sector-auto-components-will-not-worsen-further/20120319.htm)

Auto component industry fears prices may go up on steel customs duty hike

Friday, 23 Mar 2012


BL reported that Indian auto component industry fears pricing pressure with the customs duty increase on flat rolled steel. The Budget has proposed a customs duty increase on non alloy, flat rolled steel from 5% to 7%. This, the ancillary industry feels, will effectively push up landed costs and create a benchmark for domestic steel manufacturers to hike prices.

Mr Vidyashankar Krishnan MD of MM Forgings said that “Domestic steel makers are talking of increasing prices to keep up with market forces. Some have already increased prices. This will directly impact the auto component manufacturers who have no choice but to pass on the price increase to customers. This will, of course, depend on the nature of contract and relationship with the customer.”

Mr Srivats Ram past president of the Automotive Component Manufacturers Association and MD of Wheels India said that “Steel is a primary product for the auto component industry and component makers importing steel will incur huge costs. With the rupee depreciation already acting as an automatic protection for the domestic steel industry and demand and growth for steel at the moment low, there was no reason for the customs duty to be raised.”

Completing the double whammy effect is the two per cent rise in excise duty from 10% to 12%. Mr Ram said that “At a time when inflation is at its peak, this hike will harm the auto and auto parts industry marginally.”

Source – http://www.steelguru.com/indian_news/Auto_component_industry_fears_prices_may_go_up_on_steel_customs_duty_hike/255742.html)

Varroc to acquire US-based Visteon Lighting for $75-100 mn

12 MAR, 2012, 08.20PM IST, PTI 


MUMBAI: Aurangabad-based privately-owned Varroc Group today announced signing of a deal with US-based Visteon Corporation to acquire the latter's global lighting business for USD 75-100 million (about Rs 500 crore).

"We have signed a deal with Visteon Corporation, a global automotive components maker, to acquire its global lighting business for USD 75-100 million. The deal will include acquisition of six manufacturing operations employing over 4,000 people which includes an engineering centre with over 400 engineers located in low cost countries like Mexico and Czech Republic," Varroc Group's majority shareholder and Chief Executive Tarang Jain told PTI here.

The company is expected to raise funds required for acquisition through private equity, Jain said.

The two companies expect to complete the deal in the third quarter 2012.

With this acquisition Varroc Group will become the largest Indian automotive lighting manufacturer and it will be amongst the top three component manufacturers in the automotive industry in the country, the company claimed.

Varroc Group provides components for two-three and four-wheel passenger and commercial vehicles and has 26 plants, of which 20 are in India, five in Europe and two in Southeast Asia employing around 5,000 people.

The acquisition is a major step in our vision of achieving USD 4 billion revenues by 2020 against USD 613 million in FY 12. Our annual revenues will be close to Rs 6,000 crore with this acquisition, Jain said.

The acquisition will also help Varroc to enter into global automotive exterior market for 4 wheelers. The company presently has strong presence in two wheeler lighting business, Verroc's president of electric division Vineet Sahni said.

(Source : http://economictimes.indiatimes.com/news/news-by-industry/cons-products/electronics/varroc-to-acquire-us-based-visteon-lighting-for-75-100-mn/articleshow/12235401.cms)

Automobile components industry to see stable growth

By G Balachandar Mar 01 2012 , Chennai


Despite changing growth patterns in the vehicle sector, auto parts industry is forecast to register a decent growth of 8-10 per cent in the domestic market for the present financial year.

“The fourth quarter is likely to be decent, as in some segments especially commercial vehicles the fourth quarter is always the strongest quarter. There is some growth in the passenger car segment in the fourth quarter especially given the poor showing in the third quarter. However, the agricultural tractor segment is showing some signs of slowing down in the fourth quarter,” Srivats Ram, managing director of Wheels India and former president of Automotive Component Manufacturers Association of India (ACMA) told Financial Chronicle.

In the recent past, the passenger vehicles was under some pressure, while light commercial vehicles including small commercial vehicles, tractors and two-wheelers did well and recorded good growth.

“The performance of the vehicle industry comes to the auto component industry as a 'mixed-bag'. We expect the overall growth for the auto component industry to be in the range of 8-10 per cent in the present financial year,” Vinnie Mehta, executive director, ACMA said.

“The medium & heavy commercial vehicle (M&HCV) segment recorded a volume growth (Y-o-Y) of six per cent each in Q1FY12, and Q2FY12 and 11 per cent in Q3FY12. While it may appear that the growth in the M&HCV segment picked up well in Q3FY12, it must also be noted that the corresponding period last year ie, Q3FY11 was relatively weak given the pre-buying that had happened in Q2FY11 in view of the scheduled change in emission norms from October 2010. Thus, volume growth of the M&HCV segment is unlikely to be in double digits in Q4FY12 (the growth was five per cent in January 2012). LCV segment will continue to post strong double digit growth,” said Subrata Ray, senior vice president – corporate ratings, Icra said.

Volumes in the passenger vehicle segment are to gain traction from Q4FY12 onwards as most of the concerns related to supply constraints (Maruti Suzuki labour unrest, Thailand floods) are now behind the industry. While the high base of Q4FY11 and the continued consumer scepticism on demand front, may still restrict growth in Q4FY12 and it is less likely to be as strong as it was in FY10 and FY11. However, performance in Q4FY12 will be better than the preceding quarters of this financial year, Ray added. Two wheeler industry is to report a volume growth of 14-15 per cent.

(Source : http://www.mydigitalfc.com/news/automobile-components-industry-see-stable-growth-965)

Rico Auto To Sell Continental Rico JV Stake To Partner

Rico Auto Industries is selling it's 50% stake in Continental Rico Hydraulic Brakes India Private Limited to it's JV partner Continental Automotive Holding Netherlands BV, a Continental Group Company. The stake sale is subject to approval of Reserve Bank of India.

Rico and Continental had entered into a JV in 2007 to build a hydraulic brake systems plant in India in a two step approach. Rico Hydraulic Brakes produces calipers for front and rear axles, drum brakes, master cylinders, brake boosters and load sensing proportioning valves for vehicles of all classes.

Rico Industries, along with it's subsidiaries and JVs manufactures and supplies auto components to auto OEMs across the country. It's clients include Hero MotoCorp Limited, Honda Motorcycle and Scooter India Private Limited, Maruti Suzuki India Limited and TataCummins Limited.


Rico Auto on BSE

Last year in December, it sold it's entire stake in JV - KRP Auto Industries Limited to JV partner Kailash Royal Premium Projects Private Limited for R20.3Cr. KRP Auto Industries was incorporated in 2010 as a manufacturer of automobile components at Bangalore. 


Rico’s other JV companies are FCC Rico Ltd, Rico Jinfei Wheels Limited and Magna Rico Powertrain Private Limited.


Last year, Continental AG acquired Modi Rubber for #3.87Mn.


(Source : http://www.dealcurry.com/20120228-Rico-Auto-To-Sell-Continental-Rico-JV-Stake-To-Partner.htm)

FAW Foundry keen on automotive casting sector in India

KOLKATA:

China's FAW Foundry said it wants to enter the automotive casting business in India.

"We want to know the nature of automotive casting sector in India and want to partner with a local company in the country," FAW Foundry Company president Sun Feng told reporters on the sidelines of an interaction here.

A part of the state-owned FAW ( First Automotive Works) Group Corporation of China, FAW Foundry is engaged in the manufacture of castings for automobiles manufactured by its parent.

He said that representatives of FAW Foundry would visit Tata Motors' plant at Pune shortly to understand the nature of automotive castings business of the country.

Feng was leading a seven-member delegation of Faw Group to the city.

They were also apprised of the existence of a major foundry belt in Howrah by members of Bharat Chamber of Commerce.

(Source : http://economictimes.indiatimes.com/news/news-by-industry/auto/automobiles/faw-foundry-keen-on-automotive-casting-sector-in-india/articleshow/12070584.cms)

Bosch net up 33.5% at Rs 281 cr in Q4

Bosch, the largest supplier of automotive components to original equipment manufacturers (OEMs), on Tuesday reported 33.5 per cent rise in net profit at Rs 281 crore for the fourth quarter ended December 31 compared to the corresponding quarter previous year. The net sales for the quarter grew 11.4 per cent to Rs 1,918.5 crore compared to the same quarter last year. The rise in profits is mainly attributed to a good growth in the after market sales, improved margins and higher treasury income, which went up by 80 per cent year on year at Rs 100 crore. The operating margins improved from 15.2 per cent in December quarter of 2010 to 15.7 per cent in 2011.

(Source : http://www.businessstandard.com/india/news/bosch-net335-at-rs-281-cr-in-q4/466237/)