The Indian automotive industry is one of the largest in the world, accounting for 7.1% of the country’s GDP. It has been increasing rapidly and is expected to become the 4th largest manufacturer in the world by 2020, behind only China, U.S. and Japan. Due to the attempts to reduce carbon footprints by governments across the world, the global automobile industry is going through major technological disruptions vis-à-vis introduction of electric vehicles (EV), digitization, vehicle connectivity, changing consumer preferences and business models. Thus, the major drivers of the landscape of M&As in the Indian automotive sector are overseas expansion and technological disruptions.
India has successfully remained steadily buoyant with the announcement of 18 transactions worth $500 million in 2018, as reported by Grant Thorton and Automotive Component Manufacturers Association of India. The year 2017 witnessed 13 deals alone in this sector, while in 2018, 4 deals were signed within the first 3 months itself. The Indian industry appears to have chosen the inorganic route i.e. procuring new assets through M&As thus causing vast expansions in the business sales. This helps in maintaining balance between the investments for the present growth cycles and remain prepared for anticipated market disruptions in the near future.
The eagerness of Indian companies acquiring counterparts abroad is driven by their high profits due to the rise in domestic sales and gaining access to new markets and customers. Unlike component makers in the developed countries, their domestic sales seem to have been unaffected by the major shift to towards electric vehicles. Overseas acquisitions have reached a record-high, especially in the developed markets with Motherson Sumi Systems Ltd acquiring Reydel Automotive Holdings for $201 million and Precision Camshafts Ltd (based in Maharashtra) acquiring German MFT Motoren and Fahrzeugtechnik GmbH.
However, in order to keep up with the plethora of technological disruptions, the Indian auto component industry is accelerating investments in technology development and acquisitions. The Indian Government is also continually pushing the industry to opt for the development of electric vehicles and achieve higher electric vehicle production. Lower emission standards are also being targeted to combat the problem of air pollution. Further, in the evolving auto tech landscape, an increasing number of startups are adding to different segments of the value chain. However, the government’s recent decision to increase the GST on hybrid vehicles is unfavorable considering its vision to have all emission-free vehicles on the road by 2030.
A critical area of concern for manufacturers is R&D for building the technological capabilities for software and hardware integration. Addressing skill gaps for new technologies and products via training, certifications and industry-academia interaction is another challenge. Addressing these would entail increasing global footprints and improving the existing industry perception by embracing globalization, creating an in-house global culture and developing customizable/integrated rather than cookie-cutter solutions.
Thus, future M&As among the automotive component manufacturers will be largely governed by the intent to access electronics knowledge, expertise and technology, establish technical collaborations and attract capital for local manufacturing. A conducive policy environment and clear roadmap must be provided by the government to industry stakeholders in order to boost industry confidence, prioritize resources and develop alternative fuels. Given that the Indian automotive industry is deemed to remain highly optimistic and well-afloat with increasing number of valuable deals, there is no better time for innovating and establishing resilience and capacity at the global stage.
source https://www.indiaoutbound.org/ma-deals-steady-in-the-indian-auto-sector/
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