Indian auto components industry could outpace China

According to a research report by Espirito Santo Securities, the Indian auto and auto components industry can be expected to surpass China's growth path by 2021. ACMA, the Automotive Component Manufacturers Association of India has pegged annual growth for the industry at 12% from 2012 to 2021.

But the research report states that the industry is in a comfortable position to beat this estimated growth rate driven by robust demand from OEMs or original equipment manufactures coupled with growth in the replacement market as vehicles age and exports improve with scale, as was seen in China.

As per the report, an analysis of per capita income and auto sales from 1991 to 2011 suggests that automobile sales growth is highly dependent on per capita income and can be predicted with a high level of confidence by using that measure as an independent variable.

The findings suggest that India is seven years behind China and possesses similar economic traits to those seen in China in 2003-04, when per capita income stood at $3500 on a PPP basis, where India currently stands today. After this point consistent growth of not less than 30% in car sales was seen.

Based on this premise, companies with a technological edge, global scale advantage or dominance of a niche such as Bosch, Motherson Sumi and Balkrishna Industries are set for tremendous growth.

Bosch has gained 30% in the past twelve months and currently trades at a price to earnings (P/E) multiple of 27 times on a trailing twelve months basis.

Motherson Sumi, which currently trades at a P/E of 37 times, has more than doubled in market value over the past twelve months. Balkrishna Industries has gained 86% in the past twelve months and currently trades at a P/E of 8.4 times.

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