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Foundries in consolidation phase with Indian units showing signs

Issued at 2017-04-09



For the Indian foundries, with signs of demand revival in the market, it is a consolidation phase as investments go mainly into acquisitions and mergers.

“Ours will be inorganic growth as economies of scale are tilting towards volume,” said Nithyanandan Devaraaj, secretary of the Institute of Indian Foundrymen. In other words, acquisition of existing capacity is preferred to new additions by the industry.

The 6,000 foundries in the country produce 10.3 million tonnes of castings a year, catering mainly to automotive, oil and gas, power, food and general engineering industries.

Production in 2015-2016 was 9.8 million tonnes and it improved marginally to 10.3 million tonnes in 2016-2017. The installed capacity in the country is about 13 million tonnes. “We expect production to touch 11 million tonnes during the current year,” he added.

As the end-user industry consolidates, the number of suppliers they need will narrow down. “Ours is derived demand. If the end-user industry grows, we will grow. As the end-user industries consolidate, there will be consolidation in the foundries too. It is already happening,” he said. 

With close to 35% of castings being supplied to the automotive sector, with passenger cars registering 6% - 7% growth in the last six months, the demand has looked up for foundries. There is buoyancy in the general engineering industry too. Yet, steel foundries still operate at 50% capacity as the oil and gas sector has not revived. “Core agriculture equipment sector might catch up. This, with automotive and construction machinery will drive business this year,” he said. The industry also expects opportunities from the railways.

Imports still on

However, sectors such as wind energy, thermal power and marine engineering import most of their casting requirements. India imported one lakh to two lakh tonnes of castings, mainly from China, and the volume is increasing every year.

Further, exports have remained flat with just 15% production going to overseas markets. “Direct exports of finished castings have not increased in the last three years and we do not expect it to grow for the next two years,” he said. “It is difficult to compete with China as the country provides nearly 40% subsidy through different schemes for casting exports,” he added. “We are now seen as an an alternative to China. This situation should change,” said Mr. Devaraaj.

The challenge for Indian foundries remains in managing costs. Input costs have been going up and the foundry sector is volume sensitive. Those who get volume orders are doing well, he said. Apart from the consolidation that was happening, it needed to move towards value addition, he added

Future strong: The industry is also aided by demand from the general engineering industry .  


Source: The Hindu



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