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Indian fastener sector is highly dependent on user industries like automobile, general engineering, consumer durable, railways and auto replacement market. Despite the sluggish trends in auto sector, which is also impacting the overall industrial sector, the fastener sector has recorded decent growth in turnover in the first half of the current fiscal. But the margins of the players were under pressure, and the sharp depreciation of rupee lead forex losses added to the industry's woes.
There is sequential improvement in whole sale price index of fasteners from 130.2 in July-November 2010 to 130.3 in December 2010, which further improved to 131.1 in January – February 2011. The WPI hardened further to 131.4 in March – June 2011 and to 133 in July 2011. But it spiked to 138.5 in September 2011, and remained at that level in October 2011. Now the WPI of fasteners are 6.4% higher in August and September 2011, on y-o-y basis. This is the highest growth in WPI in the past 18 months, after the previous high of 7.1% in January, March and April 2009 and 8.2% rise in February 2009.
For twenty three months in succession, between November 2009 and September 2011, Indian fastener production recorded positive growth on y-o-y basis. But the growth has decelerated sharply from 37.7% in FY 2010-11 to 10.9% in April-September 2011. The fastener production in September 2011 grew by mere 5.5% in September 2011, which is one of the worst pace of growth in the past 23 months, next only to 3.2% growth recorded way back in November 2009.
After sales or replacement market provides maximum margins for the domestic auto ancillaries in general and fastener segment in particular. However, there is intense competition in the after sales market, not only from unorganized domestic players, but also due to dumping from overseas markets, including China.
Select players in the fastener segment, like Sundram Fasteners have been moving up the value chain consistently to de-risk their business model. Meanwhile, the sluggishness in auto and industrial segment meant slow down in the pace of demand for fasteners, which has lead to pressure on margins for the players. This is despite sequential fall in input prices in general and non ferrous metal prices in particular. We expect the second half to be better, factoring in improving order burnout in the capital goods sector, and as RBI is set to move away from tightening mode, which can unleash growth in the interest sensitive sectors like automobile, construction, real estate, consumer durables etc.
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