Bosch, Uno Minda: Analysts bet on airbag makers on govt push for car safety

The government’s focus on road safety has put auto component makers in the limelight, especially those who manufacture airbags and related components.

The mandate to fit in four additional airbags on top of the existing two in every new car variant and strong passenger vehicle (PV) sales growth will benefit auto component companies in this space, say analysts.

The centre’s mandate for all M-1 category cars (eight seaters) to be fitted with a total of six airbags was deferred last year citing global supply issues. It will now kick into effect from October 1, 2023.

”This was the need of the hour given the scale of casualties in road accidents. The move will benefit companies associated with manufacturing of airbags and those dealing in raw material for these bags”, said Gaurang Shah, senior vice president, Geojit Financial Services.

Implementation of airbags in other vehicle segments over the medium term will offer further revenue upside for airbag manufacturers, as per rating agency ICRA.

Domestic and international players in airbag components and related sensor or electronic control units (ECUs) will also be significant gainers, it said.  

The domestic airbag market is largely catered to by multinational players. Among the top leaders, Toyoda Gosei and Germany’s ZF group operate in India via joint ventures with Uno Minda and the Rane Group, respectively.

Others operating in safety components including airbags include Bosch Ltd, ZF Steering Gears, and NDR Auto Components.

Analysts expect the industry to undertake significant capacity addition to meet the October deadline for the six airbag order.

As per ICRA, several players have begun to gradually scale up their facilities in the last 6-8 months. It expects capital expenditure of Rs 1,000-1,500 crore in the next 12-18 months for capacity addition and localisation of components such as inflators, cushions, sensors and ECUs.

“Around 60-70 per cent of airbag components are availed via imports but the recent global supply disruption and the government’s domestic manufacturing push will help the sector reduce its import dependence and expand capacity,” said Vinit Bolinjkar, Head of Research, Ventura Securities.

Among stocks, Bolinjkar is bullish on Uno Minda given its capacity to produce steering airbag systems and plans to enter the side airbag segment. The stock’s valuation at 28.2x FY25 earnings is reasonable for a growing company, he says.

Early last year, the company had reportedly said it will aim to expand its market share in the airbag business to 20-25 per cent from roughly 15 per cent once the new airbag norm gets implemented.

Shah of Geojit Financial prefers Bosch as the company is already engaged in a lot of occupant safety products and its airbag business will also grow after the regulation kicks in.

Cost risks

The content per vehicle (value of components to an original equipment manufacturer) for airbag makers could rise from Rs 3,000-4,000 currently to Rs 8,000-10,000 by October 1, 2023, estimates ICRA.

This will be positive for the airbag market but the cost for PV OEMs could increase even more depending on needed structural changes and additional sensors in a car, it said.

“The cost increase could dent demand for car-makers, especially, small entry-level variants,” said AK Prabhakar, head of research at IDBI Capital.

Notably, Maruti Suzuki chairman RC Bhargava had also voiced his disapproval of the six-airbag norm as he believed this would further hurt sales of already shrinking low-cost cars and drive out a large sum of buyers.

At the bourses, shares of Uno Minda, Rane Holdings, Rane Madras, and Bosch have gained 12-53 per cent on the BSE during the April-December period.