The Indo-US civil nuclear deal has opened up an unexpected opportunity for India's Rs 75,600-crore (Rs 756 billion) auto component industry reeling from slower demand.

An anticipated surge in the construction of nuclear power plants in India, should the deal go through, has prompted several large manufacturers like Amtek Auto [Get Quote], the Sona group, Bharat Forge [Get Quote] and Micromatic Grinding to draw up blueprints to supply critical components for such reactors.

Several products that auto component companies make have applications in nuclear power plants - from precision forgings, gasket rims, ball bearings, pumps, instrumentation panels, piston seals, oil seals and switches.

"It's a natural evolution," said Vishnu Mathur, executive director, Automotive Component Manufacturers Association. "Since the core competence of auto component manufacturers is to produce auto components under exacting standards, it's a natural fit to venture into the high-margin nuclear industry," he added.

Industry experts said while margins in the auto component industry is around 15 per cent, this could be nearly double for component supplies to the nuclear power industry.

A widely-anticipated quick ramp-up in nuclear capacity - once the Indo-US deal is finalized - is encouraging most Indian companies to consider tie-ups rather than metaphorically reinventing the wheel.

Amtek Auto, with plants in Europe and the US, is forming a joint venture with an overseas partner to supply components like forgings, castings and aluminum die.

"This will help us beat the cyclical nature of the auto industry and improve our overall margins," said Arvind Dham, chairman of Amtek Auto.

Delhi-based Micromatic Grinding Technologies, which has supplied precision cutting machines to the defence industry in the past, has a tie-up with Japanese auto component manufacturer JTEKT Corporation to market the latter's high-end cutting and grinding machines in India. Both manufacturers said they can cater to the nuclear industry's requirements but need government approvals.

"Our precision grinding machines can fabricate some of the nuclear components. But that does not mean we can start supplying immediately to the country's nuclear industry. There are stringent rules laid out by the Japanese government that determine the end-use of the precision grinding machines. Government approvals must be in place," says Motohiko Yokoyama, president of JTEKT.

Between 2007 and 2008, the domestic market for automobiles decelerated about five per cent, reducing the component industry's growth potential. The market for nuclear power reactors, on the other hand, is anticipated at Rs 400,000 crore (Rs 4,000 billion) over the next 20 years.

India has 17 nuclear power plants that generate 4,120 Mw of electricity. Six more nuclear power plants are under construction to generate an additional 3,160 Mw.

The government hopes to generate 20,000 Mw of power from nuclear plants by 2020. Nuclear power plants contribute about 3 per cent of India's power consumption, a proportion that could rise to less than 10 per cent in the coming years.

That is why several auto component makers are factoring revenues from this industry into their long-term plans. Consider the Rs 3,300-crore (Rs 33 billion) Delhi-based Sona Group, which manufactures steering systems and precision forgings for global auto companies.

"We hope to achieve a turnover of Rs 4,200 crore (Rs 42 billion) by 2010 and we expect one of the sources of our future revenues to come from supplying components to the nuclear industry," said Surinder Kapur, chairman, Sona Group.

Pune-based Bharat Forge has gone a step further than its competitors. It recently signed a 51:49 joint venture with government-owned NTPC to make ultra-heavy forgings, each weighing 500 tonnes, for the domestic nuclear and the power industries. The forgings major has also indicated a plan to manufacture high-value super-critical generator sets in collaboration with French nuclear major Alstom [Get Quote].

Though the outlook is good, there are several challenges before auto component companies can supply to the nuclear industry. The biggest uncertainty hinges on the success of the Indo-US nuclear deal. It is currently awaiting approval from the 44-country Nuclear Suppliers' Group.

India is a unique case since it seeks nuclear supplies even though it possesses nuclear weapons and has not signed the Non-Proliferation Treaty.

Assuming the deal is approved, auto component makers will have to face a validation process.

"Since the entire nuclear programme in the country is regulated by the government, auto component suppliers bidding for tenders will have to go through a certification process on quality and safeguards," said an executive at Larsen & Toubro, which has played a part in constructing the country's nuclear reactors.

Another challenge is structural. Auto component makers typically produce large numbers of small components and the reverse could hold true once they start supplying for the nuclear industry.

"Auto parts makers have to get used to manufacturing large components in smaller numbers," said Sudhinder Thakur, executive director, corporate planning, Nuclear Power Corporation.