automobile&autoancillaries

7/22/2019 Automobile&AutoAncillaries

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Automobiles and Auto Ancillaries

Senior Analyst: Siddharth Janghu

Junior Analysts: Kawaljeet SinghVamshi Krishna Vangala

Unnati Investment Management and Research Group



2 Unnati Investment Management and Research Group

Table of Contents

AUTOMOBILESOVERVIEW .......................................................................................................................................... 3

INDUSTRY CLUSTERS ....................................................................................................................................... 5

MARKET SEGMENTS ........................................................................................................................................ 6

VALUE CHAIN ..................................................................................................................................... 7

TWO WHEELERS ............................................................................................................................... 9

THREE WHEELERS ......................................................................................................................... 17

PASSENGER VEHICLES .................................................................................................................. 21

COMMERCIAL VEHICLES............................................................................................................... 28

TRACTORS ......................................................................................................................................... 33

GOVERNMENT POLICIES AND REGULATIONS....................................................................... 36

SOCIETY OF INDIAN AUTOMOBILE MANUFACTURERS ..................................................... 39

IMPACT OF BUDGET 2012 ON AUTOMOBILE SECTOR ...................................................... 40

LATEST HAPPENINGS, FUTURE TRENDS IN AUTOMOBILE SECTOR ............................. 41

KEY PLAYERS ................................................................................................................................... 46

HERO MOTOCORP ......................................................................................................................................... 46

BAJAJ AUTO .................................................................................................................................................... 47

MAHINDRA AND MAHINDRA ....................................................................................................................... 48

TATA MOTORS ............................................................................................................................................... 50MARUTI SUZUKI............................................................................................................................................. 52

AUTO ANCILLARIES

OVERVIEW ........................................................................................................................................ 54

INDUSTRY SEGMENTATION ........................................................................................................ 58

VALUE CHAIN ................................................................................................................................... 61

GOVERNMENT POLICIES AND REGULATIONS....................................................................... 62

AUTOMOTIVE COMPONENT MANUFACTURERS ASSOCIATION OF INDIA .................. 63

IMPACT OF BUDGET 2012 ON AUTO ANCILLARY SECTOR............................................... 64

MACRO FACTORS AFFECTING THE INDUSTRY ..................................................................... 65

KEY PLAYERS ................................................................................................................................... 67

APOLLO TYRES .............................................................................................................................................. 67

MOTHERSON SUMI ........................................................................................................................................ 69

BHARAT FORGE ............................................................................................................................................. 71

EXIDE INDUSTRIES ........................................................................................................................................ 72

TYRE INDUSTRY .............................................................................................................................. 75

BATTERY INDUSTRY ..................................................................................................................... 80



Unnati Investment Management and Research Group 3

Overview

The Indian automobile industry is the seventh largest and the second fastest growing

in the world. It plays a significant role in driving economic growth. The contribution

of the automotive industry to GDP has risen from 2.77% in 1992-93 to around 6%now. This is expected to increase to increase to 10% by 2016. At present, it accounts

for 22% of India’s manufacturing GDP.

India represents one of the world’s largest and fastest growing automobile markets.

The Indian Automotive industry embarked on a new journey in 1991 with delicensing

of the sector and subsequent opening up for 100 per cent FDI through automatic

route. This attracted foreign auto giants to set up their production facilities in the

country in a bid to take advantage of various benefits offered by the industry.

Improving income levels ,strong technological capability have been boosting

automobile demand in the country for past few years. Even in the wake of economicslowdown, the industry sustained its positive growth momentum mainly because of

strong domestic demand for passenger cars.

The growth of Indian middle class with increasing purchasing power along with

strong growth of economy over a past few years have attracted the major auto

manufacturers to Indian market. The market linked exchangerate and availibility of

trained manpower at competetive cost have further added to attraction of Indian

domestic market. The increasing pull of Indian markets on one hand and near

stagnation in auto sector in USA, EU and Japan on the other have worked as push

factor for shifting of new capacities and flow of capital to Indian auto industry.

Raw materials

79%

Manufacturing

3% Labour

4%

Sales and

Distribution

8%

Other costs

6%

COST BREAKDOWN




Highlights

Ranking of Indian Automobile industry in various categories in the world

Two Wheelers

76%

Passenger

vehicles

16%

Commercial

vehicles

4% Three Wheelers

4%

Production

1

• MANFACTURER OF TWO WHEELERS

1 • MARKET FOR THREE WHEELERS

2 • MARKET FOR TWO WHEELERS

6• MANUFACTURER OF PASSENGER VEHICLES

10• MARKET FOR PASSENGER VEHICLES

4• MARKET FOR TRACTORS

5 • MARKET FOR COMMERCIAL VEHICLES




Industry Clusters

The automobile industry is concentrated in 4 key regions

North: Delhi-Gurgaon-FaridabadWest: Mumbai-Pune-Nashik-Aurangabad

East: Kolkata-Jamshepur

South: Chennai-Bengaluru




Market Segments

A u t o m

o b i l e s

Two Wheelers

Motorcycles

Scooters

Mopeds

Three Wheelers

Goods carriers

Passenger carriers

Passenger Vehicles

Passenger cars

Utility vehicles

Multi purposevehicles

Commercial Vehicles

Light commercialvehicles

Medium commercialvehicles

Heavy commercialvehicles

Tractors




Value Chain

Tier3 suppliers

These are basically small workshops that provide small or may be recycled

components or may be consumables to TIER2 Supplier. The company usually doesnot deal directly with them but could if some regulatory requirements are to be

fulfilled.

Tier 2 Suppliers

They provide much-sophisticated products to Tier1 like metal rods or fabrics that go

on producing the axle rods or carpets. The quality of component they produce could

affect the quality of the vehicle.

Tier1 Suppliers

These are the biggest in operations as compared to the rest and supply the productdirectly to the OEM for manufacturing. The company takes a stock of the quality of

component supplied. Components could be gearboxes, pistons or un-machined

blocks, which the company could process, further depending on its requirements.

OEMs

The OEMs actually coordinate with the suppliers for part development and only deal

with designing and assembly of parts. They are the centralized agencies in the

overall process.

The processes followed are

1. Procurement of Steel2. Blanking

3. Welding

4. Painting

5. Assembly (components are assembled during these operations) - engine + vehicle

6. Quality Check

7. Stocking

8. Delivery

Dealer

After the product is made it is supplied to the dealer by the OEM depending upon hisrequest. A dealer basically acts as an interface between the OEM and the customer.

Finance and insurance

Increasing the OEMs are entering into this field due to shrinking margins in the core

business and more returns from this business. Besides this the company can aid in

the procurement of the vehicle and increase its sales.

2nd hand retailers

They procure the used vehicle from the customers and sell them in the 2nd hand car

market. Increasingly this market is also expanding and many OEMs have openedshop in this sector also




Scrappage Yards

Though not popular in India many foreign nations have the policy of scrapping once

the useful life of the product is over. The product is crushed and the recycled

materials are used again. The non-recyclable are incinerated.

Transport Agencies

They are the transport agents that cater to the transport needs of the OEMs.

Repair and Spare Market

The dealers usually deal with the repair of the vehicle even though most users do

not prefer them due to high costs. The spare market caters to a huge volume of

components.

Tier 1 SupplierTier 2 Supplier

Tier 3 Supplier

OEM Dealer Customer

Transport AgenciesFinance

2nd Hand Retailers2nd Hand BuyersScrappage yards

Repair & Spare Market




Two Wheelers

Overview

Domestic two wheeler industry in India has witnessed a CAGR of 15.93% over thepast four years. This growth has been due to increasing per capita income, cheap

cost of ownership and maintenance. Since the average road speeds in India are low,

the lower passenger safety of two-wheelers when compared to cars does not inhibit

buyers. India has become the second largest two-wheeler market in the world with

annual sales of over 13 million units. India’s demography continues to remain

favourably on its side with average age of 25 years, which is 9 years younger than

China, and more than 12 years and 19 years younger than the US and Japan,

respectively.

Indian two wheeler industry can be broadly classified into three categories:

Motorcycles: Wheel Size greater than12"

Scooters: Wheel Size less than 12''

Mopeds: Fixed transmission and EngineCapacity less than 75cc




Key demand side growth drivers

Scope of increasing penetration in rural areas:

The penetration rates differ between India’s rural and urban areas, with the rural

areas being under-penetrated by almost three times than urban areas. Though

urban India is still not fully penetrated, the scope for rural penetration is huge as

only 32 per 1000 inhabitants have 2W. Moreover, the growth in income,

changing mind set, favourable young population, increasing connectivity, all

point towards a huge market potential for the two wheeler industry to penetrate

and expand in the rural India.

Favourable demographics:

A large youth population potentially offers a sizeable market for consumer

products. India currently has a very favourable demographic profile with average

age of 25 years, which is 9 years younger than China, and more than 12 years and

19 years younger than the US and Japan, respectively. Around 33% of India’s

population of 1.2 billion belongs to the age bracket of 20-40 years. Within this,

the population of males, which is the key target segment for motorcycles, is

estimated to be 206 million and females, which is the key target segment for

scooters, is estimated to be 189 million, suggesting existence of large size of the

addressable market.

Low sensitivity to interest rate and fuel price changes:

The 2W market is less sensitive to interest rate changes because only around

30% of two wheelers are financed compared to around 80% of financing rate in

passenger vehicle segment. Also as the 2W industry bets on rural spending, the

sensitivity to interest rate further comes down. Since the deregulation of petrol

prices, the prices have almost become 1.7 to 1.8 times, still the growth of two

wheelers has been buoyant mainly because of high fuel efficiency and low cost of

operating compared to passenger vehicles.

Rising per capita income:

MOTORCYCLES

• ECONOMY SEGMENT

• EXECUTIVE SEGMENT

• PREMIUM SEGMENT




The growth rate of Indian GDP has remained far above the levels of developed

and a number of developing economies, even in the time of recession during

2008 to 2010 and has slowed down only recently in 2011-12 to 6.5% due to lack

of economic and political factors. But still, the per capita income has increased

from Rs. 24,143 in the year 2004-05 to Rs. 54,835 in the year 2010-11, showingan increase of more than 120%. And it is expected to grow at similar levels in the

next 5 years showing huge market potential for two wheeler industry.

Key supply side growth factors

Expansion plans of major players.

Growing reach of established players.

Entry of new players.

Increasing options of consumer finance to aid low income rural consumers.

Key concerns

Increased dependence on monsoons.

Fluctuation in foreign exchange rates for exports.

Increased environmental and safety requirement for OEMs.

Increasing input costs.

MOTORCYCLE

S

76%

SCOOTERS

18%

MOPEDS

5%

ELECTRIC

TWO

WHEELERS

1%

MARKET SHARE SEGMENT WISE




HERO

MOTOCO

RP

41%

BAJAJ

AUTO

23%

HMSI

14%

TVS

13%

YAMAHA

3%OTHERS

6%

MARKET SHARE IN 2W

HERO

MOTOCOR

P

44%

BAJAJ

AUTO

32%

TVS

21%

YAMAHA

2%OTHERS

1%

MARKET SHARE IN MOTORCYCLES

(Economy Segment)

HEROMOTOCORP

68%

BAJAJ AUTO

17%

HMSI

11%

TVS

1%

OTHERS

3%

MARKET SHARE IN MOTORCYCLES

(Executive Segment)




Domestic sales trend

The domestic sales for two wheelers have grown at a CAGR of 15.93% over

the past four years from 2008-09 to 2011-12.

Two Wheelers sales registered a growth of 14.16% during April to March2012. Mopeds, Motorcycles and Scooters grew by 11.39%, 12.01% and

24.55% respectively in the said year.

BAJAJ AUTO

41%

HERO

MOTOCORP

20%

YAMAHA

14%

HMSI

10%

ROYAL

ENFIELD

6% TVS8%

OTHERS

1%

MARKET SHARE IN MOTORCYCLES (Premium

Segment)

HMSI

48%

HERO

MOTOC

ORP

15%

SUZUKI

11%

TVS

19%

M&M

7%

MARKET SHARE IN SCOOTERS




Exports trend

Bajaj Auto Ltd is the largest 2W exporter from India, followed by TVS, with

both companies exporting to a large number of countries. Together, Bajaj

and TVS accounted for 79% of all 2W exports from India in 2011-12. HMSI has

also expanded its export base and has a current market share of 7%. Also,

Hero Motocorp, India’s market leader in motorcycles, has announced plans

to increase its exports revenue to 10% of total revenues by 2016 from

current 2-3%. This is after the joint venture between Hero and Honda ended

in 2012 as now it is not restricted by the agreement with Honda.

Now, since the developed markets like the United States and Europe have

altogether different product and technology requirements as compared to

emerging markets, they are not considered as target markets for the Indian

players. Therefore, a large majority of 2W exports from India are to

developing markets like South Asia, Africa and Latin America.

In 2011-12, two-wheeler exports from the country grew 27.13% at 1.94million units compared with 1.53 million units in 2010-11. Bajaj Auto was the

largest exporter with 1.26 million units, followed by TVS Motor (2.6 lakh

units). India Yamaha Motors was the fourth largest with shipment of 1, 29,

394 units, a growth of 45%.

Over the past four years from 2008-09 to 2011-12, exports of two wheelers

has grown at CAGR of 18.01%, outpacing the growth in domestic numbers.

7437619

9268240

11790305

13434846

0

2000000

4000000

6000000

8000000

10000000

12000000

14000000

16000000

2008-09 2009-10 2010-11 2011-12

DOMESTIC SALES TREND FOR TWO

WHEELERS

DOMESTIC SALES TREND

FOR TWO WHEELERS




BAJAJ

AUTO

66%HMSI

7%

HEROMOTOCO

RP

8%

TVS

13%

YAMAHA

5%

OTHERS

1%

MARKET SHARE OF MAJOR

PLAYERS IN EXPORTS

Nigeria

19%

Sri Lanka

12%

Columbia

12%

Bangaldes

h

9%

Phillipines

7%

Nepal

6%Kenya

4%Uganda

4%

Brazil

2%

Others

25%

MAJOR EXPORT MARKETS FOR

2W

10041711140008

1539590

1947266

0

500000

1000000

1500000

2000000

2500000

2008-09 2009-10 2010-11 2011-12

EXPORTS SALES TREND FOR 2

WHEELERS

EXPORTS SALES TREND

FOR 2 WHEELERS




Outlook

Hero MotoCorp and Bajaj Auto, the country's largest two-wheeler makers reported a

YoY decline in sales for Jul'12. Some other auto firms reported a decline in sales

because of the slowdown in the Indian economy. A drop in rural income and weakmonsoons has especially hit 2W sales. This trend will lower the growth of 2W

industry in the short term due to low monsoons and negative consumer sentiments.

The scooters segment will drive the growth in the industry with new models from

Hero, Honda, M&M coming up in the near future.

But despite the economic slowdown, Indian 2W industry has done well compared to

other major markets of the world. Also, in the long term, rise in rural demand,

increasing urbanization, increasing income, shrinking replacement cycles, increasing

fuel efficiency, favourable demographics, increasing women consumers boosting

scooter demand, rise in exports, and rise of electric two wheelers will drive the 2W

industry to grow at CAGR of 11-12% in the next five years.




Three Wheelers

Overview

India is the world’s foremost producer, consumer and exporter of three-wheelers(3W) with domestic sales of 5.13 lakh units and exports of 3.63 lakh units in the

financial year ending March 31, 2012. 3Ws are widely used in India as an affordable

means of short-to-medium distance public transportation and last mile connectivity

for goods transportation. Apart from the domestic demand, India has also emerged

as important export hub for 3Ws with presence in some of the South Asian, African

and Latin American markets that are replicating Indian 3W story with rising

disposable incomes but inadequate public transport systems. Overall, the 3W

industry has witnessed relatively healthy 15% CAGR volume growth over the last

decade driven by moderate domestic growth (~10% CAGR) and robust exports

growth (~38% CAGR).

Growth drivers

Greater reach within the area compared to other public transport means like metro,

buses.

Ideal for congested roads of India particularly because of increasing urbanization.

Inadequacy of public transport to server the last mile transportation needs of

population.

Feasibility of carrying goods from low accessible areas like Tier 3 cities.

Low cost of ownership compared to taxis and small commercial vehicles.

Self-employment opportunity for youth.

Low operating costs both for passenger and goods carriers.

Concerns

With the successful launch of four-wheeled Small Commercial Vehicles (SCVs)

(mainly Tata ACE), the industry dynamics have altered – especially for the cargo

segment, considerably over the last five years. High tonnage (0.75T and above) 3W

cargo segment has made way for 4W SCVs that provide higher stability, safety,

THREEWHEELERS

GOODS

CARRIER

PASSENGE

R CARRIER




speed, space and style. While domestic 3W goods segment has de-grown at 9%

CAGR, SCVs have reported robust 21% CAGR growth over the last five years.

Sales Trend

Total 3W sales have grown at a CAGR 15.18% over the past four years from

2008-09 to 2011-12.

Export contribution has also risen from 30% in 2008-09 to 41% in 2011-12

with Bajaj Auto being the largest exporter of three wheelers.

BAJAJ AUTO

47%PIAGGIO

32%

M&M

12%

ATUL AUTO

3%

OTHERS

6%

MARKET SHARE IN 3W (Passenger Carrier)

PIAGGIO

54%

M&M

17%

ATUL AUTO

12%

BAJAJ

8%

SCOOTERS

INDIA

9%

MARKET SHARE IN 3W (Goods Carrier)




Outlook

The three-wheeler industry continued to remain under pressure owing to flat

demand in the domestic market for passenger carriers and negative demand for

goods carriers. Exports were impacted due to a disruption in demand from Sri Lanka

due to an increase in import duty for three-wheeler vehicles. The domestic goodscarrier segment has de grown at 9% CAGR while SCVs have grown at a CAGR of 21%

497793

613606

795992876127

0

100000

200000

300000

400000

500000

600000

700000

800000

900000

1000000

2008-09 2009-10 2010-11 2011-12

TOTAL 3W SALES

TOTAL 3W SALES

30%28%

34%

41%

0%5%

10%

15%

20%

25%

30%

35%

40%

45%

2008-09 2009-10 2010-11 2011-12

EXPORTS CONTRIBUTION AS A

PERCENTAGE OF TOTAL SALES

EXPORTS

CONTRIBUTION AS A

PERCENTAGE OF

TOTAL SALES




over the same period. Moreover, high inflation, slow economic growth, increase in

financing costs will affect the sales of goods carrier segment in the medium term.

Increasing export contribution is expected is expected in the medium term as India

enjoys the dominant position in the global 3W market. In the medium term, the

passenger carrier segment will benefit from improving road infrastructure,increasing demand for motorized transportation, inadequate public transport, and

new permits from state governments like Delhi which will drive its growth.




Passenger Vehicles

Overview

The Passenger Vehicle industry has always been a barometer for the economicstrength of a nation. The Indian PV market sentiments have been significantly

positive post the economic downturn.. Even in the wake of economic slowdown, the

industry sustained its positive growth momentum mainly because of strong domestic

demand for passenger vehicles. The economic recovery coupled with introduction of

new models, easy availability of finance and aggressive pricing by almost all the

players has helped the industry to post strong growth over the past few years. The

competitive advantage arising out of low-cost destination, proximity to Asian

markets and lower shipment costs makes India a sourcing hub and a manufacturing

base for the major Original Equipment Manufacturers (OEMs).

Indian passenger industry has seen a drastic change in the post liberalization era

with Indian manufacturers like Maruti Suzuki, Tata Motors, Mahindra & Mahindra,

expanding their operations and global manufacturers like Hyundai, Honda, Skoda,

Nissan, Mitsubishi coming up with their range of vehicles from small cars to SUVs

and sedans. Even the luxury car makers like BMW, Audi, Mercedez Benz, have

tapped the high income groups and upper middle classes in India.

India has been one of the world’s largest markets for small hatchbacks. Even Tata

Motors launched Tata Nano in 2009 which is the world’s cheapest car and now

competitors like Bajaj Auto are going to launch their low cost cars in the next fiscal

year. Passenger Vehicles segment grew at 4.66% during April to March 2012 oversame period last year. Passenger Cars grew by 2.19%, Utility Vehicles grew by

16.47% and Vans by 10.01% during this period. The growth in the UV segment of the

passenger vehicle industry has outpaced other segments due to new models, usage

of diesel and low cost launches like Mahindra XUV 500 and Maruti Ertiga.

Buoyant economic growth, rising disposable income levels, favorable demographics,

strong growth from tier II and III cities and rural India, increasing trend of nuclear

families, improving availability of vehicle financing at competitive interest rates have

been the key factors fuelling growth in the Indian passenger vehicle market. The

domestic PV market has grown at a CAGR of 11.22% in the past five years andexports have grown at a CAGR of 18.84% and the industry is expected to grow at a

CAGR of 11% over the next five years.




Growth drivers

LOW PENETRATION LEVELS

Currently the penetration levels in India for passenger vehicles is at 17 per 1000

compared to world average of 144 per 1000. This shows that there is a huge

potential for the new and existing manufacturers to penetrate in different segmentswhich will be complemented by increasing growth of the economy and changing

mind set of the consumers who are shifting from two wheelers to passennger

vehicles.

INCREASING PER CAPITA INCOME

The per capita income of the Indian consumers has been on a rise due to an average

GDP growth rate of around 7-8% for the last four years which has outpaced the

growth rate of many developed countries like US, Japan and France and has been

only next to China in terms of percentage growth rate.

FAVOURABLE DEMOGRAPHIC PROFILE

India currently has a very favourable demographic profile with average age of 25

years, which is 9 years younger than China, and more than 12 years and 19 years

younger than the US and Japan, respectively. Around 33% of India’s population of

1.2 billion belongs to the age bracket of 20-40 years. This young population and

changing lifestyles of the consumers, provide a huge opportunity to OEMs to

penetrate and expand their markets.

INCREASING TREND OF NUCLEAR FAMILIES

56% of households in urban India now have four or less members. This is a markedchange from 10 years ago, when the median household size in urban India was




between four and five members. This shows that India is gradually moving from the

concept of joint family system to that of nuclear family system. So as the needs of

families rise, the demand will also increase in the same or higher proportion

providing new opportunities to passenger vehicle industry.

LOW RURAL CONTRIBUTION TO SALES

Rural contribution to sales of passenger vehicles has been on a relatively lower side

(around 11%) compared to two wheelers (around 45%) mainly because of high cost

of ownership, maintenance and operation of vehicles. But as the income of rural

people is on a rise, the rural market provides the opportunity to OEMs to tap and

penetrate the markets.

Concerns

HIGH INTEREST RATESHigh cost of financing the passenger vehicles has been a major cause of concern for

Indian passenger vehicle industry. In India ~70% of the cars are financed, which

means that any increase in interest rates for loans will drive away the consumers

from passenger vehicles to two wheelers. From 2009 to mid 2012, the RBI has

revised the interest rates thirteen times causing low sales growth in recent years

compared to other industries.

HIGH FUEL PRICES

High fuel prices since the deregulation of petrol prices in 2009 have caused great

concerns in the industry due to falling petrol vehicle sales. Buyers are moving

towards diesel vehicles due to difference in prices which has caused huge inventory

pile up for petrol car manufacturers and ultimately falling profitability for the

manufacturers like Honda, which has lost significant market share.

LOW INFRASTRUCTURE GROWTH COMPARED TO VEHICULAR GROWTH

Over the last four decades, the growth in road network has lagged the growth in net

vehicle addition by a factor of 1/3 times. Urban road network growth situation has

been worse. The World Economic Forum’s Global Competitiveness Index placed

India’s infrastructure at 91st out of 139 nations. The other aspect of the

infrastructure issue is available public space for parking of personal, commercial and

public vehicles. This is forcing various local governments to implement punitive

measures that may adversely affect the growth of automotive industry in the long

run.




Segmentation

PASSENGER CARS

CATEGORY CRITERIA LENGTH (mm)Micro <= 800cc <=3200

Mini <=1000cc 3200 to 3600

Compact 1001cc to 1400cc 3600 to 4000

C1 1401cc to 1600cc 4000 to 4250

C2 1601cc to 2000cc 4250 to 4500

D 2001cc to 3000cc 4500 to 4700

E 3001cc to 5000cc 4700 to 5000

F >5000cc >5000

UTILITY VEHICLES

There are now five sub-segments : UV1, UV2 and UV3 including UVs that cost up to

Rs 15 lakh. -UV4 vehicles are the ones priced at Rs 15-25 lakh. -UV5, the ones price

more than Rs 25 lakh.

MULTI-PURPOSE VEHICLES

-V1, vans with hard tops used for personal transport. -V2, those with soft tops used

for public transport.

Classification based on Shape

ONE BOX (VAN/MPV): Engine area, Passenger area & luggage area all in onebox. There wont be separate compartment. For eg. Omni, Ace Magic, Versa

TWO BOX (HATCHBACK): Engine area has a separate cabin while Passenger

area and luggage area are together. For eg. M800, Alto, Santro, i10, A star,

Swift etc.

THREE BOX (SEDAN/SALOON/NOTCHBACK): Engine area, Passenger area &

luggage area all are having different cabin. For eg. SX4, City, Fiesta, Dzire,

Ambassador, Indigo CS etc.

ESTATE/STATION WAGON: A sedan whose roof is extended till the rear to

create more boot space. For ex. Indigo Marina, Octavia

SUV (Sports Utility Vehicle): These vehicles have large tyres, higher seating,

and higher ground clearance. The engine area is separate, but the passenger

& luggage area are enclosed together. Most of these vehicles are equipped

with either 4 wheel drive system or has the option for that. For ex. CRV,

SAFARI, GRAND VITARA, PAJERO

SEMI NOTCHBACK: A sedan whose boot door can be opened like a hatchback

(wagon r, swift), where the rear wind shield too opens along with the boot

door. Unlike sedan whose rear wind shield is always fixed. Examples for SEMI

NOTCHBACK - Skoda Octavia, Accent.




The domestic sales have grown at a CAGR of 14.17 over the past four years and

slowed down only in the last year with YOY growth of 4.67%

Over the past four years, car sales have grown at a CAGR of 13.26% while the MPV

and UV sales have grown at a CAGR of 17.09% and 16.39% respectively during the

same period. But in the year 2011-12, UV sales far outpaced both MPV and car sales

by growing at a rate of above 14% while car sales grew by 2.02%.

1552703

1951333

25204212638023

0

500000

1000000

1500000

2000000

2500000

3000000

2008-09 2009-10 2010-11 2011--12

DOMESTIC SALES TREND (PV)

DOMESTIC SALES TREND

(PV)

0

500000

1000000

1500000

2000000

2500000

3000000

2008-09 2009-10 2010-11 2011-12

CARS, UVs and MPV sales

CARS

UTILITY VEHICLES

MPV (vans)




The exports of passenger vehicles have grown at a CAGR of 11.44%. Exports

remained flat during 2010-11 due to uncertainties in the global environment due to

Euro crisis.

Outlook

The passenger car segment grew only 2.2% in FY 12, mainly driven by sales of diesel

models. Sales are expected to be sluggish with growth coming from diesel variants

for most passenger vehicle players. Increase in excise duty, successive interest rate

hikes and fuel price increases, coupled with pressure on disposable income due toinflation remaining near double digits in the Indian economy, will curtail the growth

of PVs in the near future. Also labour strife at Maruti's Manesar plant which forced

the company management to shut the plant for more than a month will have a

bearing on the growth of this segment. The growth in UVs and MPVs will benefit the

PV growth in the near future.

But in the long term, due to under penetrated market, rise in per capita income,

rural participation, increasing proportion of exports, new OEMs participation, Indian

PV industry is poised to reach the level of 6 mn units from current level of ~3 mn

units

335729

446145 453479517782

0

100000

200000

300000

400000

500000

600000

2008-09 2009-10 2010-11 2011-12

EXPORT SALES TREND (PV)

EXPORT SALES TREND

(PV)




Commercial Vehicles

The CV industry is cyclical in nature as the demand depends on the pace of the

overall economic growth (GDP) and industrial activity in particular (IIP). Among

segments, M&HCVs tends to be more influenced by the macro-economic indicatorsthan LCVs.

The share of roadways in freight movement is one of the critical factors. Though

India has one of the most extensive railway networks in the world, the bulk of the

commercial goods movement is by road. The current share of freight traffic in India

through road is around 64%, which is much higher when compared to other

countries like US & China.

The rebuilding of the country’s main highways under the National Highway

Development Program has made road transport easier and more efficient. Unlike in

the past when only single axle trucks were suitable for narrow Indian roads, the new

highways can easily accommodate large multi-axle tractor-trailers. Another factor

that pushed up demand for trucks is the substantial increase in construction of

buildings and infrastructure.

Market Segments:

Market leader – Tata Motors

Major Players:

Tata Motors

Mahindra & Mahindra

Ashok Leyland

Eicher Motors

Force Motors

SML Isuzu

Light Commercial Vehicle: <7.5 tons

Medium Commercial Vehicle: 7.5 to 16 tons

Heavy Commercial Vehicle: > 16 tons




Ashok Leyland

11%Force Motors

3%Mahindra &

Mahindra

16%

Tata Motors

58%

Eicher

6%

Others

6%

Market Share in Commercial vehicles

Ashok

Leyland

20%

Asia Motor

Works

4%Tata Motors

62%

Eicher

11%

Others

3%

Market Share in M&HCV Goods Carriers

Ashok

Leyland

42%

SML Isuzu

7%

Tata Motors

42%

Eicher

8%

Others

1%

Market Share in M&HCV Passenger Carriers




Growth Drivers

Emergence of hub-n-spoke model + new models

With the emergence of the hub-n-spoke model and increasing demand for last mile

connectivity, LCV segment continues to register growth. It has in fact been one of

the strongest growing segments in the entire automobile space.

SCVs driving growth in this segment

The SCV’s segment within LCVs which accounts for over 3/4th of the LCV market is

driving its growth on account of the following factors:

Strong demand for transportation of consumer goods within cities

Replacement demand from upper-end three wheelers

Demand from tier II & III cities rising

Passenger variants have also been successful, replacing the clumsy upper-end

three wheelers

Mahindra &

Mahindra

32%

Piaggio

vehicles

3%

Tata Motors

61%

Others

4%Market Share in LCV Goods Carriers

Force Motors

35%

Mahindra

Navistar9%SML Isuzu6%

Tata Motors

42%

Eicher7% Others

1%

Market Share in LCV Passenger Carriers




Global comparison indicates strong growth potential for LCV

In 2008, India had the lowest LCV to MHCV ratio compared to countries like

Indonesia, Brazil, China and Turkey. This indicates significant growth potential for the

LCV segment in coming years.

Benefits from infrastructure

With the budget focus on developing highways (target of covering a length of 8800

km in NHDP), allocation of 10 billion to the NSDF (National Skill Development Fund)

and increasing investments in infrastructure the Medium and Heavy commercial

vehicle segments could see considerable growth in the long run.

Factors of concern

Industrial production (IIP) growth to remain low

M&HCV demand is highly sensitive to growth in Index of Industrial Production (IIP)

figures. It recorded a 1.8% contraction in June 2012. Given the current environment,

outlook for IIP in the near term appears to be subdued, resulting in a slowdown in CV

sales.

Increasing interest rates having an adverse impact on demand

Almost 70% of commercial vehicles are bank financed. So tightening liquidity is a key

negative for commercial vehicles since demand for trucks and liquidity in the

banking system go hand in hand.

Threat of diesel price hike:

Diesel prices were last revised in June 2011. Oil marketing companies are losing Rs

14 on every litre of the diesel sold due to the regulation by the government. So any

hike in diesel price would result in a slow down in CV sales since almost all of them

are diesel driven.

Stagnant freight rates could continue The freight rates across major routes have only risen to the extent of diesel price

increases and the rise has not been enough to compensate for the inflation in other

operating costs. So the operators are forced to absorb this price hike, which has

adverse effect on their margins.

http://economictimes.indiatimes.com/topic/Oil%20marketing%20companies

http://economictimes.indiatimes.com/topic/Oil%20marketing%20companies




Outlook

A sluggish outlook is anticipated for M&HCV industry in general and truck industry in

particular in FY 2013 on account of weak macro economic environment (fall in IIP

numbers), hikes in vehicle prices and fuel costs. The medium & heavy (M&HCV)segment has grown 8% in FY12; we can expect the growth in this segment to slow

further to 5% in FY13. However increased manufacturing for goods for festive season

would call for increased freight from current situation thereby aiding the demand for

trucks at least in the festive season. The long-term outlook looks healthy with the

infrastructure proposals made by the government. The LCV segment has grown 27%

in FY12. With new launches, demand for last mile connectivity and replacement

demand from three wheelers, we can expect a growth of 14% in FY13 in this

segment.

Total CV Sales CAGR of 10.54% over the past 5 years

LCV Sales CAGR of 16.37% over the past 5 years

M&HCV Sales CAGR of 4.90% over the past 5 years

0

100000

200000

300000

400000

500000

600000

700000

800000

900000

FY08 FY09 FY10 FY11 FY12

Segment wise Sales

LCV

M&HCV

Total CV




Tractors

The Tractor industry has always been a barometer for the state of rural economy in

India. The growth drivers of tractor demand are the scarcity of farm labour, increase

in agri-credit flow and rise in non-agri usage of tractors. The long-term driver is thesupport from the Government of India (GOI) towards rural development and agri-

mechanisation.

Although agriculture contributes only 15.7% to India’s GDP, its role remains critical in

Indian economy as it provides employment to 58.2% of the workforce, which is why

this sector remains a strong focus area for the Government.

Market leader - Mahindra & Mahindra

Major Players:

Mahindra & Mahindra

TAFE (Tractors and Farm Equipment Ltd)

Escorts

ITL (Sonalika)

John Deere

New Holland

Mahindra &

Mahindra

41%

TAFE

24%

Escorts

10%

ITL

9%

John Deere

10%

New Holland

6%

Market Share




Growth Drivers

Improvement in monsoons

Rainfall deficiency has come down from 30% in July to 12% in August and is expected

to come down further. This would boost tractor sales.

Strong replacement demand

Roughly 40% of domestic demand is from the replacement market and is expected

to increase as the average life cycle of a tractor has reduced to ~8-9 years from ~11-

12 years.

Promising exports

Outlook for exports also looks promising through inclusion of new export

destinations, increased product offerings in the higher HP segment as well as greater

acceptability of India as a cost effective and a reliable manufacturing location.

Government support for agriculture & rural development continues

Budget 2012-13 proposed an increase by 18 % to Rs. 20,208 crore in the total plan

outlay for the Department of Agriculture and Cooperation in 2012-13. Also the

outlay for RashtriyaKrishiVikasYojana (RKVY) is being increased to Rs. 9217 crore in

2012-13.

Factors of concern

Demand from non-agriculture segments set to decrease

Demand from the non-agricultural segment (~20% of sales) is set to decrease due to

the slowdown in construction and infrastructure projects.

Ineffective implementation of programs proposed

The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) is the

flagship programme of the UPA government, guaranteeing one hundred days of

wage-employment in a financial year to a rural household. Since its launch, spendingunder MGNREGA has increased three-fold from US$2.6bn in FY06 to US$8.8bn

(revised estimates) in FY11. Even for FY12, the government budgeted spending at

US$8.2bn. However, the actual utilization rate under this scheme in FY12 is

significantly below the budgeted amount. Till 1st Feb 2012, only 54% of the US$8bn

of funds allocated under this scheme had actually been utilized. This would have an

effect on farm incomes and pull the tractors sales down.




Outlook

After witnessing 11% growth in FY 2012, the tractor industry in general anticipates

flat sales and the growth estimates have been scaled down to 3% in FY 2013. The

slowdown is led by eroding purchasing power of farmers, fear of draught effectingconsumer sentiments and the decreasing demand from non-agriculture segments.

However the hike in minimum support prices across the kharif season would provide

some respite for the farmers in face of delayed monsoon in kharif season. The long-

term outlook remains stable due to support from the Government of India (GOI)

towards rural development and agri-mechanisation, scarcity of farm labour

especially during the sowing season, increase in credit flow to agriculture and

healthy exports.

Net Sales CAGR of 15.13% over the past 4 years

0

100000

200000

300000

400000

500000

600000

700000

FY 09 FY 10 FY 11 FY 12

Tractor Sales

SALES




Government Policies and Regulations

The National Strategy for Manufacturing, drawn by the National Manufacturing

Competitiveness Council (NMCC), has identified the automobiles sector as a priority

area. The Government of India has taken a number of initiatives to promote growthin the sector.

Auto Policy 2002

The policy emphasises on low emission fuel auto technologies and the

availability of appropriate auto fuels.

The policy’s objective is to establish India as an international hub for

manufacturing small, affordable passenger cars and a key global centre for

manufacturing tractors and two-wheelers.

The policy provides for the automatic approval for foreign equity investmentof up to 100 per cent for the manufacture of auto components.

With an objective of accelerating and sustaining growth in the automotive

sector and to steer, co-ordinate and synergise the efforts of all stakeholders,

the Automotive Mission Plan (AMP) 2006-2016 was prepared.

Automotive Mission Plan (AMP) 2006 – 2016

The AMP 2006 –2016 aims to make India a preferred destination for designing

and manufacturing automobile and automotive components.

Establish an international hub for manufacturing small, affordable passenger

cars and a key centre for manufacturing tractors and two-wheelers in the

world.

Ensure a balanced transition to open trade at a minimal risk to the Indian

economy and local Industry.

Conduce incessant modernization of the industry and facilitate indigenous

design, research and development.

Assist development of vehicles propelled by alternate energy sources.

Develop domestic safety and environmental standards at par with

international standards.It proposes to increase the output to US$ 145 billion and account for more

than 10 per cent of the country’s GDP.

The plan envisages additional employment for 25 million people by 2016.

The AMP targets exports worth US$ 40 –45 billion in 2016, including

component exports worth US$ 20 –25 billion and outsourced engineering

services worth US$ 2 –2.5 billion.




Recommendations of the AMP

Manufacturing and export of small cars, multi-utility vehicles, two and three

wheelers, tractors, components to be promoted.

Care to be taken of negative like and rules of the country with current

negotiation of Free Trade Agreement and Regional Trade agreement with

countries like Thailand, Singapore, Malaysia, China, Korea, Egypt, Gulf etc.

Attractive Tariff Policy which may follow attractive investment.

Specific measures will be taken for expansion of domestic market.

Incremental investment of USD 35 to 40 billion to Automotive Industry during

the next 10 years.

National Road Safety Board to act as the coordinating body for promoting

safety.

Inspection and Certification system to be strengthened by encouraging

public-private partnership.

National level Automotive Institute for training on automobile at

International Training Institutes (ITIs) and Automotive Training Institute (ATIs)

to be set up.

An Auto Design Centre to be established at National Institute of Design,

Ahmadabad.

National Automotive Testing and R&D Implementation Project (NATRIP) to

act as Centre of Excellence for Technical Design Data.Integration of Information Technology in manufacturing to be promoted.

R&D for product, process and technology to be incentivised.

Road Map for Auto Fuel Policy beyond 2010 would be drawn

National Automotive Testing and R&D Infrastructure Project (NATRiP)

The NATRiP was set up at a total cost of US$ 388.5 million to enhance and

upgrade the testing and validation infrastructure and establish centres of

excellence for automotive R&D by Department of Heavy Industries & Public

Enterprises

The department’s activities include the reduction of excise duty on small cars

increase of budgetary allocation for R&D activities and reductions in the duty

regime in general.

The department has announced a weighted increase in in-house R&D

expenditure from 150 per cent to 200 per cent and from 120 per cent to 175

per cent on outsourced R&D expenditure.




FDI, licensing & export-import norms

100 per cent Foreign Direct Investment (FDI) is permissible under automatic

route in this sector including passenger car segment.

The import of technology/technological up gradation on the royalty payment

of 5 per cent without any duration limit and lump sum payment of US$ 2

million is also allowed under automatic route in this sector.

The automobile industry is deli censed, and import of components is freely

allowed.

Automobile exports are being promoted through the Focus Market Scheme

(FMS) and the Focus Product Scheme (FPS), wherein automakers receive cash

incentives of up to 5 per cent upon the shipping of specified vehicles to

specified countries such as Africa, Eastern Europe, Latin America and theCommonwealth of Independent States.

Through the enforcement of Euro IV and Bharat Stage IV emission norms and

standards, the Government of India is trying to ensure that emission norms

and environmental standards are in line with that of the developed world.

NATIONAL AUTOMOTIVE BOARD (NAB)

The Government of India has proposed setting up of NAB, which will act as afacilitator between the government and the industry, promote research and

development activities and have a larger role in developing skills for the

growing automobile sector.

It would also act as a think-tank for the government, especially for the

growth of hybrid and electric vehicles in the country.

The board would be set up as an autonomous body and will have members

from the Department of Heavy Industry, Planning Commission and from

various ministries, including Road Transport and Highways, Science and

Technology, Environment and Forests. Besides, there would be scientists and

industry representatives on the board.

The board will be the successor of the National Automotive Testing and R&D

Infrastructure Project (NATRiP), which is a project implementation body.




Society of Indian Automobile Manufacturers

Society of Indian Automobile Manufacturers (SIAM) is the apex Industry body

representing 46 leading vehicle and vehicular engine manufacturers in India. It

provides a window to the Indian Automobile industry and aims to enhance

exchanges, communication, expand economics, trade and technical cooperation

between the Automotive Industry and its international counterparts.

SIAM also interacts with worldwide experts to assess the global trends and

developments shaping the Automotive Industry. It has been actively pursuing issues

like Frontier Technologies viz. Telematics: Promotion of Alternative Fuels including

Hydrogen Energy for automotive use through cell vehicles and Harmonisation of

Safety and Emission Standards etc. It organizes the biennial Auto Expo series of trade

fairs in co-operation with Confederation of Indian Industry (CII) and Automotive

Component Manufacturers Association of India (ACMA).

SIAM has been striving to keep pace with the socio-economic and technological

changes shaping the Automobile Industry and endeavour to be a catalyst in the

development of a stronger Automobile Industry in India.




Impact of Budget 2012 on Automobile sector

The budget 2012 evoked mixed responses from the industry as they see the increase

in overall excise and customs duties to hamper sales in the short run where as the

diesel car demand is set to increase with no extra tax and the subsidy on the dieselfuel price expected to continue.

The following provisions have been made:

Increase in excise duty on cars –

Fuel variant Engine capacity Length Percentage hike

Petrol/Diesel < 1200 cc > 4000 mm 22% to 24%

Petrol/Diesel > 1500 cc > 4000 mm 22% to 27%

Petrol/LPG/CNG < 1200 cc < 4000 mm 10% to 12%Diesel < 1500 cc < 4000 mm 10% to 12%

Increase in customs duty from 60% to 75% on large cars/ MUVs/SUVs with

engine capacity greater than 3000 cc for petrol and 2500 cc for diesel, and

whose value exceeds US$ 40,000 per vehicle

Increase in customs duty from 10% to 30% on bicycles

Decrease in excise duty from 10% to 6% on replacement batteries for supply

to electric vehicle manufacturers still March 31, 2013

Decrease in excise duty from 10% to 6% on specified parts (like battery pack,

battery charger, AC/DC motor etc.,) of hybrid vehiclesFull exemption from basic customs for Lithium ion batteries imported for the

manufacture of battery packs for electric or hybrid vehicles

Few other provisions, which would have an indirect effect on the industry, are:

Allocation of 10 billion to the NSDF (National Skill Development Fund)

Investment in infrastructure to go up to 50 lakh crore during 12th

five year

plan

Target of covering a length of 8,800 km under NHDP (National Highway

Development Project) next year

Enhancing allocation of the Road Transport and Highways Ministry by 14% to

25,360 cr.

On the whole, hike in the customs duty would increase vehicle prices. However this

is not expected to have any significant impact in the long run. Reduction in the excise

duty on parts used in hybrid vehicles is clearly aimed to boost the production for this

segment as they are more fuel-efficient and pollution free. The Government’s

increased focus on infrastructure development, highways would benefit

manufacturers of commercial vehicles in the long term.




Latest happenings, future trends in automobile sector

Inception of Quadricycle – a new segment positioned between a three-

wheeler and a four-wheeler:

Government has given approval for recognizing this kind of segment in the

automobile space. With introduction of quadricycle, it aims to bridge the seemingly

large gap between a traditional three-wheeler and a passenger car. The idea is to

have

Higher mileage

Lower carbon emissions

Greater safety

Lesser price

Being popular in Europe, already around 3,00,000 quadricycles are registered on the

road across France, Belgium, Italy and Netherlands for in town driving. According to

the French National Interministerial Road Safety Observatory, they are three times

less likely to be involved in an accident than a conventional car. Also the accidents

with quadricycles are two times less likely to result in serious injures than cars.

However we cannot go for a straight comparison between them as the safety

standards for a quadricycle and car differ. For example quadricycles do not have

airbags and need not undergo crash testing, as the maximum speed generally won’t

exceed 75 km/hr. But on the whole it is made sure that appropriate safety measures

are implemented in quadricycles.

The biggest beneficiary from this development would be Bajaj Auto as they unveiled

the RE60 in the Auto Expo, a biennial automotive show earlier this year in New Delhi.

Initially it will be available only in petrol. A CNG variant will be launched later. The

top speed of RE60 would be 70 kph and is expected to have a mileage of 35 kmpl

mainly because of the lightweight and robust monocoque metal-polymer hybrid

structure.

So this kind of segment could really make an impact in the intra city travel in the

days to come especially if the government grants some tax relaxations or subsidies

for certain parts encouraging the production in this segment.




Rise of Electric and Hybrid cars:

Electric and hybrid cars use technology that is designed to decrease the use of

gasoline fuel for powering car engines. Electric cars are totally electric, meaning that

they must be plugged in and charged, and that the range of the car is only as far asthe charge. Hybrid cars on the other hand, use a mixture of gas and electric power to

create a gas efficient partial electric car. They have a conventional gasoline engine

and a bank of rechargeable batteries that charge while the car is running. When the

driver makes limited demands on the car's power, such as driving around town or

idling at a stoplight, the car runs on the stored electricity in the batteries. When the

driver demands a burst of energy or is driving at sustained high speeds, the gasoline

engine kicks in.

To reduce dependence on fossil fuels, India is set to spend at least Rs 22,500 crore in

the next 8 years to promote electric and hybrid vehicles, of which the Governmentwill contribute for around Rs. 13,000-14,000 crore. It will fund research and

development, infrastructure and provide subsidies. In return the government would

save about Rs. 30,000 crore on fuel. The overall aim is to put 6 million electric and

hybrid vehicles on road by 2020.At present, they account for less than 1% share in

the overall 17 million automobile units sold annually in the Indian market. As

mentioned previously in this report, the budget 2012 also aims to promote this

segment by providing the excise benefits for various parts.

Current market players in this segment:

Future launches in this segment:

Mahindra Reva plans to roll out its ‘NXR electric car’ by September-end

The Verito Electric is expected to be launched in the next two years

Due to the depleting fuel resources, electric and hybrid cars are seen as the future of

automobile world. But currently, India lacks the adequate infrastructure like

charging points to encourage use of these vehicles.

But with a slew of measures coming from the government to make this segment

attractive to the customers, we can expect growth in the long run.

• Electrotherm (India) LtdYo bikes

• Munjal family-owned HeroElectricElectric bikes

• Mahindra RevaElectric cars




Fuel efficiency norms to be enforced:

After four years of uncertainty, the Prime Minister's Office (PMO) has approved a

new set of standards for the automobile industry. At present, the top 10 car

manufacturers, with combined sales of over 96 % of the Indian market, have anaverage fuel efficiency of 16.42 kmpl. By 2015, the average is targeted to go up to

18.15 kmpl and this is proposed to improve to 20.79 kmpl by 2020. The fuel targets

will be different for all the 8 different weight categories of cars.

The proposed standards are expected to help the country save the following

amounts in the coming years:

But, the automobile industry claims that the targets are too unrealistic and achieving

higher fuel efficiency would be a trade-off with cost and safety.

The higher you aim to achieve the efficiency, the lighter the vehicle has to be, asking

the industry to go in for changes in spares and body shield. One option can be the

shift from aluminum to magnesium (more plastics can be used). But the cost of

production would shoot up.

Also, companies would require a lot of investments in research and development

(R&D) for increasing fuel efficiency. So the Indian companies would not be able to

compete with the foreign counterparts, say from Europe and Japan. They have huge

investment scale for R&D, unlike the Indian market.

So if these norms actually come into action in the years to come, only the fuel-

efficient cars could survive in the market.

2015

• Will save 3 Million metric tons of oil

• Equivalent to Rs13,835 crore

2025

• Will save 11 million metric tons of oil

• Equivalent to Rs.49,806 crore

2030

• Will save 20 million metric tons of oil

• Equivalent to Rs.88,544 crore




Diesel Dilemma:

Unlike petrol, diesel in India is a regulated commodity. The government had last

increased prices of diesel, LPG and kerosene on June 25, 2011.

Impact on OMC’s:

The state-run oil marketing companies sell at the government-set discounted prices

thereby hurting their profits. They are losing Rs14 on every litre of diesel sold. For

instance, the Indian Oil Corporation (IOC) has reported a net loss of Rs 22,451 crore

in the quarter ended June 2012, its highest ever reported loss.

Impact on Government’s fiscal deficit target:

The Indian government is targeting a fiscal deficit of 5.1% of gross domestic product

(GDP) in the current financial year 2012-13. To achieve this the subsidy bill has to bereduced. It aims to cap this to 2% of GDP in the current fiscal as against 2.5% in the

last fiscal. So unless it hikes diesel prices its subsidy bill continues to get inflated.

But the Indian government has stated that in the near term it has no plans to

increase prices of diesel. The reason behind this is that most of the diesel

consumption is by trucks and buses. A diesel price hike would certainly raise road

freight rates and increase inflationary pressures. Also the common man travel fare

would increase, as the bus ticket prices would go up adding to its political pressure.

The poor rainfall this monsoon season has added to the government’s woes, as

farmers need to use diesel-driven electric pumps for crop irrigation.

Hence The Ministry of Petroleum and Natural Gas in its budget proposal to the

Ministry of Finance had proposed to levy additional excise duty on diesel cars.

The Ministry has sought Rs1.70 lakh additional duty on small cars where as Rs2.55

lakh on medium and large cars. At present, about 16 % of the subsidized diesel sold

in India is consumed by cars and SUVs. Power generators used up another 4.60 % of

diesel while mobile phone towers used up to 1.93 %.

Higher excise duties will help recoup some of the undeserved subsidy that the

owners of new diesel cars would have benefitted from. But the existing populationof diesel car owners will continue to enjoy the subsidy. So, perhaps the government

should consider introducing a variable annual road tax on all cars and levy an

appropriate charge on diesel cars pegged to neutralize the advantage of subsidized

diesel.

The other option for the government is to go for dual pricing. In Ireland, for example,

farm diesel sells for roughly €0.5 a litre less than regular diesel. So there could be a

differential pricing for various purposes of the diesel used. But stringent monitoring

against diversion is essential. By one estimate, roughly around 10% of all diesel sold

in Ireland is illegal.

http://economictimes.indiatimes.com/topic/subsidised%20diesel


http://economictimes.indiatimes.com/topic/cars







At present, the diesel car demand is on the rise as their market share has increased

from 20% a few years ago to around 40% now. Hence, the car manufacturers insistthat any punitive levy on diesel cars will affect the profitability of investments

already made in plant and machinery.

Considering all these factors, whatever option the government chooses to go for, it

will have a major impact on the industry in the years to come.




Key Players

Hero Motocorp

Hero is the world’s largest manufacturer of two wheelers by sales. It ho lds the

leadership position in Indian two wheeler markets with 41% market share. Its net

sales have grown at a CAGR of 18.7% and PAT has grown at a CAGR of 22.6% over

the past five years. Recently, it has parted ways with Honda by ending the joint

venture in the name of Hero Honda. Currently exports contribute only 2-3% of

company’s total sales but after ending the joint venture, it intends to take this level

to around 10% in next four years. The motorcycle segment accounts for

approximately 95% of the company’s two wheeler sales volumes. Within the

motorcycle segment, nearly 80% of the volumes are contributed by the executive

segment.

PRODUCT PORTFOLIO

ECONOMY MODELS CD DAWN, CD DELUXE

EXECUTIVE MODELS SPLENDOR, PASSION

PREMIUM MODELS KARIZMA R, ZMR, HUNK, CBZ

XTREME, IMPULSE

SCOOTER SEGMENT PLEASURE, MAESTRO

EXPANSION PLANS

Hero Motocorp is planning both brownfield and Greenfield expansions. Brownfield

expansion will be achieved by de-bottlenecking operations at its existing plants to

free capacity of 0.5m units. On the other hand, Greenfield expansion include a new

EXECUTIVE

SEGMENT

75%

ECONOMY

SEGMENT

14%

PREMIUM

SEGMENT

6%

SCOOTERS

SEGMENT

5%

HERO MOTOCORP-SEGMENT WISE SHARE




plant in South India (with a capacity of 0.75m initially) scheduled for completion by

March 2013. Other future investments include Plant at Neemrana, Rajasthan by

2014, plant in Gujarat at an investment of Rs1100 crores by 2014 and other

investments of around Rs175 crores.

Bajaj Auto

Bajaj is the second largest two-wheeler manufacturer in India and third largest

motorcycle manufacturer in world by sales. The company’s turnover has crossed the

Rs20, 000 crore mark in FY12. It exports around 69% of all motorcycle exports from

India. Its net sales have grown at a CAGR of over last five years and it is currently

the market leader in premium bike segment and passenger three wheeler segments

with market shares of around 41% and 47% respectively. Three wheelers sales

contribute around 12% of total sales of Bajaj.

In the FY12, Bajaj’s total sales grew by 14% to 4349560 units of which 88.15%consisted of two wheelers and the rest comprised of sale of commercial vehicles.

PRODUCT PORTFOLIO

ECONOMY MODELS PLATINA, BOXER

EXECTUVIE MODELS PULSAR 135cc, DISCOVER

125cc

PREMIUM MODELS PULSAR 150, 180, 220 and

200NS, KTM DUKE, NINJA,

AVENGERTHREE WHEELERS-GOOODS

AND PASSENGER CARRIER

RE 4S, GC MAX, RE 600, MEGA

MAX

KEY FINANCIALS 2011-12 2010-11 2009-10

NET REVENUES (Rs cr) 23586.80 19366.97 15839.58

EBITDA (Rs cr) 3648.02 2597.07 2743.65

PAT (Rs cr) 2378.13 1927.90 2231.83

EPS (Rs) 119.09 96.55 111.77

GROSS BLOCK (Rs cr) 6308.26 5538.46 2750.98




EXPANSION PLANS

Bajaj Auto has plans to ramp up export production while shifting its export-base to

Gujarat over the medium term. This plant is expected to have a capacity of over 5m

units in the long term. The company plans to increase the installed capacity to 6.36

million units per annum by March 2013.Commercial launch of the four-wheeler RE

60 is scheduled for second half of 2012-13.

Mahindra and Mahindra

Mahindra & Mahindra Ltd. is the flagship company of the Mahindra Group, based in

Mumbai. It is the only company in the industry having its presence in all the five sub-

segments i.e. Two Wheelers, Three Wheelers, PV’s, CV’s and Tractors. It is the

market leader in Utility vehicles with a market share of 56.2% and tractors with a

share of 43%. It also overtook Tata Motors in the passenger vehicle category for the

first time in Q1 FY2013 with sales of 61,504 units compared to Tata Motors' 60,405

units without having a single small car in its product mix.

Africa

41%

Asia and

Middle East

40%

Latin America

18%

Europe

1%

BAJAJ AUTO- EXPORT MARKET

KEY FINANCIALS 2011-12 2010-11 2009-10

REVENUES (Rs cr) 19516.65 16451.80 11813.25

EBITDA (Rs cr) 3735.91 3252.44 2520.21

PAT (Rs cr) 3004.05 3339.73 1702.73

EPS (Rs) 103.81 115.42 117.69

GROSS BLOCK (Rs cr) 3425.94 3395.16 3379.25




Product Portfolio:

SEGMENT PRODUCT

Passenger vehicles Verito, Bolero, Scorpio, XUV 500, Xylo

Tractors Bhoomiputra, Sarpanch, Arjun, Yuvraj

Commercial vehicles Gio, Genio, Bolero Maxi Truck

Two wheelers Rodeo, Duro, Flyte

Three wheelers Alfa, Alfa Plus

The auto segment comprises about 67% of the total sales and the tractor segment

makes up 33% at present, compared with 45-50% two years back. The company’s

tractor and farm equipment segment enjoys significantly higher operating margins

than the automotive segment.

Mahindra & Mahindra has strengthened its global presence over the past two years.

The company’s exports have grown in the Asia-Pacific region, Africa, South and Latin

America and USA.

Recent & Upcoming Investments:

Mahindra Reva Electric Vehicles inaugurated a green manufacturing facility in

bangalore which is claimed to be the first platinum rated automobile facility in India.

The company has made investment of over Rs 100 crore. In the next 3 years, the

Passengervehicles (UV's +

Verito)

52%

Commercial

vehicles

33%

3 wheelers

12%

MNAL (trucks)

3%

Market Share




new plant would produce around 30,000 Mahindra Reva electric cars. Besides, the

company plans to launch EV 'NXR' by Diwali this year.

Mahindra & Mahindra has opened a new R&D centre for two-wheelers in Pune, with

the investment of Rs 100 crore. It aims to spend around Rs 500 crore over the next 5years on this center.

Financials Summary (Standalone):

KEY FINANCIALS(in Cr) 2011-12 2010-11 2009-10

GROSS BLOCK 8063 5849 4866

NET REVENUES 31835 23477 18516

EBITDA 3769 3441 3016

PAT 2878 2662 2087EPS (in Rs) 48.88 45.33 36.89

Tata Motors

Tata Motors is India's largest automobile company, a subsidiary of the Tata Group,

based in Mumbai. It has presence in commercial and passenger vehicles segments. It

is the leader in nearly all commercial vehicle segments with a market share of

around 59.4%. It regained its third position in the passenger vehicles market, in July

2012,after losing out to Mahindra & Mahindra in the first quarter of FY13 .It is also

fourth-largest truck manufacturer and second-largest bus manufacturer by volume.

Product portfolio:

SEGMENT PRODUCT

Passenger vehicles Nano, Indica, Indigo, Vista, Manza, Sumo,Safari

Medium & Heavy Commercial Prima, Construck, Starbus, Divo, City ride

Intermediate Commercial Winger, WingerPlatinum

Small Commercial Tata Ace, RX pickup, Xenon CNG, Magic

Premium and Luxury Defender, Discovery, Range Rover, Evoque

Through subsidiaries and associate companies, Tata Motors has operations in the

UK, South Korea, Thailand and Spain. Among them the most important one is Jaguar

Land Rover, the business comprising the two iconic British brands. In its last fiscal

year, which ended in March, Jaguar Land Rover posted a 27% jump in retail sales and

became the primary driver of profit for Tata Motors.

http://en.wikipedia.org/wiki/Tata_Group

http://en.wikipedia.org/wiki/Tata_Group




Recent & Upcoming investments:

Jaguar Land Rover, part of Tata Motors, plans to invest around 320 m$ in a plant in

center England. The investment at the factory, which will build Jaguar's new F-type

sports car, is expected to create up to 1,000 jobs and increase its capacity by 50%.

Also, Tata Motors plans to invest Rs. 2,000 crores in CV segment and add 50 new

models to its line-up.

UK23%

North America

24%China

16%

Europe

20%

Russia

6%

ROW11%

Geographical distribution of Jaguar

UK

16%

North America

16%

China23%

Europe

23%

Russia

4%

ROW

18%

Geographical distribution of LandRover

http://economictimes.indiatimes.com/tata-motors-ltd/stocks/companyid-12934.cms

http://economictimes.indiatimes.com/topic/F-type-sports-car




http://economictimes.indiatimes.com/tata-motors-ltd/stocks/companyid-12934.cms




Financials Summary: (Standalone)


GROSS BLOCK 27111 21883 18416

NET REVENUES 54217 47957 35373

EBITDA 4177 4705 4032

PAT 1242 1811 2240

EPS (in Rs) 3.91 28.55 39.26

Maruti Suzuki

MSIL is India’s largest passenger vehicle manufacturer with a market share of around

40% at present. It has become the third largest maker of utility vehicles in the Indian

market, displacing Tata Motors Ltd, led primarily by the sales of multi-utility vehicle

(MUV) Ertiga. Suzuki Motor Corporation (Suzuki) of Japan holds 54.2% stake in the

company. MSIL is also set to merge with its associate company, Suzuki Power Train

India Ltd. (SPIL).

The incident at Manesar this year was a real setback for the company. It is estimated

that it lost around Rs 1,500 crore in revenues due to the lockout at its Manesar unit.

It has also reported a 40.8% decline in total sales for August at 54,154 units as

against 91,442 units in the same month last year.

SEGMENT PRODUCT

A1 segment Maruti 800

A2 segment Alto, Estilo, WagonR, A-star, Ritz, Swift

A3 segment Dzire, SX4

A4 segment Kizashi

Multi utility, Multi Purpose Gypsy,Ertiga,Omni




Exports form approximately 16% of its sales. The top export markets include Algeria,

Chile, Srilanka, Netherlands, Italy and Germany.

Recent & upcoming Investments:

Maruti Suzuki plans to set up a new manufacturing unit at an investment of Rs 4,000

crore in Gujarat. The target is to achieve 2.5 lakh cars production capacity annually

by 2015-16. It also has plans to establish a skill development centre to meet itsmanpower needs.

Also, MSIL will continue to increase its production at Manesar where a third

assembly line with a capacity of 250,000 units is expected to be operational by 2013-

14.



GROSS BLOCK 14734 11737 10406NET REVENUES 35558 36561 29317

EBITDA 3019 3473 3824

PAT 1635 2288 2497

EPS (in Rs) 56.60 79.21 86.45

A1

1%

A2

55%

A3

16%

A4

1%

MPV+MUV

16%

Exports11%

Share of Sales




Auto Ancillaries

Overview

The auto component industry caters to automobile industry through a whole gamut

of auto parts such as engine parts, body & chassis, electrical parts, drive transmission

& steering parts, braking, suspension etc. It is directly driven by automobile industry

through OEMs, aftermarket and exports.

OEM

60%

Replacement

25%

Exports

15%

Revenue Contribution

Two Wheelers

50%

Passenger

Vehicles

25%

Commercial

Vehicles23%

Three Wheelers

2%

Size of components industry segmentwise




Turnover:

The turnover of the auto components industry has grown at a CAGR of 18.19% over

the period of four year from 2008-09 to 2011-12

OEM’s:

With the kind of growth India has shown over the past few years, growing at a rate

of 7-8%, even when other developed countries had a crawling growth rate, the

confidence of foreign investors has been boosted. Global OEMs have set up their

base in India to tap the huge growth potential through cheap labour, growing per

capita income, favourable demographics, growing consumer demand and export

advantage. Among the OEMs, Japanese companies have the largest share with 54%

followed by Korean OEMs with 18% share of the market.

105700

135700

182100

206267

0

50000

100000

150000

200000

250000

2008-09 2009-10 2010-11 2011-12

TURNOVER-AUTO COMPONENTS

INDUSTRY (Rs cr)

TURNOVER-AUTO

COMPONENTS INDUSTRY

(Rs cr)




Imports & Exports:

JAPAN

54%

KOREA

18%

LOCAL

14%

US

9%

EUROPE

5%

PRESENCE OF OEMs IN INDIA

Asia

55%

Europe

35%

North America7%

South America

1%

Africa

1%

Australia

1%

SOURCES OF IMPORTS




Profile of Exports:

OEM/TIER-1: 80%

Aftermarket: 20%

Europe

36%

North America

23%

Asia

28%

South America

5%

Africa7%

Australia

1%

EXPORTS DESTINATIONS

1840016048

23712

33485

3128030680

38760

51441

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

2008-09 2009-10 2010-11 2011-12[E]

EXPORTS AND IMPORTS

IMPORTS (Rs cr)

EXPORTS (Rs cr)




Industry Segmentation

ENGINE PARTS

Engine parts comprise the largest product segment of the auto components industry

with a 31 % production share.

The sub-segments include pistons, piston rings, engine valves, carburettors,

fuel-delivery and cooling systems and powertrain components.

Major playersThe four major players in the pistons sub-segment include Goetze, Shriram

Pistons & Rings, India Pistons, while Rane Engine Valves, KAR Mobiles and

Shriram Pistons & Rings lead the engine valves sub-segment.

Ucal Fuel Systems and Spaco Carburettors & Escorts Auto Components are

prominent players that manufacture carburettors. In diesel-based fuel

injection systems, Mico, Delphi, TVS Diesel System and Tata Cummins are the

major players.

TRANSMISSION AND STEERING PARTSTransmission and steering parts comprise the second-largest product segment in the

Indian auto components industry, with a 19 % production share.

The sub-segment comprises gears, wheels, steering systems, axles and

clutches.

Major players

Sona Koyo Steering Systems, Rane Madras and Rane TRW Systems are the

key players in steering systems. Gears, Gajra Bevel Gears and Eicher are

some of the major players in the gears sub-segment. Two international

companies, Graziano Trasmissioni and SlAP Gears India, have set up their

base in India.

Engine Parts

31%

Drive

Transmission and

steering parts

19%Body & Chasis

12%

Suspension and

breaking parts

12%

Equipments

10%

Electrical Parts9%

Others

7%

PRODUCT WISE SEGMENTATION




Clutch Auto, Ceekay Daikin, Amalgamations Repco and Luk Clutches are the

major players in the clutch sub-segment. Rane Brake Lining and Rico Auto are

the key players manufacturing clutch-facings.

GKN Driveshafts (India) and Delphi cater to the drive shaft requirements of

passenger cars and SonaKoyo Steering Systems services to the commercialvehicle segment.

SUSPENSION AND BRAKING PARTS

Suspension and braking parts is the third-largest product segment with a 12 %

production share.

The primary sub-segments comprise brakes, brake assemblies, brake linings,

shock absorbers and leaf springs.

The demand share of the replacement market in this segment varies from 30to 70 %, depending on the product.

Major players

Brakes India, Kalyani Brakes and Automotive Axles are the three major brake

system suppliers in the country.

Rane Brake Lining, Sundaram Brake Lining, Hindustan Composites and Allied

Nippon dominate the brake linings sub-segment.

Jamna Auto and Jai Parabolic are the major manufacturers of leaf springs.

Gabriel India, Delphi and Munjal Showa are the key manufacturers of shockabsorbers.

EQUIPMENT

Equipment is the fourth-largest product segment with a 10 % production share.

The primary sub-segments include headlights, halogen bulbs, wiper motors,

dashboard instruments, switches, electric horns and other panel instruments.

The demand share of the replacement market in this segment varies from 30

to 70 %.

Major players

Lumax, Autolite and Phoenix Lamps are the key players in the headlights sub-

segment.

Premiere Instruments and Controls is the leading player in the dashboard

sub-segment.

Jay Bharat Maruti, Omax Auto and JBM Tools are the major players in the

sheet metal parts sub-segment.




ELECTRICAL PARTS

Electrical Parts is the fifth-largest product segment in the auto components industry,

with a 9 % production share.

The primary sub-segments comprise starter motors, generators, distributors,spark plugs, ignition coils, fly wheel magnetos, voltage regulators and electric

ignition systems (EIS).




Value Chain

Till the mid-1990s, Indian components manufacturers were serving to a low

demand and low volume domestic market with most of the components

supplied to the aftermarket and to a few OEMs and Tier 1s.The post-liberalisation era has seen many global auto majors GM, Ford,

Hyundai, Toyota etc. enter the Indian market to set up their manufacturing

units and thus serve the domestic market and also export components for

their vehicles manufactured in the developed markets.

Increasing competition from global majors and a steady growth in the

domestic passenger car market showed the way forward for the components

manufacturers. To meet the product specifications of global players, the

Indian components manufacturers embraced advanced manufacturing

technologies and improved capacities and thus moved up the value chain.

Base RawMaterials

(steel, rubber,non steel, glass,

textile, paintpaper,aluminium)

Semi FinishedMaterials

Wiring, Cables,Hardware

(Screws andBolts)

Componentmanufacturers

2nd TierManufacturers

casting, forging,stamping, extruding,

grinding, polishing

AssemblyManufacturers

First tierManufacturers

(Assembly OEMGoods)

Mold/Dyemanufacturers

3rd Tiermanufacturers

Molding, Dying




Government Policies and Regulations

The Department of Heavy Industries (DHI), in the Ministry of Heavy Industries and

Public Enterprises, is the nodal authority in India for promising the development and

growth of the automotive sector.Following policies and regulations are applicable to the Automotive components

industry:

Manufacturing and Imports Free from Licensing and Approvals

No import restrictions and reduced tariff levels for any kind of imports

Legal system is robust coupled with stable Foreign Exchange regime

Government has increased budgets for R&D activities

100% FDI is permitted without prior Government approval




Automotive Component Manufacturers Association of India

The Automotive Component Manufacturers Association of India (ACMA) is the nodal

agency for the Indian Auto Component Industry. Its active involvement in trade

promotion, technology up-gradation, quality enhancement and collection anddissemination of information has made it a vital catalyst for this industry's

development. Its other activities include participation in international trade fairs,

sending trade delegations overseas and bringing out publications on various subjects

related to the automotive industry. It is represented on a number of panels,

committees and councils of the Government of India through which it helps in the

formulation of policies pertaining to the Indian automotive industry. For exchange of

information and especially for co-operation in trade matters, ACMA has signed

Memoranda of Understanding with its counterparts in Australia, Brazil, Canada,

Egypt, France, Germany, Iran, Italy, Japan, Malaysia, Pakistan, South Africa, South

Korea, Spain, Sweden, Thailand, Tunisia, Turkey, UK, USA and Uzbekistan.ACMA represents over 600 companies, whose production forms a majority of the

total auto component output in the organized sector.




Impact of Budget 2012 on Auto ancillary sector

The impact of budget on auto ancillary and the automobile sector would be

correlated. For instance, an increase in excise duty for tyres would increase prices of

automobiles that is likely to weigh on their demand. Similarly duty hike onautomobiles could affect derived demand for tyres with respect to the OEM market.

The provisions, which have been mentioned in the automobile sector impact related

to auto ancillaries, were:

Decrease in excise duty from 10% to 6% on replacement batteries for supply

to electric vehicle manufacturers still March 31, 2013

Decrease in excise duty from 10% to 6% on specified parts (like battery pack,

battery charger, AC/DC motor etc.,) of hybrid vehicles

Full exemption from basic customs for Lithium ion batteries imported for the

manufacture of battery packs for electric or hybrid vehicles

All the above-mentioned provisions are aimed at promoting the development of

hybrid vehicles in the country.

Some of the other provisions include:

Central Excise Duty on manufactured goods increased from 10% to 12%

Weighted deduction of 200% currently available on in-house R&D

expenditure extended beyond March 31, 2012 for a further period of 5

years

Introduction of weighted deduction of 150% of expenditure incurred on skill

development

Increase in customs duty on the 'flat-rolled' steel from 5% to 7.5%

Enhancement of excise duty will decrease the margins. Continuity of benefit

available from weighted deduction on in-house R&D expenditure would encourageauto ancillaries to invest in building technical capabilities. Introduction of 150%

weighted deduction on skill development related expenditure should address the

problem related to short supply of skilled labor. Flat rolled steel is used in sheet

metal works that goes into many parts of a vehicle like body panels and chassis.

Increase in customs duty on it could unfavorably impact the auto component sector

as this is one of the key input materials for the industry.




Macro Factors affecting the industry

Growth Drivers

2 Wheelers & LCV segments to grow

The outlook for LCV & two wheelers is on the higher side compared to the other

segments due to the advantage of fuel efficiency and lower dependency on auto

loans. So those auto component companies that cater mainly to these segments i.e.

Suprajit Engineering, Exide Industries, Gabriel India are expected to register healthy

sales.

Exports driving growth

Despite tough market conditions in global market, exports of auto components is

likely to register a healthy growth of 15-20% in current fiscal. The realizations will

also be better due to sharp depreciation of Indian rupee.

Rising share of revenues from non-automotive segment

Non-automotive segment includes shafts and components for windmills, rotating

components for the aerospace industry, engine components for constructionequipment, marine and railways. The demand from this segment continues to scale

up.

Maruti Suzuki Manesar plant reopens

After a month-long lockout, Maruti Suzuki resumed production at its Manesar plant

on Aug 21st. It expects to function at its optimum capacity of annual production

capacity of 5.5 lakh units by the end of September with the completion of fresh

recruitments. Hence the demand for auto components, which have been affecteddue to the lockout, will return to normality.

Onset of festive season

With the onset of festive season, the passenger vehicle segment especially is

expected to get a boost, which will result in increase in demand for auto

components as well.

http://businesstoday.intoday.in/story/maruti-new-diesel-ritz-starting-price-at-rs-5.31-lakh/1/187752.html







Factors of concern

Cars, Medium & Heavy Commercial vehicles segment growth concerns

The auto component industry, which directly moves in line with the automobile OEM

production, will be affected by plant shutdowns and production corrections. Those

players who cater only to cars and CVs i.e. WABCO India, Sona Koyo Steering

Systems would be most vulnerable in the current scenario.

Other factors of concern include:

Volatility of the commodity and raw material costs like aluminum, steel may

affect margins.Slower-than-expected recovery in Europe and US auto demand would delay

the growth trajectory for export-oriented companies.

Increasing competition from foreign suppliers, who leverage economies of

scale and high technology to offer at lower costs

Lack of infrastructure like electricity, water and roads, significantly increases

overheads, affecting the bottom lines of the companies.

Increasing cost of skilled labor, reducing the competitive cost advantage

Outlook

The current production corrections at OEM companies have impacted the auto

ancillary companies. Auto component manufacturers dependent especially on the

M&HCV segment are likely to experience relatively lower growth over the short

term. Players that can penetrate global markets and accelerate exports are better

placed. Not only do they have spare capacity due to sluggish domestic offtake, the

realizations will also be better due to sharp depreciation of Indian rupee.

Currently, the auto components industry in India is around two-thirds the size of the

OEM segment. This proportion is around one to two times in mature markets ofEurope, America and Japan. This indicates higher proportion of imports of auto

components in India by OEMs and the lower replacement market sales. Given the

growth prospects of the Indian automobile industry over the medium term, we can

expect the size of the auto components industry to grow at a rate faster than the

OEM segment, driven by OEMs’ thrust on localization and steadily growing

replacement market demand.




Key Players

Apollo Tyres

Apollo Tyres Ltd is the 2nd largest tyre manufacturer in India and 15 th biggest tyre

manufacturer in the world. It has its corporate headquarters in Gurgaon. In India, it

is a clear leader in the commercial vehicle segment category. Since its inception in

1972, the company has steadily expanded its operations across the world. The

company has manufacturing presence in Asia, Europe and Africa, with 9 modern tyre

facilities and exports to over 118 countries. Revenues from OEM market account for

20% of revenues where as replacement market contributes 80%.

Its 6 key brands include

Apollo

Vredestein

Dunlop

Kaizen

Maloya

Regal

Production Zones:

Zone Headquarters Major countries

Zone I Gurgoan,India Asia, Middle East & Turkey, Australia,

New Zealand

Zone E Enschede, Netherlands Germany, UK, Italy, Netherlands,

Swizerland , Austria, Denmark, Greece

Zone A Durban, South Africa Africa, South America





Expansion in India: Apollo Tyres Ltd has proposed to invest Rs 300 crore in

Kalamassery unit to make it an export-oriented unit to manufacture

industrial tyres

Expansion in Europe and Brazil: Apollo Tyres Ltd plans to invest around 400

million euro (over Rs 2,700 crore) to set up two new facilities in East Europe

and Brazil in the next 3-4 years

Europe25%

South Africa

13%India

62%

Revenue by Geography

Truck-Bus

43%

Light Truck

10%

PassengerVehicles

33%

Agriculture &

Offroad

10%

Others

4%

Revenue by Segments






GROSS BLOCK 3947 3299 2414

NET REVENUES 8176 5480 5045

EBITDA 715 580 817

PAT 181 198 414

EPS (in Rs) 3.60 3.93 8.23

Motherson Sumi

Motherson Sumi Systems Ltd (MSSL) is the flagship company of the Samvardhana

Motherson Group with its headquarters at Noida, India.

In March 2009, MSSL acquired Visiocorp (renamed Samvardhana Motherson

Reflectec – SMR), one of the world’s largest manufacturers of rear view mirrors, thus

enhancing its position as a Tier-1 auto component supplier. Currently, SMR,

constitutes 39% share of the total business portfolio of MSSL.

In July 2011, MSSL acquired Peguform (renamed Samvardhana Motherson Peguform

– SMP). SMP is a leading supplier to major automobile manufacturers in Europe,especially the German car manufacturers. MSSL now has its own technology in

plastic modules backed by SMP’s strong R&D capabilities. With 49 molding facilities

across the globe in India, Brazil, China, Germany, Portugal, South Africa, Spain and

Czech Republic, the contribution of polymer division rose to 39% of MSSL’s

consolidated revenues in FY12.

Business overview:

Company Manufacturing

facilities

Countries Key Customers Patents

SMP 25 7 Volkswagen,

Audi, Seat, BMW,

Porsche, Daimler,

Renault/

Nissan and GM

274

SMR 20 14 Ford, General

Motors, Hyundai

Kia, Fiat, Toyota,

Tata JLR, Volvo,BMW

587




MSSL has a diversified automotive products portfolio, which includes automotive

rearview mirrors, wiring harnesses, polymer parts, injection molding tools, vehicle

air conditioning systems, lighting systems etc.

Some of the highlights are:

One of the largest manufacturers of rear-view mirrors for passenger cars in

the world and it is largest in India for PV & MUV segments

One of the largest manufacturers of IP modules, door trims and bumpers in

Europe

Global technology leader for high quality instrument panels and interior door

panels

Largest manufacturer of automotive wiring harness in India, with more than

65% market share in passenger car segment


SMR has started commercial production and supplies from its second plant in

Hungary to support German OEMs. The plant has an installed capacity of 6 million

mirrors per annum and sale potential of €150m per annum. SMR is setting up new

facilities in Brazil, Thailand, China and Pune (India) for mirror manufacturing and

vertical integration, where production will commence in the coming year.

Wiring Harness

21%

Polymer

components

39%

Rubber

components

2%

Mirrors

38%

Segmentwise Sales Distribution





GROSS BLOCK 1903 1390 1031

NET REVENUES 3571 2830 1740

EBITDA 571 437 289

PAT 317 287 178

EPS (in Rs) 8.16 7.42 4.76

Bharat Forge

Bharat Forge is the largest exporter of auto components from India andleading chassis component manufacturer in the world.

Bharat Forge has two distinct business lines – component manufacturing, and

capital goods and infrastructure. In component manufacturing, throughits

domestic operations and overseas subsidiaries, it caters to forging

andmachining requirements of the auto and the non-auto sectors. The

capitalgoods and infrastructure business focuses on the Indian market and is

todayconcentrating on equipment manufacturing and project management

in the energy and transportation sector.

Despite the sluggish external environment, the Company in FY 2012

registered an impressive performance on back of robust growth inCommercial Vehicleindustry globally, sustained ramp up of non-automotive

business and continuedincrease in penetration with major customers.The

Company’s non-auto business has become a significant contributor to

theIndian operations accounting for 38% of sales in FY 2012; from 28% of

sales inFY 2009The Company’s foray into equipment manufacturing is

progressing well withconstruction of the facility of the Alstom JV at Mundra.

The non-automotive business of the company has grown from 28% of sales in

2009 to 38% in 2012

The non-auto business of the company can be broadly classified into:

o ENERGY,

o TRANSPORTATION

o MINING ANDCONSTRUCTION.

.




KEY FINANCIALS 2011-12 2010-11 2009-2010

NET REVENUES (Rscr) 3685.86 3023.21 1892.09

EBITDA (Rscr) 917.15 720.27 437.36

PAT (Rscr) 362.07 310.57 127.05

EPS (Rs) 15.55 13.32 5.71

GROSS BLOCK (Rscr) 3198.40 2960.82 2789.27

PLANNED INVESTMENTS

The Company is executing Rs.500 crore investment programmes over FY2012 &

FY2013 for capacity enhancement. Most of this is in machinery and facilities that add

value to the existing product range. On pure capacity addition in forging, the

Company is installing an additional 10,000 tonne press that will produce around

30,000 – 35,000 MTPA based on a pre-determined product mix.

Exide Industries

Exide Industries Limited (EIL), established in 1947 as Associated Battery Maker,

India’s largest manufacturer of lead acid batteries. It manufactures industrial

batteries catering to the power, telecom and railways segments, with an overall

market share of close to 50%

In November 2007, EIL acquired a 100% stake in a Pune based smelter, Tandon

Metals Limited in June 2008 acquired a 51% stake in another Bangalore based

smelter, Leadage Alloys India Limited, ownership in which was increased to 100% in

August 2010. Together, these two subsidiary smelters currently cater to a significant

portion of the company's input lead requirement.

Diesel Engines

34%

Non-Auto

38%

CV chasis

22%

Passenger

vehicles

6%

SECTORAL SALES DISTRIBUTION

BHARAT FORGE




The Company also manufactures high-end submarine batteries (Type 1, 2 & 3). The

Company manufactures two to three submarine batteries a year to meet the

country’s defense requirements. The Company is one of the five companies in the

World which has the capability to make submarine batteries for both Russian andGerman types. With the government’s permission, in recent years, the Company has

exported to Algeria.

The company is the market leader in the domestic storage battery market with a

share of around 65% in each of the automotive original equipment manufacturer

(OEM) and the organized automotive replacement segments.

Exide are the OEM suppliers to almost every car manufacturer of repute like General

Motors, Toyota, Hyundai, TATA Motors, Maruti, Honda. It caters to 80% carmanufacturers in India.

Exide caters to 65 –66% of OEM demand for batteries, and derives 48 –50% of

its overall revenues from replacement segment, as it enjoys 60‐62% market

share in branded replacement market

In the FY12, the PAT of the company fell from Rs666.36 cr in 2010-11 to

Rs461.17 cr. This was mainly due to the inability of the Company to pass on

the increases in material costs to the customers due to the price sensitive

market sentiments prevailing during the major part of the year mainly in the

automotive sector.

In the Industrial sector, the de-growth in almost all sections resulted in

reduction in profitability. The hardening of prices of lead which is the major

Automotive

65%

Industrial

35%

0%0%

BRAKUP OF REVENUES




raw material, coupled with the high depreciation in the value of the Rupee

affected the profits of the Company significantly.

KEY FINANCIALS 2011-12 2010-11 2009-2010NET REVENUES (Rscr) 5117.63 5074.60 4215.97

EBITDA (Rscr) 699.39 882.26 894.29

PAT (Rscr) 461.17 666.36 537.09

EPS (Rs) 5.43 7.84 6.32

GROSS BLOCK (Rscr) 1774.67 1561.15 1336.46

Recent investments

In the FY12, Company has consolidated the operations at the two wheeler battery

plant in Ahmed nagar, Maharashtra and has also invested around 200 crores in

capacity expansion across all plants both for two wheelers as well as otherautomotive batteries.




Tyre Industry

The Indian Tyre Industry accounts for approximately 5% of global tyre demand and

its fortunes are interdependent with those of the Automobile industry. There are

around 43 players in the industry with the top 10 companies accounting for 90-92%of total tyre production.

Replacement

market

61%

OEM23%

Exports

16%

Demand Breakup

Commercial

Vehicles

65%

Passenger

Vehicles

15%

Two Wheelers

10%

Three Wheelers

10%

Revenue Breakup




Major Players:MRF

Apollo tyres

JK tyres

CeatBirla

Others

Raw Materials:The industry is highly raw material (RM) intensive. Raw material costs accounts for

70% of its revenues. Natural rubber accounts for about 44% of the total raw material

costs.It are estimated that the tyre sector consumes 63% of total natural rubber in

the country.

MRF

27%

Apollo tyres

19%JK tyres

16%

Ceat

12%

Birla

11%

Others

15%

Market Share




The exact proportion varies on the type and the technical specifications of the tyre.

Besides NR, most of the other raw materials are crude derivatives and hence linked

to crude oil prices.

Radialisation:

A radial tyre is a particular design of the tyre in which the cord plies are arranged at90 degrees to the direction of travel, or radially. Where as in cross ply tyres the

cords are at angles of about +60 and −60 degrees from the direction of travel. This

design avoids having the plies rub against each other as the tyre flexes, reducing

the rolling friction of the tyre. This allows vehicles with radial tyres to achieve

better fuel economy than vehicles with bias-ply tyres.

In the US, China and Europe, up to 90% of trucks run on radial tyres. Despite its

several advantages (additional mileage; fuel saving; improved driving) radialisation

in India earlier did not catch on at a pace that was expected, since its introduction

way back in 1978. This could be attributed due to several factors like Indian roadsgenerally not being suitable for ideal plying of radial tyres, older vehicles produced

in India not having suitable geometry for fitment of radial tyres, unwillingness of

consumer to pay higher price for radial tyres etc. However, the situation has

radically changed in recent years.

The current levels of radialisation in India are:

Natural Rubber

44%

Nylon Tyre Cord

19%

Carbon Black

12%

Rubber

Chemicals

5%

Butyl Rubber

4%

PBR

5%

SBR

5%

Others

6%

Composition as percentage of costs

http://en.wikipedia.org/wiki/Tire#Ply

http://en.wikipedia.org/wiki/Fuel_economy_in_automobiles

http://en.wikipedia.org/wiki/Fuel_economy_in_automobiles

http://en.wikipedia.org/wiki/Tire#Ply




Radialisation is the most important innovation in tyre technology. Radial tyres cost

25% more than Crossply(or bias) tyres as the proportion of synthetic rubber/natural

rubber is more for radial tyres. But the margins from radial tyres are also higher.

Hence it presents a great opportunity for tyre manufacturers especially in

commercial vehicles segment.

Impact of Budget 2012 on Tyre industry:

The Budget on the whole has disappointed the tyre industry. It has ignored most of

the demands put forward by the industry during pre-Budget discussions like duty-

free import of 100,000 tonnes of natural rubber, removal of anti-dumping duties on

import of raw materials like rubber chemicals and carbon black and waiver of

customs duty on raw materials not manufactured domestically.

The provisions made in the budget are

Hike in Central Excise Duty on tyres from 10% to 12%

This will lead to an increase in tyre prices and will affect the margins if the tyre

sector is not able to fully pass on the hike to the consumers or OEM’s

Full exemption on basic and additional customs duty on new and retreated

pneumatic tyres, used in aircraft; excise duty on the same reduced from

10% to nil

This is positive move to help aviation industry but however, according to ATMA(Automotive Tyre Manufacturers’ Association), the excise duty exemption given to

aircraft tyres will have no major impact on the tyre industry as the domestic tyre

industry doesn't manufacture certain types of tyres such as aircraft tyres for reasons

of limited demand and the minimum size and scale of operations required.

98%• Passenger vehicles

15%• Medium & Heavy Commercial vehicles

18%• Light Commercial vehicles




Growth Drivers

Fall of rubber prices

The price of RSS (ribbed smoke sheets)-4 sheet rubber had crossed Rs240 a kg in Apr2011.It is Rs173 a kg at present. NR prices might continue to fall in the short run due

to:

Peak production season coming – October to January

Slow demand from China

Euro crisis concerns

This will result in increased margins for the tyre manufacturers.

Growth of Radialisation

With government focus on schemes like NHDP and other infrastructure development

initiatives there is high scope for increase in radialisation levels of especially

commercial vehicles segment. This is one of the long-term growth drivers, which

would improve the sales, as well as margins of the tyre manufacturers.

Factors of concern

Volatile other raw material prices

Apart from NR, the other raw materials such as rubber chemicals, Nylon Tyre Cord

Fabric, carbon black and synthetic rubber (PBR+SBR) are imported, as domestic

supply doesn’t match the demand. Rupee depreciation and the high customs duty

are a matter of concern. Also since most of them are crude derivatives, any

fluctuations in crude oil price could impact the tyre cost.

Dependency on Medium & Heavy Commercial Vehicles

The Medium & Heavy Commercial vehicles segment accounts for around 65% oftotal revenues for the tyre industry. As the outlook for this segment in the near term

is looking bleak due to stagnant freight rates, slowing IIP numbers, increasing fuel

costs etc it would have a major impact in sales for tyre manufacturers.




Battery Industry

Automotive battery segmentAuto OEMs contribute about 30-35% of sales while the balance is driven by

replacement batteries. OEM sales, despite being a low-margin business, provides for

high visibility and brand building for the players

Replacement demand provides a stable business by diversifying risk when OEM

demand slows down. Stability is inherent to the industry given the replacement

segment accounts for 60-65% of total auto sales and contributes 15-18% to

operating margin. Typically, the life of a battery is about three years and has to be

replaced after that.

Industrial battery segmentIndustrial batteries are classified into conventional (lead acid), valve-regulated lead

acid (VRLA) and nickel-cadmium batteries. The VRLA batteries have been gaining

increasing acceptance and currently comprise ~75% of the Indian industrial storage

battery market. , the sustained demand supply mismatch of power in India has

driven a 15% CAGR in UPS demand over the last five years. Telecom towers, which

use batteries for power supply, contributes 35% to the segment.




There is a virtual duopoly in the industry with the top two players, Exide and Amara

Raja commanding over 80% of the organized market share.

The unorganized sector comprises the small-scale assemblers and rebuilders, it is

currently estimated to have a share of around 60-65% of the replacement market.

This sector largely dominates the tractor and commercial vehicle segments although

in some areas of the country they have a significant presence in the car and multi-

utility segments too.

Battery market shares- Automotive

Component Organized Market Share Unorganized Market Share

Battery (PV) 70% 30%

Battery (2W) 90% 10%

Battery (CV) 70% 30%

In automotive segment, Exide caters to 65 –66% of OEM demand for batteries, and

60‐62% market share in branded replacement market while Amara Raja has a shareof ~25 in Four-wheelers (OEM) and a share of ~34% in branded replacement market.

Lead and alloys

80%

Polypropelene /

Poleytheylene

18%

Others

2%

INDUSTRY COST STRUCTURE




MAJOR PLAYERSExide industries

Amara Raja Batteries

HBL Power Systems Ltd

Luminous Power Technologies Pvt LtdSu-Kam Power Systems Ltd

Base Corporation Ltd

FUTURE GROWTH DRIVERS

Robust solar equipments and mobile batteries demand

India is witnessing a great change in the demand for solar energy and many

new projects are coming up for rural electrification, home lighting,

streetlights and also there has been a great increase in mobile phonedemands providing a huge opportunity to battery manufacturers.

Tubular batteries

Demand for tubular batteries is also expected to grow as innumerable

government programmes require a five year warranty on batteries, and this

warranty can be offered only with tubular batteries.

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Telecom UPS

Industrial Battery Market Share

EXIDE

AMARA RAJA

Other organised players and

unorganised players




Government initiatives

Central and state governments are coming up with new circulars, which

mandate that 10 per cent of the power used by telecom tower companies

must be generated through renewable energy sources. This holds true for

even for hospitals, hotels, etc. This would lead to a major spike in batterydemand, as all this generated power would have to be stored in batteries.

Electric vehicle sales

Sales of electric vehicles in India has been increasing at a CAGR of ~20% with

companies like Hero, BSA motors, Mahindra Reva, Enigma coming up with

their range of electric scooters, four wheelers and three wheelers. This

growth provides a great opportunity for auto battery producers like Exide,

Amara Raja to tap this growing market.

Huge replacement market

Expansion of railways

Modernization and expansion of the Indian Railways over the next five years

is likely to drive battery sales for railway applications.

CAUSE OF CONCERNS

Low sales growth of automobiles

Fall in growth rates of passenger vehicles and two wheeler segments whichhas already affected the profits of leaders like Exide industries.

High and volatile input costs

Lead is the major constituent (80% of cost) of battery products and its

volatile prices are always a cause of concern. Such volatility has a serious

impact on the cost of the products and also leads to uncertainties in

procurement.

Rupee depreciation

Rupee depreciation vis-á-vis US Dollar is also a risk and challenge for the

industry as it leads to costly imports and affects profitability.

Large unorganized market

The unorganized market (estimated at around Rs20-25bn) gives tough

competition to the organized players, especially in rural areas where the

latter has limited reach. The growing unorganized market poses a serious

threat to the organized battery segment in India.



CURRENT STATUS

The domestic Battery Industry suffered a definite set-back during the FY12. Apart

from the automobiles, telecom, infra-structure and export sectors continued to be

sluggish. Inflationary pressures, rise in the price of petrol and high cost of borrowingsgenerally depressed the overall demand generation and were instrumental for the

lower growth.

As for industrial battery segment, the recurring power shortages on the top of

demand versus supply gap in Grid power, provides a robust demand for Home UPS

batteries in the foreseeable future. Further, in spite of delays in commissioning or

postponement of projects, infrastructure continues to be a major focus area of the

Government.

automobile&autoancillaries

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