Automobiles and Auto Ancillaries

84 Pages·2012·2.8 MB·English

Automobiles and Auto Ancillaries

Senior Analyst: Siddharth Janghu

Junior Analysts: Kawaljeet Singh
Vamshi Krishna Vangala

Unnati Investment Management and Research Group
Table of Contents
AUTOMOBILES
OVERVIEW .......................................................................................................................................... 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 ............................................................................................................................................... 50
MARUTI 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

2 Unnati Investment Management and Research Group
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 economic
slowdown, 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.

Sales and
COST BREAKDOWN
Distribution
Manufacturing 8%
Labour
3%
4% Other costs
6%
Raw materials
79%

Unnati Investment Management and Research Group 3
Commercial Production
vehicles
4% Three Wheelers
Passenger 4%
vehicles
16%
Two Wheelers
76%

Highlights

Ranking of Indian Automobile industry in various categories in the world

• MANFACTURER OF TWO WHEELERS
1
• MARKET FOR THREE WHEELERS
1

• MARKET FOR TWO WHEELERS
2

• MANUFACTURER OF PASSENGER VEHICLES
6
• MARKET FOR PASSENGER VEHICLES
10
• MARKET FOR TRACTORS
4
• MARKET FOR COMMERCIAL VEHICLES
5

4 Unnati Investment Management and Research Group
Industry Clusters

The automobile industry is concentrated in 4 key regions

North: Delhi-Gurgaon-Faridabad
West: Mumbai-Pune-Nashik-Aurangabad
East: Kolkata-Jamshepur
South: Chennai-Bengaluru

Unnati Investment Management and Research Group 5
Market Segments

Motorcycles
Two Wheelers Scooters
Mopeds
Goods carriers
Three Wheelers

s
Passenger carriers
e
l
i
b
Passenger cars
o
m
Passenger Vehicles Utility vehicles
o
t
u
Multi purpose
A
vehicles
Light commercial
vehicles
Medium commercial
Commercial Vehicles
vehicles
Heavy commercial
Tractors
vehicles

6 Unnati Investment Management and Research Group
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 does
not 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 product
directly 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 Steel
2. 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 his
request. 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 opened
shop in this sector also
Unnati Investment Management and Research Group 7
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 2 Supplier Tier 1 Supplier OEM Dealer Cust omer

Finance
Tier 3 Supplier Transport Agencies
Scrappage yards 2nd Hand Buyers 2nd Hand Retailers
Repair & Spare Market

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Two Wheelers

Overview

Domestic two wheeler industry in India has witnessed a CAGR of 15.93% over the
past 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 than

12"

Scooters: Wheel Size less than 12''
Mopeds: Fixed transmission and Engine
Capacity less than 75cc
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• ECONOMY SEGMENT
• EXECUTIVE SEGMENT
• PREMIUM SEGMENT
MOTORCYCLES

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:
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