A

BRIEF REPORT

ON

AUTO AND AUTO ANCILLARIES IN INDIA

July, 2015

For more information, contact: sateesh.kulkarni@asa.in

 A brief report on Auto & Auto Ancillaries in India
 
 
1. OVERVIEW OF AUTO INDUSTRY

1.1 Current Status

Automotive industry occupies a prominent place in the Indian industrial scenario. As a result of its
forward and backward linkages with several key segments of the economy, automotive industry has
a strong multiplier effect and is capable of being the driver of economic growth. India has one of the
most competitive auto parts manufacturing industry in the world. Today India has become the
outsourcing hub for several global automobile manufacturers.

A four-fold increase in investments is anticipated, as much as 30 new automobiles factories, mergers

and acquisitions are estimated to come up in next 8 years. Poised to grow by over three-fold, the
Indian auto component industry is one of the front runners for grabbing the global auto
components outsourcing market while the automobile industry to emerge as the fourth largest car
producer.

Market Share by Volume

13% 3%
3%
Passenger Vehicles
Commercial Vehicles
81% Three Wheelers
Two Wheelers

Source: SIAM Aranca Research 

1.2 Segmental details

1.2.1 Commercial Vehicles

The domestic Commercial Vehicle (CV) industry clearly seems to be coming out of the down cycle
after two years of demand contraction. In Feb 2015, the industry reported a growth of 10.1% on
YoY basis. Within the CV segment, the Medium and Heavy Commercial Vehicles (M&HCV)
segment reported growth of 37.6% in unit sales, while the LCV segment witnessed de-growth of
4.1%. The M&HCV Truck segment witnessed the highest pace of growth (up 38.3%), while the
M&HCV Bus segment also grew by 34.5% in Feb 2015 on back of bus supplies to SRTUs. The
improvement in operating environment for fleet operators, expectations of pick-up in investments
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in infrastructure as well as manufacturing space along with renewal of mining activities in some parts
of the country suggest that the down cycle in M&HCVs has bottomed out. Likewise, the slowdown
in the LCV segment also appears to be losing steam with the segment reporting lower decline in unit
sales over the past couple of months.

1.2.2 Passenger Vehicles

Domestic Passenger Vehicle (PV) industry sales volumes at 231,165 units in Feb 2015 grew by 6.2%
YoY and 4.0% YoY during 2014-15. The domestic sales gained some momentum, after slowing
down to 3.2% during Jan-2015. The growth was driven by all three segments, i.e. passenger car (PC,
+6.8% YoY), utility vehicle (UV, +4.7% YoY) and van (+2.7% YoY) during the month. Correction
in fuel prices and easing financing cost has resulted in lower operating cost, which should further aid
domestic PV growth in near to medium term. Van segment, which largely mirrors trend in small
commercial vehicle segment (passenger carrier) has witnessed modest growth (though on low base
of Feb-14). On export front, PV volume decline by 2.8% YoY (+3.8% MoM) during Feb-15, mainly
on account of weak export volume. Overall, export volume witnessed 5.8% YoY growth during
2014-15.

1.2.3 Two Wheelers

In Feb’15, domestic two-wheeler (2W) industry volumes de-grew by 1.0% YoY owing to continued
weakness in motorcycle sales which declined by 8% (YoY) while the scooter segment continued to
post robust volume growth of about 19% (YoY). In the motorcycle segment, both the 100cc sub-
segment and 125cc sub-segment witnessed lower volumes mainly owing to weak rural demand. In
contrast, the >150cc sub-segment of bikes posted 75.3% YoY growth in Feb’15 maintaining its
streak of double-digit monthly growth (YoY) all through the current fiscal. With this, the share of
>150cc bikes in total domestic motorcycle sales volumes increased to 11.1% in Feb ‘15 (5.8% in Feb
‘14).

Total Production of Automobiles in India in million units
20 18.49
18 16.88
15.42 15.74
16
14 13.34

12 10.51
10
8
6
4 2.98 3.14 3.23 3.08 3.22
2.35 0.79 0.87 0.83
0.61 0.83 0.94
2 0.76 0.92 0.83 0.69 0.7
0.56
0
2009‐10 2010‐11 2011‐12 2012‐13 2013‐14 2014‐15

Passenger Vehicles Commercial Vehicles Three Wheelers Two Wheelers

 
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Source: SIAM, Aranca Research 

1.3 Financial Performance

Automobile companies across segments continue to face tremendous pressure on profit margins
due to elevated inflation levels. Added to this are the heightened marketing costs incurred and heavy
discounts offered by vehicle manufacturers to attract consumers to the showrooms. This partially
explains the price hikes initiated by the vehicle OEMs to protect margins, despite the weak demand
environment. Going ahead, amidst rising market competition, new product launches, as also product
refreshes planned, OEMs are expected to increase spend on marketing & promotional activities.
Although commodity prices are not expected to witness steep hikes, overall cost and competitive
pressures would keep the profit margins under pressure.

1.3.1 Domestic Sales

Automobile Domestic Sale Trends

Category 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15
Passenger 19,51,333 25,01,542 26,29,839 26,65,015 25,03,509 26,01,111
Vehicles
Commercial 5,32,721 6,84,905 8,09,499 7,93,211 6,32,851 6,14,961
Vehicles
Three 4,40,392 5,26,024 5,13,281 5,38,290 4,80,085 5,31,927
Wheelers
Two Wheelers 93,70,951 1,17,68,910 1,34,09,150 1,37,97,185 1,48,06,778 1,60,04,581
Grand Total 1,22,95,397 1,54,81,381 1,73,61,769 1,77,93,701 1,84,23,223 1,97,52,580
 
 
 
 
 
 
1.3.2 Exports

Automobile Export Trends

Category 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15
Passenger 4,46,145 4,44,326 5,08,783 5,59,414 5,96,142 6,22,470
Vehicles
Commercial 45,009 74,043 92,258 80,027 77,050 85,782
Vehicles
Three 1,73,214 2,69,968 3,61,753 3,03,088 3,53,392 4,07,957
Wheelers
Two Wheelers 11,40,058 15,31,619 19,75,111 19,56,378 20,84,000 24,57,597
Grand Total 8,04,426 23,19,956 29,37,905 28,98,907 31,10,584 35,73,806

Source: SIAM 

1.4 Major Automotive Players in India

Companies Segments
Ashok Leyland LCVs, M&HCVs, buses
Asian Motor Works M & HCVs
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Bajaj Auto Two and three wheelers
BMW India Cars and MUVs
Daimler Chrysler India Cars
Eicher Motors LCVs, M & HCVs
Fiat India Cars
Force Motors MUVs and LCVs
Ford India Cars and MUVs
General Motors India Cars & MUVs
Hero Honda Motors Two wheelers
Hindustan Motors Cars, MUVs and LCVs
Honda Two wheelers, cars and MUVs
Hyundai Motors Cars and MUVs
Kinetic Motor Two wheelers
Mahindra & Mahindra Three wheelers, cars, MUVs, LCVs
Maruti Suzuki Cars, MUVs, MPVs
Piaggio Three wheelers, LCVs
Royal Enfield Motors Two wheelers
Skoda Auto India Cars
Suzuki Motorcycles Two wheelers
Swaraj Mazda Ltd LCVs, M & HCVSs, buses
Tata Motors Cars MUVs, LCVs, M&HCVs, buses
Toyota Kirloskar Cars, MUVs
TVS Motor Co Two wheelers
Volvo India M & HCVs, buses
Volkswagen India Cars
Yamaha Motor India Two wheelers

1.5 Profile Of Major Players In India

1.5.1 Tata Motors

Instigated in the year 1945, Tata Motors has a wide network of retailers and suppliers across India. It
was in 1954 that the company launched its first vehicle. Today more than 3 million Tata cars and
heavy vehicles glide through Indian roads. The company gained the prestige of being the first from
engineering industry of India to be listed under the New York Stock Exchange in September 2004.

Besides being second biggest in the passenger car division, Tata Motors is also ranked as fifth
highest in the category of medium and heavy commercial vehicles at international level.

With the help of its associates, Tata Motors offer high end manufacturing and automotive solutions
to its customers. It's foremost indigenously made car was Tata Indica, followed by a mini-truck Tata
Ace in 2005. In the year 2009, the firm marked its name in the pages of automotive history by
introducing the world's fuel efficient and cheapest car - Tata Nano.

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1.5.2 Mahindra and Mahindra

Mahindra and Mahindra is the flagship company of Mahindra Group. It was set up in 1945 to make
general purpose utility vehicles for the Indian market and soon it started manufacturing agricultural
tractors and light commercial vehicles (LCV).

The company has recently started a separate sector, Mahindra systems, and automotive
Technologies (MSAT) in order to focus on developing components as well as offering engineering
services. Mahindra and Mahindra have two main operating divisions. One is the Automotive
Division for the manufacturing of utility vehicles, LCV and three wheelers.

1.5.3 General Motors

In 1928 General Motors began with assemblage of Chevrolets, trucks, buses, and batteries. Although
it closed operations in 1954, it has been in Indian market as a part of tie-ups with Hindustan Motors
to produce Bedford trucks, Vauxhall cars, Allison transmission, and off-highway equipment. In
1994, General Motors India was incorporated as a 50-50 joint venture with C.K. Birla Group of
Companies. In 1999 it became a fully owned subsidiary of General Motors when General Motors
Overseas Corporation bought the remaining shares.

The existing General Motors plant was originally built by Hindustan Motors. In 1994 General
Motors modernized it. The plant is located at Halol, near Vadodara, Gujarat.

1.5.4 Ford India

Ford has been in India since 1907 when it launched Model A here. In 1926, Ford India was
established, but the operations were discontinued in 1954. Again in 1995, Ford Motor Company
received government approval to establish Mahindra Ford India, Limited (MIFL).

It was 50:50 joint ventures with Mahindra and Mahindra Limited (M & M). In November 1998 Ford
received approval to increase its stake in the joint venture to 92.18%. The Company was re-
christened as Ford India Limited.

It has set up a modern, integrated manufacturing facility in Maraimalai Nagar near Chennai.

1.5.5 Bajaj Auto Ltd

Bajaj Auto Ltd. is the largest exporter of two and three wheelers. With Kawasaki Heavy Industries
of Japan, Bajaj manufactures state-of-the-art range of two-wheelers. The brand, Pulsar is continually
dominating the Indian motorcycle market in the premium segment. Its Discover DTSi is also a
successful bike on Indian roads.

Since 1986, there is a technical tie-up of Bajaj Auto Ltd. with Kawasaki Heavy Industries of Japan to
manufacture state-of-art range of latest two-wheelers in India. The JV has already given the Indian
market the KB series, 4S and 4S Champion, Boxer, the Caliber series, and Wind125.

1.5.6 Maruti Suzuki India Ltd

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In February 1981 Maruti Udyog Limited (MUL) was incorporated under the provisions of the
Indian Companies Act, 1956. It was established to meet the growing demand of a personal mode of
transport caused by the lack of an efficient public transport system. A license and Joint Venture
Agreement was signed between Government of India and Suzuki Motor Company (now Suzuki
Motor Corporation of Japan) in October 1982. It manufactured India's first affordable cars. In the
past twenty years it has diversified into various types of passenger cars catering to the need of
different section of the population.

The manufacturing Unit of is located at Palam Gurgoan Road, Gurgoan, Haryana.

1.5.7 Hero Honda Motors

Hero Honda Motors, an India based Two-wheeler Company. It is regarded as the World’s Largest
Manufacturer of Two-wheelers.

It manufactures geared and gear-less two-wheelers. It caters low powered bikes to high power bikes
to its wide pool of 15 million customers world-wide. Products like Hero Honda Splendor, Hero
Honda Passion, CD Dawn, Hero Honda CBZ and Hero Honda Karizmaare extremely popular
among masses. Their products are well known for fuel efficiency and as well as power delivery
coupled with affordability. Its gearless or step-thru models like Hero Honda Street and Hero Honda
Pleasure are also gaining huge popularity amongst young Indian ladies.

1.6 Government Initiatives

Government has taken several policy initiatives and pro-active measures to enhance the
effectiveness and drive growth in Automotive Sector. Major steps have been taken to make India a
global automotive hub under the Automotive Mission Plan' for the period of 2006-2016. The
Mission Plan aims to make India emerge as the destination of choice in the world for design and
manufacture of automobiles and auto components, without put reaching a level of USD 145 billion.
Some of the other key initiatives include:

 Formation of National Automotive Board (NAB) to look into the issue of recall of vehicles;
hence improving manufacturing standards
 Reduction of excise duty on small cars
 Launch of the National Mission for Hybrid & Electric Vehicles under Budget FY12, to make
hybrid vehicle kits cheaper by reducing the excise duty rebate to 5% from 10%
 State Government promoting industrial space especially in the automobile sector
 Open to Public Private Partnerships (PPP)
 Establishing special auto parks and virtual SEZ's for auto components industry by providing
an interest subsidy on loans and investment in new plants and equipment
 Export benefits to intermediate suppliers of auto components against the Duty Free
Replenishment Certificate (DFRC)
 Automatic approval for 100% Foreign Equity Investment in auto components
manufacturing
 Manufacturing and importing in this sector exempt from licensing and approvals

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1.7 Future Perspective

The rapid improvement in infrastructure, huge domestic market, increasing purchasing power,
established financial market and stable corporate governance framework have made the country a
favorable destination for investment by global majors in the auto industry, as per Automotive
Mission Plan (AMP) (2006-16).

Additionally, the introduction of alternative fuels like hydrogen and bio fuels needs to be promoted
to ensure sustainability of the industry over the long term. The vision of AMP 2006-2016 aims India
to emerge as the destination of choice in the world for design and manufacture of automobiles and
auto components with output reaching a level of USD 145 billion accounting for more than 10 per
cent of the GDP and providing additional employment to 25 million people by 2016.

In addition, the US-based car major, Ford aims to make India its export hub and plans to sell its
products in more than 50 countries over a period of time. The company has committed a total
investment of USD 2 billion in India so far (November 2012).

The luxury car market of India is set for growth over the medium and long term. The market is
about 30,000 cars a year and is rising steadily.

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2. OVERVIEW OF AUTO COMPONENT INDUSTRY

2.1 Current Status

Indian Auto – Component Industry covers a wide spectrum of industries, that is, rubber, iron and
alloy steel, plastic, oils and grease, fabrication tools, safety gadgets, air conditioning, radiators, mould
making, battery industry, electrical fittings, interior furnishings, music system, sheet metal
fabrication, lamps and bulbs, spring manufacturers – it covers basic industry and white goods. This
sector has a bearing on Power consumption and skilled labour availability and has a considerable
contribution in GDP Manufacturing) – for FY 12 GDP at factor cost is 2.1%.

Comprehensive Product Range

Engine Parts

Drive  Transmission & Steering 
7% Parts
9%
31%
Body & Chassis
10%

12% Suspension & Braking Parts

12% 19% Equipments

Electrical Parts

Others

 
Source: ACMA
 
As per industry estimates, out of the total turnover of the Indian auto components industry, around
60% is derived from sales to domestic OEMs, around 25% comes from sales to the domestic
replacement market and around 15% is derived from exports. Thus, domestic demand recovery/
sustenance will be the primary variable that will govern the automobile industry’s revenue growth
and profitability prospects over the short term. In terms of exports, while the prevailing weakness of
INR vs USD will not have any material impact on the industry’s exports profitability at a broader
level - given that exports account for only ~15% of the industry’s total revenues - individual
companies that do have meaningful exports dependence, should benefit from their enhanced
exports competitiveness arising from the prevailing weakness of the Indian currency. The weakness
in overall revenue growth of the auto components industry is likely to persist in 2012-13; yet,
EBITDA margins may remain intact or even improve as companies’ step-up focus on cost control,
besides benefitting from a benign raw material cost environment. Moreover, the industry’s planned
capex outlay for 2012-13 also remains conservative since a large magnitude of green-field and
brown-field capacity expansion was concluded during the course of the last two years that provides
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sufficient capacity buffer to meet the level of demand envisaged over the short term. The Auto
component industry's contribution to the GDP of the country is expected to grow to 3.6% in 2020
from 2.1% in 2009.

120 113

100
CAGR 2007-
21: 11%*
80
66.3
USD billion

60
39.9 43.5
40 30.1
26.5 23
20

0
2007-08 2008-09 2009-10 2010-11 2011-12 2015-16 2020-21

Figures for financial year – April to March (* Estimates)

2.2 Auto Component Industry - Production Turnover

Production Turnover
2500 2348
2160 2117
2046
2000 1883

1500 1386

1000

500

0
2009‐10 2010‐11 2011‐12 2012‐13 2013‐14 2014‐15
Source: ACMA

2.3 Exports
The key auto components that India exports are hydraulic power steering systems & steering gear ,
systems and parts, gear boxes and parts, parts of diesel engines, parts for automobiles and earth
moving equipment, drive-axles and parts, spark ignition and parts, suspension systems and parts,
crank shaft for engines, toothed wheels, other transmission parts and brakes and servo-brakes parts.

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Exports to USA, Germany, Turkey, Italy, Thailand, China and the UAE have seen an increase
whereas those to the UK, Brazil and France have seen a decline from 2013-14 to 2014-15. The
CAGR of the Exports of the auto components industry from 2010-15 is 29%.

Turnover from Exports (USD Billion)

700 658
614
600 526
500 427
400
303
300
189
200
100
0
2009‐10 2010‐11 2011‐12 2012‐13 2013‐14 2014‐15
Source: ACMA

2.4 Imports
India's CAGR of the imports of the auto component industry from 2010-15 was 18%. The imports
grew by 6% with imports from China, Germany, Thailand, USA, Italy and UK increasing from
2013-14 to 2014-15 whereas imports from Japan, South Korea, France and Spain fell from 2013-14
to 2014-15.

Turnover from Imports (in USD Billion)

1000
829
744 771
800 667
600 497
360
400

200

0
2009‐10 2010‐11 2011‐12 2012‐13 2013‐14 2014‐15
Source: ACMA

2.5 Major players

 Sona Koyo Steering Systems, Rane Madras and Rane TRW Systems are the key players
in steering systems.

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 Bharat Gears, Gajra Bevel Gears and Eicher are some of the major players in the gears
sub-segment. Two international companies, Graziano Transmission and SlAP Gears
India, have set up their base in India.
 Clutch Auto, Ceekay Daikin, Amalgamations Repco and Luk Clutches are the major
players in the clutch sub-segment. RaneBrake Lining and Rico Auto are the key players
manufacturing clutch-facings.
 GKN Drive shafts (India) and Delphi cater to the drive shaft requirements of passenger
cars and SonaKoyo Steering Systems services to the commercial vehicle segment.
 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 shock absorbers.
 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.
 Lucas TVS, Denso, Delco Remy Electricals, and Nippon Electricals are the key players
in this segment.
 Phoenix Lamps, Autolite, Hella-India, and Lumax are prominent players manufacturing
sheet metal parts.

2.6 Government Initiatives

The Government of India (GoI) plans to introduce fuel-efficiency ratings for automobiles to
encourage sale of cars that consume less petrol or diesel.

The GoI plans to push the supply of vehicles powered by electricity over the next eight years. It is
expected that there will be a demand of 5-7 million electricity-operated vehicles by 2020.

The GoI allows 100 per cent foreign direct investment (FDI) in the automotive industry through
automatic route.

The Automotive Mission Plan (AMP) 2006-2016 aims at doubling the contribution of automotive
sector in gross domestic product (GDP) by taking the turnover to USD 145 billion in 2016 with
special emphasis on export of small cars, multi-utility vehicles (MUVs), two & three wheelers and
auto components.

2.7 India: The Global Auto Hub

 Nissan India is currently exporting a number of child parts, engine and body parts to
overseas markets. “We export to about 101 countries worldwide and there are many
parts that we export from India regularly to 14 countries, including big markets like the
UK, Brazil, Mexico and USA.

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 South Africa is pitching its auto component industry to Indian automakers for
partnerships. Accompanied by a delegation of 27 companies.
 RSB Transmissions has entered into a partnership with DHB Automotives, Brazil to
launch auto components in India. The new range of products was unveiled at the Auto
Expo 2014 Components Show at New Delhi.
 Volkswagen is looking at investing USD 248.55 million over the next five years to set up
a diesel engine manufacturing facility.
 Infosys has signed a multi-year contract with Volvo Cars to provide application
development services to the latter's global operations. The application development
work includes maintaining applications to support multiple domains, including marketing
and sales, customer service, manufacturing, product development and corporate business
functions.

Furthermore, India is fast becoming a major procurement centre for Yamaha Motor for its global
operations. In the next 3-4 years, it plans to supply around 300-400 parts and double the number of
vendors from India.

2.8 Future Perspective

It is estimated that by 2016-17, the total production of the auto component industry would be USD
75 billion with exports accounting for USD 15 billion, 20% of the total domestic production. The
demand for auto components in the same year is expected to cross USD 80 billion.
Domestic Indian companies have developed strong manufacturing capabilities that have helped
them till now in keeping costs low and quality under control. As volumes increase, Indian
component manufacturers will have to scale up their operations and further improve quality, cost
and delivery performance to global standards demanded by customers, it added.
Over 70% of the auto component companies in India are SMEs. Government support for R&D
new product development is critical. It also asked for elimination of customs duty on alloy steel,
aluminum alloy and secondary aluminum alloy.

The auto component industry aims to cross the USD 100 billion mark by 2020 as well as have
exports amounting to USD 35-40 billion. It aspires to have 5 suppliers in the Global Top 100 auto
component suppliers and an earning of USD 20-22 billion in revenue from overseas assets. These
goals are supported by the government policies such as the Auto Policy 2002 and the Auto Mission
Plan 2006-16 which ensure manufacturing and imports free from licensing and approvals, a robust
legal framework and a stable foreign exchange regime along with an increased budget for R&D
activities and 100% FDI permitted without prior government approval.

There are also many challenges which the auto component industry faces such as a high cost of
capital and imperfect capacity utilization. The Industry also faces major infrastructural challenges
and costs with respect to an inadequate transportation system such as roads and ports. Power also
poses a huge infrastructural challenge. Currently Imports are higher than Exports which also pose a
problem to the auto component industry. A major issue is the sale of counterfeited cheaper parts
which result in a loss of revenue and market for the industry. The industry also faces obstacles in the
form of deficiency of skilled manpower and R&D competency and ecosystem.

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