Indian Automobile and Component

Industry Trends
Presentation for OESA
STRATEGIC MANAGEMENT GROUP
This is a confidential document solely for the use of client personnel. No part of it may be circulated, quoted, or
reproduced for distribution outside the client organization without prior written approval from Tata Strategic 18 May 2010
Management Group.
 In FY10, Indian auto component production was valued at ~USD 25.7 billion,
including exports
INDIAN AUTO COMPONENT PRODUCTION : FY101)
DOMESTIC PRODUCTION (Total USD 25.7 bn)

EXPORT
34% DESTINATIONS
39%
13%

20% 27%

European Union NAFTA Others

25%
67% OEM
53% SEGMENTWISE
OFFTAKE
22%

Exports OEM Replacement

Cars & UV Two Wheelers

CVs & Tractors
Notes : 1) FY : Financial Year ending 31st March of the year mentioned, i.e. FY10 is year ending 31st
March 2010;MANAGEMENT
2) 1 USD = 45 INR STRATEGIC MANAGEMENT GROUP
STRATEGIC GROUP 2
Source: UN Comtrade, Crisil, Automotive Mission Plan 2006-2016, Tata Strategic Research 2
 Large Indian promoter groups form a major part of the Indian auto
component industry
INDIAN AUTO COMPONENT INDUSTRY : STRUCTURE

PROMOTER SEGMENTATION COMMENTS

Total: USD 25.7 billion
• Kalyani Group………...(11%)
• TVS Iyengar Group….(10%)
Prevalent business models:
• Munjal Group……… …(7%)
19%
• Amtek Group……… …(7%) • Full Indian ownership
• Sona Group……………(3%)
• Escorts Group…………(3%) • Indian owner and MNCs

24% 57% • Rico Group…………….(2%) in technical alliance

• Anand Group………….(2%)
• JBM Group…………….(2%) • Indian owner and MNC JV
• Rane Group……………(2%)
• Complete MNC subsidiary
• Elgi Group……………..(2%)
• Minda SL Group………(2%)
MNC Indian Promoter Unorganised • Shriram Group…...……(2%)
• Tata Group………..…(1.2%)
• Amalgamation Group…(1%)

Total – 57%
Notes : 1) All figures for FY10 2) 1 USD = 45 INR STRATEGIC MANAGEMENT GROUP
STRATEGIC MANAGEMENT GROUP 3
Source: Crisil, Tata Strategic Research, Auto Component Manufacturers Association (ACMA) 3
 Indian suppliers have largely remained profitable during the slowdown

INDIAN AUTO COMPONENT INDUSTRY: PROFITABILITY COMPARISON

GLOBAL COMPONENT SUPPLIERS INDIAN COMPONENT SUPPLIERS

PROFITABILITY (%) PROFITABILITY (%)
14% 18%
17%
12% 16% 16%
12%
10% 14%

8% 12%
11%
10%
6%
8% 12%
4%
6% 4% 6% 11%
2%
2% 4%
0% 5%
-2% 2%
-2%
2007 2008 2009 0%
-4% -3% FY07 FY08 FY09

EBIT ROCE EBIT ROCE

• Compared to their European and American peers, Indian auto component suppliers have been
profitable even during global recession
• This can be attributed to their unique cost positioning in low volume flexible production systems
Note: Global supplier profitability reported by CY and Indian by FY (Financial Year) ending 31st March STRATEGIC MANAGEMENT GROUP
STRATEGIC MANAGEMENT GROUP 4
Source: FactSet/Reuter's; Roland Berger/Rothschild global automotive supplier database 2009; CRISIL 4
 Component suppliers will benefit from the continued strong growth of the
Indian automotive market
INDIAN AUTOMOTIVE MARKET : FORECAST

INDIA DOMESTIC VEHICLE SALES (’000 units) EXPORTS

CAGR • In addition, 490,000

Total 2,481 2,755 3,060 3,398 3,775 4,193 11.1% vehicles were exported
in FY10, of which > 90 %
818 9%
passenger cars
750
688
631
• Exports likely to grow to
Commercial 579 1,130,000 vehicles by
531
Vehicles 11.6%
3,375 FY15 (~ 19 % CAGR)
3,024
2,710
Passenger 2,176 2,428
1,950
Vehicles

FY10 FY11 FY12 FY13 FY14 FY15

Note: 1) FY : Financial Year ending 31st March of the year mentioned

STRATEGIC MANAGEMENT GROUP
STRATEGIC MANAGEMENT GROUP 5
Source: SIAM, Crisil, Tata Strategic Research 5
 Auto component production in India is hence expected to double in value
over the next 5 years
INDIAN AUTO COMPONENT PRODUCTION : FORECAST

AUTO COMPONENT PRODUCTION TREND (USD Bn) COMMENTS

CAGR • Strong growth driven by

Total 26 29 33 38 44 50 14% sales to OEMs in India as

well as exports
20%
8
7 7%
7
6
7
5
6
4
Exports 3
6
6
Replacement 5
34 15%
30
26
23
17 20
OEM

FY10 FY11E FY12E FY13E FY14E FY15E

Note: 1) FY : Financial Year ending 31st March of the year mentioned

STRATEGIC MANAGEMENT GROUP
STRATEGIC MANAGEMENT GROUP 6
Source: SIAM, Crisil, Tata Strategic Research 6
 Indian auto component industry is expected to remain cost competitive

INDIAN COST COMPETITIVENESS IN AUTO COMPONENTS

LOW • Availability of low cost and highly skilled workers

LABOUR
COSTS • Availability of qualified engineers / technical personnel

LOW FIXED • Appropriate level of automation with low levels of capex

COSTS • Cost competitive even at smaller scale and lower utilization

LOW DESIGN • Low cost innovation differentiates India from other emerging countries
COSTS • Easy availability of competent product design personnel

STRATEGIC MANAGEMENT GROUP

STRATEGIC MANAGEMENT GROUP 7
Source: Tata Strategic Research 7
 Many global players have established international purchase offices in India

INTERNATIONAL PURCHASING OFFICES (IPOs) IN INDIA INDICATIVE

Global OEMs Sourcing from India Global sourcing offices in India

OEM Value (USD m) Components
Castings, Forgings,
Volvo 90 Power-train components`
Gearbox & engine
Fiat 4 components
Engine components, Gurgaon
Ford 150 Delhi
leaf springs
Jamshedpur
Renault 65 Undisclosed
Manual gearboxes,
Toyota Undisclosed propeller shafts
Pune
Daimler 125 Undisclosed

Global auto suppliers sourcing from India Bangalore

Magna Undisclosed Power-trains

Chennai

Valeo Undisclosed Clutch plate, housing

Brose Undisclosed Undisclosed Component Production Hubs

STRATEGIC MANAGEMENT GROUP

STRATEGIC MANAGEMENT GROUP 8
Source: Tata Strategic Research, Roland Berger 8
 They have also set up R&D centres of global scale

R&D CENTRES IN INDIA INDICATIVE

Global companies R&D centres in India

FOCUS AREAS

• Automotive R&D for

Rohtak hatchbacks and low
cost cars
Noida
Jamshedpur • India - a centre for low
cost innovation

Nasik

Pune

Bangalore

Hubs of R&D facilities

STRATEGIC MANAGEMENT GROUP

STRATEGIC MANAGEMENT GROUP 9
Source: Tata Strategic Research, Roland Berger 9
 Global component manufacturers who have entered India have benefitted in
the areas of sourcing, innovation, and cost

CASE STUDY : BOSCH

• Established in 1953 in India,

• Presence in Automotive, Power Tools, Industrial Tech, Engg services

• Dominant position in Indian market for fuel injection (FI) modules

• Extensive global sourcing from India Automotive

• Recognized need to foray in sub €7,000 passenger cars (Revenue

target €1bn by 2010)
• Partnered Tata Motors for Nano project for very low cost FI module

Power Tools
• Radical innovation in CRDi to meet target costs; several patents filed
• Enhanced local sourcing for key components

• Low cost innovation enhances Bosch’s leadership globally

• Being leveraged for other hatchbacks and two wheelers
• Bosch is the largest auto component exporter in India Security Systems

STRATEGIC MANAGEMENT GROUP

STRATEGIC MANAGEMENT GROUP 10
Source: Tata Strategic Research, Roland Berger 10
 Several new challenges are emerging for suppliers in India
CHANGING BUSINESS ENVIRONMENT FOR SUPPLIERS IN INDIA INDICATIVE

Emerging trends Challenges for suppliers

• More vehicle variants • Increasing complexity

• Shorter product life
• Growing OEM exports
• Changing regulations
(emissions and safety)
• Rapid technology shifts
• Increasing OEM expectations on
Quality
- Delivery performance
- Cost
• Managing life cycle costs
• Latest features and safety requirements
• Conformance to both Indian and export
requirements (e.g. ABS)
• Access to technology and rising R&D cost
• Increasing pressure to
- Upgrade skills and processes
- Overcome inferior logistics
infrastructure
- Further reduce costs

STRATEGIC MANAGEMENT GROUP

STRATEGIC MANAGEMENT GROUP 11
Source: Tata Strategic Research 11
 Indian suppliers will not be able to cater to many evolving
requirements, completely on their own
CAPABILITIES OF INDIAN SUPPLIERS INDICATIVE

• Head/side airbags
Technology requirements

• Climate control • Infotainment Protection

• ECE • Automatic transmission
• ABS •…
• Engine parts • Front airbag
• Transmission& steering • Power steering
• Chassis parts •…
• Sheet metal
• Electrical/Electronics parts
• Body parts
• Rubber parts

Proven Partial Non Existent (Nascent)

Current capabilities of Indian suppliers

Nature of 100% 100%

ownership Foreign
Indian
0% 0%

STRATEGIC MANAGEMENT GROUP

STRATEGIC MANAGEMENT GROUP 12
Source: VW, Business Meetings, Tata Strategic Research 12
 Various modes for India entry exist to harness these growth avenues

MODES FOR ENTRY INTO INDIAN AUTOMOTIVE INDUSTRY INDICATIVE

Modes of India Entry

Entry Enter through

Modes Enter on their own
acquisitions / JVs

Legal Joint Venture with an Acquire an existing Enter as a wholly

entity Indian company company owned subsidiary

Possible • Safety systems • Advanced power train • Electronics

areas of • New materials • Automatic transmission • Interiors
entry •… •… •…

• Arvin Meritor • SKF • Denso

Examples • Motherson Sumi •… • Timken
• Tata Johnson Controls •… • Delphi

STRATEGIC MANAGEMENT GROUP

STRATEGIC MANAGEMENT GROUP 13
Source: Tata Strategic Research 13
 Critical Success Factors

CRITICAL SUCCESS FACTORS (CSF) FOR COMPONENT BUSINESS IN INDIA (1/4)

Understanding market, buying behavior

• Differing OEM purchasing processes
- Cultural differences between Indian / global players
• Rapidly evolving consumer demands
- Anticipate technology changes
- Upgrade to requirements for export demand
• More than 25% unorganized players
- Understand basis of competition
• Spurious components in aftermarket

STRATEGIC MANAGEMENT GROUP

STRATEGIC MANAGEMENT GROUP 14
Source: Tata Strategic Research 14
 Critical Success Factors

CRITICAL SUCCESS FACTORS (CSF) FOR COMPONENT BUSINESS IN INDIA (2/4)

Understanding regulations and taxation

• Lengthy procedural approvals & statutes:
- Labor laws
- Local regulations and permits
• Peak customs duty 7.5 %
- Regional FTAs e.g. Thailand
• Many local levies at present
- National GST (goods & services tax) regime expected by 2011

STRATEGIC MANAGEMENT GROUP

STRATEGIC MANAGEMENT GROUP 15
Source: Tata Strategic Research 15
 Critical Success Factors

CRITICAL SUCCESS FACTORS (CSF) FOR COMPONENT BUSINESS IN INDIA (3/4)

Managing logistics successfully

• Vast geographical expanse
- The 3 main auto hubs are 800 – 1000 miles distant from each other
• Long delivery lead times
- National Highways constitute 2% of road length but carry 40% of traffic
- On average, a 9 ton truck takes 3 days to cover 1000 km
• Insufficient road / rail infrastructure to penetrate the rural markets
- 40% of rural areas not connected by all-weather roads
• A countrywide Goods & Services Tax (GST) yet to be rolled out
- Multiple stocking points

STRATEGIC MANAGEMENT GROUP

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Source: Tata Strategic Research 16
 Critical Success Factors

CRITICAL SUCCESS FACTORS (CSF) FOR COMPONENT BUSINESS IN INDIA (4/4)

Low cost structure

• Control employee cost
- But ensure people quality
• Control capex
- Scalable manufacturing units
• Harness global sourcing for raw material linkages e.g. rubber, specific
grades of steel /polymers
• Maximize capacity utilization
- Some players were at 85% even during downturn

STRATEGIC MANAGEMENT GROUP

STRATEGIC MANAGEMENT GROUP 17
Source: Tata Strategic Research 17
 Summary

• India has a fast growing economy, with drivers being largely domestic
– Attractive growth market for automotive sector
• Opportunities in multiple dimensions exist for automotive component suppliers
– Domestic demand
– Exports
– Frugal engineering / low-cost innovation
• Changing OE requirements are creating gaps for new entrants. Modes:
– 100% subsidiary – Joint venture – Alliances – Acquisitions
• Critical Success Factors
– Market and buyer behavior – Logistics
– Regulation & Taxation – Cost structure

STRATEGIC MANAGEMENT GROUP

STRATEGIC MANAGEMENT GROUP 18
Source: Tata Strategic Research 18
 We welcome your feedback or questions

Raju Bhinge Juergen Reers

Chief Executive Managing Partner
Detroit/Chicago/New York

Phone:+91 22 6637 6655 Phone:+1 (248) 729-5000

Fax: +91 22 6637 6600 Fax: +1 (248) 729-5118
raju.bhinge@tsmg.com juergen_reers@us.rolandberger.com

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