Business Analysis of Automobile Sector in India

By: Aditi Deodhar Pranav Thaware Prutha Deshpande Saurabh Ambaselkar

AUTOMOBILE SECTOR
y The automotive sector is one of the key segments of the economy having extensive forward and backward linkages with other key segments of the economy. y It contributes about 4 per cent in India's Gross Domestic Product (GDP) and 5 per cent in India's industrial production. y This sector has generated about 4.5 lakh of direct employment and about one crore of indirect employment.

y India holds huge potential in the automobile sector including the automobile component sector owing to its technological, cost and manpower advantage. y India has a well developed, globally competitive Auto Ancillary Industry and established automobile testing and R&D centers. y India enjoys natural advantage and is among the lowest cost producers of steel in the world.

The automobile industry in India

y y y y y y y 9th largest automobile industry . 2nd largest two-wheeler market, 11th largest Passenger Cars producers. 4th largest in Heavy Trucks. 2nd largest tractor manufacturer. annual production of over 2.3 million units. The monthly sales of passenger cars in India exceed 100,000 units.

Auto sector
y Despite economic slowdown that has affected the automobile industry, production and exports of the sector went up last fiscal, said the Economic Survey 2008-09, and underlined that the industry employs over one crore people. y While the overall automobile production went up by 3 per cent to reach 1.11-crore, exports increased by over 23 per cent to over 15-lakh. The domestic turnover of the sector stood at Rs. 2.19-lakh crore, while exports totalled at Rs. 31,782 crore, taking the total size of the industry to Rs. 2.50-lakh crore during 2008-09.

AUTOMOBILE

2 WHEELER

3 WHEELER

PASSENGER VEHICLE

COMMERCIAL VEHICLE

I.C.V.

M.C.V.

H.C.V.

MOTORCYCLE

SCOOTERS

SCOOTERETTES

MOPEDS

GROSS TUNROVER OF THE AUTOMOBILE INDUSTRY IN INDIA

(IN USD MILLION)
40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 2004-05 2005-06 2006-07
(IN USD MILLION)

2007-08

2008-09

Installed capacity
Year 2009-10 Year 2010-11

Automobile Production Trends

Category Passenger Vehicles Commercial Vehicles Three Wheelers Two Wheelers Grand Total 2004-05 2005-06 2006-07 15,45,223 5,19,982 5,56,126 84,66,666 2007-08 17,77,583 5,49,006 5,00,660 80,26,681 2008-09 18,38,593 4,16,870 4,97,020 2009-10 23,57,411 5,67,556 6,19,194 2010-11 29,87,296 7,52,735 7,99,553 1,33,76,451 1,79,16,035

12,09,876 13,09,300 3,53,703 3,74,445 3,91,083 4,34,423

65,29,829 76,08,697

84,19,792 1,05,12,903

84,67,853 97,43,503 1,10,87,997

1,08,53,930 1,11,72,275 1,40,57,064

Market Share
16.25

4.36 3.39
Passenger Vehicles Commercial Vehicles Three Wheelers Two Wheelers

Figures in %

76

Domestic sales
Category Passenger Vehicles Commercial Vehicles Three Wheelers Two Wheelers Grand Total 2004-05 10,61,572 3,18,430 3,07,862 62,09,765 78,97,629 2005-06 11,43,076 3,51,041 3,59,920 70,52,391 89,06,428 2006-07 13,79,979 4,67,765 4,03,910 78,72,334 1,01,23,988 2007-08 15,49,882 4,90,494 3,64,781 72,49,278 96,54,435 2008-09 15,52,703 3,84,194 3,49,727 74,37,619 2009-10 19,51,333 5,32,721 4,40,392 93,70,951 2010-11 25,20,421 6,76,408 5,26,022 1,17,90,305 1,55,13,156

97,24,243 1,22,95,397

Export trend
Category Passenger Vehicles Commercial Vehicles Three Wheelers Two Wheelers Grand Total 2004-05 1,66,402 29,940 66,795 3,66,407 6,29,544 2005-06 1,75,572 40,600 76,881 5,13,169 2006-07 1,98,452 49,537 1,43,896 6,19,644 2007-08 2,18,401 58,994 1,41,225 2008-09 3,35,729 42,625 1,48,066 2009-10 4,46,145 45,009 1,73,214 2010-11 4,53,479 76,297 2,69,967

8,19,713 10,04,174 11,40,058 15,39,590

8,06,222 10,11,529 12,38,333 15,30,594 18,04,426 23,39,333

Forcast 2011-12

Market Share
Others, 5.8% Yamaha, 3.8% TVS Motors, 17.7% Hero Honda, 39.8% Bajaj Auto, 24.4%
Hyundai, 19.17 Others, 5.73

Honda Motors, 8.5%

Honda, 5.33 Tata Motors, 17.19 Maruti, 50.37

2 wheelers market

4 wheelers market

Indian Commercial Vehicle Market

HM
Medium & Heavy CV Trucks Buses L, M & HCV Light & Small Comm Veh Trucks

64% 40% 59%

24% 30% <1%

7% 32%

8% 5% 4%

10% 3%

3% 6% 3%

1%
<1%

<1% 1% -

<1% -

Indian 3-Wheeler Market

Sub Segments
Scooters India

60%

68%

24%

2%

1%

3%

3%

40%

23%

40%

12%

13%

7%

6%

SWOT Analysis
Strengths
Automobile industry is an established and an evergreen industry. India is the strongest player in the small car segment of the global automobile market Indian companies are the best cost innovators

Some of the greatest developments in the automotive supply chain lie in the development of Just-In-Time (JIT) inventory methods. Through the use of advanced technologies, assembly line manufacturing, and JIT inventory management, the automotive industry has been able to achieve significant gains in productivity.

Weakness
Indian is lacking in proper infrastructure. This is slowing the pace of growth of auto industry Companies are not improving after sale services

Oppurtunity
y The automotive ecosystem is in the midst of significant change, with increasing challenges in consumer demands, technology development, and globalization. y While demand for incumbent technologies will remain strong, alternative power trains could capture more than 20 percent of the global market by 2020, depending upon boundary conditions such as fuel taxation and emissions regulation set by governments as well as oil price development. y storage is in the heart of the next generation of efforts for fuel economy. y More realistic scenario will emerge for technologies using Hydrogen as automotive fuel. y Intelligent use of NCES (Non conventional energy sources) for powering Public Transport.

Threats
y y y y Global Crisis Companies not focusing on R & D are under great risk High competition from foreign players Lack of technology for Indian companies

Demand Drivers
 Inadequate public transportation system, especially in the semi-urban and rural areas  Increased availability of cheap consumer financing in the past 3-4 years;  Increasing availability of fuel-efficient and low-maintenance models;  Increasing urbanization, which creates a need for personal transportation;  Changes in the demographic profile;  Difference between two-wheeler and passenger car prices, which makes two-wheelers the entry level vehicle;  Steady increase in per capita income over the past five years; and  Increasing number of models with different features to satisfy diverse consumer needs.

Key Growth Drivers

Key Market Drivers

Increasing disposable incomes Low operating cost
Higher fuel efficiency of Newgeneration motorcycles Greater reliability resulting in low maintenance cost

Key Trends
Eclipse of scooter segment

Emergence of new motorcycle subsegments

Economy

Low interest rates translating to low financing and acquisition costs hence greater affordability. Inadequate urban & rural public transportation infrastructure Ease of use in congested city centres

Executive Performance

Shrinking product life-cycles

Porters Model

Threat of New Entrants; Unfavorable Competitive Rivalry ; Unfavorable Power of Buyers; Favorable Power of Suppliers; Favorable Threat of Substitute Products; Unfavorable

Political - Legal Factors

Boosted Economic Growth
1 year 6% cut in CENVAT, abolition of surcharge on income tax. Abolition of FBT, Reduction of excise duty on big cars. Encourage Urban Fleet Modernization
1-5 Years - Providing Special Auto-component Parks (SAP) and Special Economic Zones (SEZ) as in IT . Negative list of items and rules of origin in FTAs / RTAs. (ASEAN Free Trade Agreement) - SIAM recommended the government on extending excise and sales tax benefits to customers who opt for scrappage of their old vehicles 5-10 Years Effective Implementation and Uniform enforcement of GST Maintain a three tier tariff structure for raw materials, intermediate goods, finished goods. Revamp WTO compatible export promotional schemes like DEPB, EOU and EPCG schemes AMP Plan 2006-16 set by govt

Stunted Economic Growth

1 year Differential excise duty for small and big cars. Customs duty for imported cars including hybrid cars. Excise duty cut only for petrol driven trucks 1-5 Years Existing Complex labor laws( 45 Central acts and 16 associated rules) Not implementing country wide VAT Ambiguous policy in land acquisition for green field projects . 5-10 Years Poor execution of Infrastructure investments. (Construction of Highways of 16km per day against the target of 32 km per day) Absence of National Auto fuel Policy (NAFP)

Economic Factors
1 year
Increased access to credit and lower interest loans

1-5 year
Investment in Infrastructure spending can boost the commercial vehicles segment.

5-10 years
Growing working population (441 million people in 2015/16) Upward migration of household income levels (600 million people have annual income of more than $10,200) Middle class expanding by 30 - 40 million every year

Can propel growth

Technological Factors Frugal Engineering is the way forward

Upgradeable green cars : Plug and play style engines to replace old ones: the Tata Nano model Downsize the cars without losing out on interior space. Lower cost, low fuel consumption , less material usage and less pollution

Grants and Incentives for R&D work

100% grant for fundamental research, 75% for pre-competitive technology, 50%for product development Extension of 150% weighted deduction on R&D expenditure

Developing India as a Testing hub: National Automotive Testing and R&D Infrastructure Project
Investment of INR 17.18 Billion (about USD 380 million) in setting up, inter alia, independent automotive testing centers within the three automotive hubs in the country Setting up of comprehensive Testing and Validation facilities including Field Tracks for Agricultural Tractors, Trailers, Construction Equipments and various other off-road vehicles at Rae Bareilly in Northern India

Collaborations and Foreign Tie ups for research and technology transfer Developing engines for bio-fuels, electric or hybrid vehicles

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