A

BRIEF REPORT

ON

AUTO AND AUTO ANCILARIES IN INDIA

March, 2013

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vehicle segment (19.4%), even as sales of medium and heavy vehicles (M&HCV) declined (-
10%). Subdued macro-economic environment, sluggish industrial demand and increase in diesel
price led to fall in sales of M&HCVs. Growth in overall domestic sales of commercial vehicles is
expected to be driven by the light vehicle segment in the year ahead as well. The export
environment for commercial vehicles is expected to remain challenging, with demand expected
to remain subdued in the key overseas destinations. Nevertheless, CV manufacturers would
increase thrust on exploring opportunities in non-traditional markets (Africa, Middle East,
Thailand, Afghanistan, Latin America, Russia, etc).

1.2.2 Passenger Vehicles

In the year ahead, increased marketing efforts by companies and launch of new models/variants
would be directed at pulling customers into the showroom. However, the demand momentum is
expected to gain momentum after the initial couple of quarters. Meanwhile, with the differential
between petrol and diesel prices continuing to remain large, the coming year would continue to
witness strong demand for diesel fuelled vehicles.

1.2.3 Two Wheelers

Rising petrol prices kept growth momentum in the motorcycle segment under pressure in 2012,
with domestic sales growing by a meager 2% (up to Nov) compared to growth of 27.1% in 2010
and 14.7% in 2011. There have been early signs of an improvement in demand as the festive
period towards the end of the year saw pick-up in sales. Expected demand for two wheelers to
improve next year, supported by moderation in inflation levels and revival in consumer
sentiment. However, the industry is unlikely to record the high growth rates as seen prior to
2012.

Automobile Production Trends (Number of
Vehicles)
Category 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
Passenger
Vehicles
1,309,300 1,545,223 1,777,583 1,838,593 2,357,411 2,982,772 3,123,528
Commercial
Vehicles
391,083 519,982 549,006 416,870 567,556 760,735 911,574
Three Wheelers 434,423 556,126 500,660 497,020 619,194 799,553 877,711
Two Wheelers 7,608,697 8,466,666 8,026,681 8,419,792 10,512,903 13,349,349 15,453,619
Grand Total 9,743,503 11,087,997 10,853,930 11,172,275 14,057,064 17,892,409 20,366,432
* Latest data as available

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
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& 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 Sales Trends (Number
of Vehicles)
Category 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
Passenger
Vehicles
1,143,076 1,379,979 1,549,882 1,552,703 1,951,333 2,501,542 2,618,072
Commercial
Vehicles
351,041 467,765 490,494 384,194 532,721 684,905 809,532
Three Wheelers 359,920 403,910 364,781 349,727 440,392 526,024 513,251
Two Wheelers 7,052,391 7,872,334 7,249,278 7,437,619 9,370,951 11,768,910 13,435,769
Grand Total 8,906,428 10,123,988 9,654,435 9,724,243 12,295,397 15,481,381 17,376,624
* Latest data as available

1.3.2 Exports

Automobile Exports Trends (Number of
Vehicles)
Category 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
Passenger Vehicles 175,572 198,452 218,401 335,729 446,145 444,326 507,318
Commercial
Vehicles
40,600 49,537 58,994 42,625 45,009 74,043 92,663
Three Wheelers 76,881 143,896 141,225 148,066 173,214 269,968 362,876
Two Wheelers 513,169 619,644 819,713 1,004,174 1,140,058 1,531,619 1,947,198
Grand Total 806,222 1,011,529 1,238,333 1,530,594 1,804,426 2,319,956 2,910,055
* Latest data as available

1.4 Major Automotive Players in India

Companies Segments
Ashok Leyland LCVs, M&HCVs, buses
Asian Motor Works M & HCVs
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
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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.

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-
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highway equipments. 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 Udyog

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 type of passenger cars
catering to the need of different section of the population.

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

1.5.7 Hero Honda Motors

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

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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 Karizma are 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, with output reaching a level of US$ 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 equipments
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

1.7 Future Prospective

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 US$ 145 billion accounting
for more than 10 per cent of the GDP and providing additional employment to 25 million
people by 2016.

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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 US$ 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.


1.7.1 Strategic Insight

Some of the key strategies that vehicle manufacturers are likely to adopt in 2013 are listed below:

a) Commercial vehicles
Launch new models
Increased customer focus by expanding sales and service network
Focus on product innovation to create new market segments
Develop new products for the international markets
Expand footprint to newer export markets
Continue thrust on cost control & productivity improvement measures
Greater thrust on and expansion of less cyclical businesses.

b) Passenger vehicles
Launch new vehicle models, especially more diesel models
Increase focus on tier II and tier III markets, even for high-end models
Expand sales and service network for enhanced customer satisfaction
Increase focus on expanding pre-owned vehicle business
Continue thrust on cost control & productivity improvement measures
Leverage social media to establish closer bonds with customers.

c) Two wheelers
Increase focus on small towns and rural markets (e.g. expansion of distribution/service
network)
Increase focus on emerging markets such as Brazil, Africa, Argentina, Indonesia, etc to
push exports.

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A brief report on Auto & Auto Ancillaries in India

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LCV 226,389 310,921 400,645 111,082 130,144 132,710 151,641

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* latest data as available

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 industrys
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 industrys exports
profitability at a broader level - given that exports account for only ~15% of the industrys 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 industrys planned capex outlay for 2012-13 also remains conservative since a
large magnitude of greenfield and brownfield capacity expansion was concluded during the
course of the last two years that provides sufficient capacity buffer to meet the level of demand
envisaged over the short term.


Figures for financial year April to March (* Estimates)

2.2 Auto Component Industry - Production Turnover


Financial Year
Ending
2005 2006 2007 2008 2009 2010 2011 2012
Percentage Change
(%)
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* latest data as available

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2.3 Major players

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

Bharat Gears, Gajra Bevel Gears and Eicher are some of the major players in the gears sub-
segment. Two international companies, GrazianoTrasmissioni 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 Driveshafts (India) and Delphi cater to the drive shaft requirements of passenger cars and
SonaKoyo Steering Systems services to the commercial vehicle segment.

Brakes India, KalyaniBrakes and Automotive Axles are the three major brake system suppliers in
the country.

Rane Brake Lining, SundaramBrake 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 Lumaxare prominent players manufacturing sheet
metal parts.

2.4 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.

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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 US$ 145 billion in
2016 with special emphasis on export of small cars, multi-utility vehicles (MUVs), two & three
wheelers and auto components.

2.5 Future Prospectus

It is estimated that by 2016-17, the total production of the auto component industry would be
$75 billion with exports accounting for $15 billion, 20% of the total domestic production. The
demand for auto components in the same year is expected to cross $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.