INDIAN AUTOMOTIVE INDUSTRY

Overview The Indian automotive industry has undergone a major transformation since the economic liberalization and has emerged as the sunrise sector in the Indian economy. The industry has been growing consistently over the past few years, but the growth has slowed down in the last two years. High interest rates, inflation, rising fuel prices, volatile commodity prices, weak macro-economic sentiments and adverse forex fluctuations have contributed in compounding the challenges. During the year under review, automobile production grew 1.20% compared to the 13.82% growth in 2011-12 and the automobile sales grew 2.61% compared to 12.24% in 2011-12. The size of the Indian automotive industry was valued at Rs. 21 million crore in 2011-12 (Source: Ministry of Heavy Industries & Public Enterprises) and it is estimated to grow []% in 2012-13 to Rs. [] million crore. Production and sales The year under review was very challenging for passenger vehicle segment as it grew at just 2.78%compared to 4.71% growth in the previous year. Rising fuel prices and high interest costs led to a significant increase in ownership costs, deterring customers from making vehicle purchases. The commercial vehicles segment registered a 10.48% decline. This was driven by LCV sales growing at 1.63%, even as sales of MHCV declined 27.61% owing to subdued macro-economic environment, sluggish industrial growth and increase in diesel prices. The three wheeler segment also saw a 4.50% decline compared to the 9.77% growth in the previous year. The two wheeler segment constituted more than 75% of the total sales volumes of automobiles in 2012-13. This segment grew 1.20% during the year under review as against 15.76% growth in the previous year, which had a strong impact on the aggregate sales. Production and sales of automobile (lakh units) Segments Production 2011-12 2012-13 % growth Passenger vehicles 31.46 32.33 2.78 LCVs 5.44 5.53 1.63 MHCVs 3.84 2.78 (27.61) 3 wheelers 8.79 8.39 (4.50) 2 wheelers 154.27 157.21 1.90 Total 203.82 206.26 1.20 (Source: SIAM)

Sales 2011-12 2012-13 26.29 26.86 4.60 5.24 3.49 2.68 5.13 5.38 134.09 137.97 173.61 178.15

% growth 2.15 14.04 (23.18) 4.87 2.90 2.61

180 160 140 lakh units 120 100 80 60 40 20 0 Passenger vehicles 31.46 32.33 5.44

Production

154.27

157.21

5.53

3.84 2.78 MHCVs 2012-13

8.79 8.39 3 wheelers 2 wheelers

LCVs 2011-12

(Source: SIAM)
200 180 160 140 120 100 80 60 40 20 0

Sales
134.09

173.61 178.15 137.97

In Lackh units

26.29

26.86 4.6 5.24 3.49 2.68 5.13 5.38 Passenger vehicles LCVs MHCVs 2012-13 3 wheelers 2 wheelers

2011-12

(Source: SIAM) Exports Over the last five years, automobile exports have grown rapidly at a CAGR of []% from 1.01 million units in 2006-07 to [] million units in 2012-13. However, the exports have been on a downhill drive since mid2012. During the year under review only the passenger vehicle segment and two wheeler segment witnessed growth. Growth in two wheeler, which accounts for more than 65% of the total automobile export, slumped to []% in 2012-13, from []% in the previous year. The Commercial vehicle segment and three wheeler segment witnessed the biggest decline in growth at []% and []% respectively in 2012-13, as against []% and []% growth in the previous year. Exports (lakh units) Segments

Export 2011-12 2012-13 % growth Passenger vehicles 5.08 5.54 9.02

LCVs MHCVs 3 wheelers 2 wheelers Total (Source: SIAM)

25 20 Lakh vehicles 15 10 5 0 Passenger vehicles 5.08 5.54

0.63 0.28 3.61 19.75 29.37

0.60 0.19 3.03 19.60 28.98

-4.45 -33.25 -16.22 -0.72 -1.34

Exports - Segment wise

19.75 19.6

0.63

0.6

3.61 3.03 0.28 0.19 3 wheelers 2 wheelers

LCVs 2011-12

MHCVs 2012-13

(Source: SIAM) Exports trends Year Lakh vehicles 2008-09 15.30 2009-10 18.04 2010-11 23.19 2011-12 29.10 2012-13 28.98 (Source: SIAM)

Exports trends
35 30 Lakh vehicles 25 20 15 10 5 0 2008-09 2009-10 2010-11 2011-12 2012-13 15.3 18.04 23.19 29.1 28.98

Growth drivers Rising disposable income: The per capita income of Indians have increased at a CAGR of []% from Rs. [] in 2008-09 to Rs. [] in 2012-13. With increase in rising disposable income the young population is driving up the demand for cars. Growing middle class: The size of the Indian middle class has increased []% over the past five years and is expected to touch 550 million by 2025 from 50 million in 2010 which will fuel the demand for better automobiles. Easy credit availability: The auto finance industry has grown at an average annual rate of 13 per cent during FY08-12. The private sector banks like ICICI, HDFC and Axis among others are also showing increasing interest in the segment which was previously dominated by public players. The easy and greater access to cheap credit makes it easier for consumers to purchase passenger and commercial vehicles. Indian auto finance market size (USD billion) Year Car industry sales volume Vehicle finance penetration FY 07 10.6 8.0 FY 08 11.9 8.5 FY 09 11.9 7.7 FY 10 15.1 10.6 FY 11 20.5 14.8 (Source: Kotak Mahindra Bank, Aranca Research)
25 20 USD billion 15.1 15 10.6 10 5 0 FY 07 FY 08 FY 09 FY 10 FY 11 Car industry sales volume Vehicle finance penetration 8 11.9 8.5 11.9 7.7 10.6 14.8

Indian auto finance market size 20.5

(Source: Kotak Mahindra Bank, Aranca Research) Strong FDI inflow: The Government of India allows 100% FDI in the automotive industry through automatic route. This has prompted many global majors to consider India as a production hub for pushing up their sales of automobiles, particularly the passenger cars and commercial vehicles. The amount of cumulative foreign direct investment (FDI) inflow into the automobile industry during April 2000 to January 2013 was worth US$ 7,653 million, amounting to 4 per cent of the total FDI inflows (in terms of US$), as per data published by Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce.

AUTO COMPONENTS INDUSTRY

Overview The Indian automotive industry has witnessed a robust growth over the last couple of years. The auto component industrys revenues have growth from Rs. 106,400 crores in 2006-07 to Rs. 206,267 crores in 2011-12, growing at a CAGR of 14.6%, despite a brief global economic slowdown. The auto component industry witnessed a decline during 2009 but it bounced back strongly in 2010 and 2011 with a turnover growth of 28% and 35% respectively. The growth was pushed by strong vehicle demand across the categories of the automotive industry. However, growth rate softened to 13% in 2012 and []% in 2013 as auto sales were strangulated with high interest rates, towering fuel prices and rising commodity prices. Production

Production
250,000 200,000 Rs. in crores 150,000 100,000 50,000 0 0 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 135,700 106,400 105,700 182,100 206,267

Exports and imports India has a distinct global advantage for being the low cost and high quality producer of auto components. As a result, India is seen as a major outsourcing hub for auto components by developed countries (USA and Europe). Over the years the exports of auto components increased at a CAGR of []% over FY08-13. The exports grew at a higher rate of 47% and 41% during FY 11 and FY 12 as a majority of global OEMs have moved substantial part of their manufacturing operations to India so as to make India as their export base. The imports of auto components grew []% in 2012-13 to Rs. [] crores compared to Rs. 51,441 crores in the previous year. With higher indigenization in the domestic market, the wide gap between imports and export will be coming down.

60,000 50,000 Rs. in crores 40,000

Exports and Imports 51,441

38,760 31,280 30,680 23,712 18,400 16,048 33,485 26,040 15,960

30,000 20,000 10,000

0 0 0 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 Exports Imports

Investments Investments in the sector has risen from USD 0.7 billion in FY 06 to USD 2.5 billion in FY 12, a CAGR of []% as automobile companies have increased their capacities and introduced a wide array of new products during the time period. However, the sluggish demand in the automobile industry has affected new investments in the components industry as the investments in the sector has declined to a fouryear low of less than USD 1 billion in 2012-13.

Investments
3 2.5 in USD billion 2 1.5 1 0.5 0 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 0.1 0 1.8 1.7 2.3 2.5

Growth drivers Loan subsidy on new plants and equipment: The Department of Heavy Industries and Public Enterprises has created a USD 200 million fund to mobilise the auto components industry by providing an interest subsidy on loans and investments in new plants and equipment. It has also provided export benefits to intermediate suppliers of auto components against Duty Free Replenishment Certificate. Global best practices: The Indian auto component manufacturers are embracing the best global practices such as 5S, 7W, Kaizen, TQM, TPM, 6 Sigma and Lean Manufacturing among others. Further most players in the organized sector are accredited with quality certifications like ISO

9000, ISO 14001 and TS 16949. This has caught the attention of global automobile manufacturers who are planning to make India a sourcing hub for their global operations. Awards received by Indian players Awards Total Productive Deming Japan Institute of Japan Shingo Maintenance Award Plant Maintenance Quality Silver (TPM) Award (JIPM) Medal Medal No. of 15 12 3 2 1 companies Localization by OEMs: As Indian auto component manufacturers offer the advantages of low cost production, adequate manufacturing capacity, adhere to global best practices and make use world class technology, India is emerging as the global hub for auto component products. As a result more and more number of global OEMs are increasing the localization of products offered by them in the Indian markets. Focus on R&D: Auto component manufacturers are increasing their R&D spends and investing in operations and laboratories, which are being set up to conduct activities such as analysis and simulation, and engineering animations. The growth of global OEM sourcing from India and the increased indigenization of global OEMs is turning India into a preferred designing and manufacturing base.

Outlook Going ahead, the growth of the Indian auto component industry in the coming year will be tepid as compared to the past few years. Increasing fuel costs, high interest rate, high inflation and policy inaction are few of the factors which is affecting the growth of the Indian auto sector.