Automobile&Auto Ancillaries

Automobiles and Auto Ancillaries
Senior Analyst: Siddharth Janghu Junior Analysts: Kawaljeet Singh Vamshi Krishna Vangala
Unnati Investment Management and Research Group
Table of Contents
AUTOMOBILES OVERVIEW .......................................................................................................................................... 3 INDUSTRY CLUSTERS ....................................................................................................................................... 5 MARKET SEGMENTS ........................................................................................................................................ 6 VALUE CHAIN ..................................................................................................................................... 7 TWO WHEELERS ............................................................................................................................... 9 THREE WHEELERS .........................................................................................................................17 PASSENGER VEHICLES ..................................................................................................................21 COMMERCIAL VEHICLES...............................................................................................................28 TRACTORS .........................................................................................................................................33 GOVERNMENT POLICIES AND REGULATIONS.......................................................................36 SOCIETY OF INDIAN AUTOMOBILE MANUFACTURERS .....................................................39 IMPACT OF BUDGET 2012 ON AUTOMOBILE SECTOR ......................................................40 LATEST HAPPENINGS, FUTURE TRENDS IN AUTOMOBILE SECTOR .............................41 KEY PLAYERS ...................................................................................................................................46 HERO MOTOCORP ......................................................................................................................................... 46 BAJAJ AUTO .................................................................................................................................................... 47 MAHINDRA AND MAHINDRA ....................................................................................................................... 48 TATA MOTORS ............................................................................................................................................... 50 MARUTI SUZUKI............................................................................................................................................. 52 AUTO ANCILLARIES OVERVIEW ........................................................................................................................................54 INDUSTRY SEGMENTATION ........................................................................................................58 VALUE CHAIN ...................................................................................................................................61 GOVERNMENT POLICIES AND REGULATIONS.......................................................................62 AUTOMOTIVE COMPONENT MANUFACTURERS ASSOCIATION OF INDIA ..................63 IMPACT OF BUDGET 2012 ON AUTO ANCILLARY SECTOR...............................................64 MACRO FACTORS AFFECTING THE INDUSTRY .....................................................................65 KEY PLAYERS ...................................................................................................................................67 APOLLO TYRES .............................................................................................................................................. 67 MOTHERSON SUMI ........................................................................................................................................ 69 BHARAT FORGE ............................................................................................................................................. 71 EXIDE INDUSTRIES ........................................................................................................................................ 72 TYRE INDUSTRY ..............................................................................................................................75 BATTERY INDUSTRY .....................................................................................................................80
Overview
The Indian automobile industry is the seventh largest and the second fastest growing in the world. It plays a significant role in driving economic growth. The contribution of the automotive industry to GDP has risen from 2.77% in 1992-93 to around 6% now. This is expected to increase to increase to 10% by 2016. At present, it accounts for 22% of Indias manufacturing GDP. India represents one of the worlds largest and fastest growing automobile markets. The Indian Automotive industry embarked on a new journey in 1991 with delicensing of the sector and subsequent opening up for 100 per cent FDI through automatic route. This attracted foreign auto giants to set up their production facilities in the country in a bid to take advantage of various benefits offered by the industry. Improving income levels ,strong technological capability have been boosting automobile demand in the country for past few years. Even in the wake of economic slowdown, the industry sustained its positive growth momentum mainly because of strong domestic demand for passenger cars. The growth of Indian middle class with increasing purchasing power along with strong growth of economy over a past few years have attracted the major auto manufacturers to Indian market. The market linked exchangerate and availibility of trained manpower at competetive cost have further added to attraction of Indian domestic market. The increasing pull of Indian markets on one hand and near stagnation in auto sector in USA, EU and Japan on the other have worked as push factor for shifting of new capacities and flow of capital to Indian auto industry.
Manufacturing 3%
COST BREAKDOWN
Labour 4%
Sales and Distribution 8%
Other costs 6%
Raw materials 79%
Unnati Investment Management and Research Group 3
Commercial vehicles 4% Three Wheelers Passenger 4% vehicles 16%
Production
Two Wheelers 76%
Highlights
Ranking of Indian Automobile industry in various categories in the world
1 1
MANFACTURER OF TWO WHEELERS MARKET FOR THREE WHEELERS MARKET FOR TWO WHEELERS MANUFACTURER OF PASSENGER VEHICLES MARKET FOR PASSENGER VEHICLES MARKET FOR TRACTORS MARKET FOR COMMERCIAL VEHICLES
2
6 10 4 5
Industry Clusters
The automobile industry is concentrated in 4 key regions North: Delhi-Gurgaon-Faridabad West: Mumbai-Pune-Nashik-Aurangabad East: Kolkata-Jamshepur South: Chennai-Bengaluru
Market Segments
Motorcycles Two Wheelers Scooters Mopeds Goods carriers
Automobiles
Three Wheelers Passenger carriers Passenger cars Passenger Vehicles Utility vehicles Multi purpose vehicles Light commercial vehicles Commercial Vehicles Tractors Medium commercial vehicles Heavy commercial vehicles
Value Chain
Tier3 suppliers
These are basically small workshops that provide small or may be recycled components or may be consumables to TIER2 Supplier. The company usually does not deal directly with them but could if some regulatory requirements are to be fulfilled.
Tier 2 Suppliers
They provide much-sophisticated products to Tier1 like metal rods or fabrics that go on producing the axle rods or carpets. The quality of component they produce could affect the quality of the vehicle.
Tier1 Suppliers
These are the biggest in operations as compared to the rest and supply the product directly to the OEM for manufacturing. The company takes a stock of the quality of component supplied. Components could be gearboxes, pistons or un-machined blocks, which the company could process, further depending on its requirements.
OEMs
The OEMs actually coordinate with the suppliers for part development and only deal with designing and assembly of parts. They are the centralized agencies in the overall process. The processes followed are 1. Procurement of Steel 2. Blanking 3. Welding 4. Painting 5. Assembly (components are assembled during these operations) - engine + vehicle 6. Quality Check 7. Stocking 8. Delivery
Dealer
After the product is made it is supplied to the dealer by the OEM depending upon his request. A dealer basically acts as an interface between the OEM and the customer.
Finance and insurance

Increasing the OEMs are entering into this field due to shrinking margins in the core business and more returns from this business. Besides this the company can aid in the procurement of the vehicle and increase its sales.
2nd hand retailers

They procure the used vehicle from the customers and sell them in the 2nd hand car market. Increasingly this market is also expanding and many OEMs have opened shop in this sector also Unnati Investment Management and Research Group 7
Scrappage Yards
Though not popular in India many foreign nations have the policy of scrapping once the useful life of the product is over. The product is crushed and the recycled materials are used again. The non-recyclable are incinerated.
Transport Agencies
They are the transport agents that cater to the transport needs of the OEMs.
Repair and Spare Market

The dealers usually deal with the repair of the vehicle even though most users do not prefer them due to high costs. The spare market caters to a huge volume of components.
Tier 2 Supplier
Tier 1 Supplier
OEM
Dealer
Customer
Tier 3 Supplier
Transport Agencies Scrappage yards 2nd Hand Buyers
Finance 2nd Hand Retailers
Repair & Spare Market
Two Wheelers
Overview
Domestic two wheeler industry in India has witnessed a CAGR of 15.93% over the past four years. This growth has been due to increasing per capita income, cheap cost of ownership and maintenance. Since the average road speeds in India are low, the lower passenger safety of two-wheelers when compared to cars does not inhibit buyers. India has become the second largest two-wheeler market in the world with annual sales of over 13 million units. Indias demography continues to remain favourably on its side with average age of 25 years, which is 9 years younger than China, and more than 12 years and 19 years younger than the US and Japan, respectively.
Indian two wheeler industry can be broadly classified into three categories:
Motorcycles: Wheel Size greater than 12" Scooters: Wheel Size less than 12'' Mopeds: Fixed transmission and Engine Capacity less than 75cc
MOTORCYCLES
ECONOMY SEGMENT EXECUTIVE SEGMENT PREMIUM SEGMENT
Key demand side growth drivers

Scope of increasing penetration in rural areas: The penetration rates differ between Indias rural and urban areas, with th e rural areas being under-penetrated by almost three times than urban areas. Though urban India is still not fully penetrated, the scope for rural penetration is huge as only 32 per 1000 inhabitants have 2W. Moreover, the growth in income, changing mind set, favourable young population, increasing connectivity, all point towards a huge market potential for the two wheeler industry to penetrate and expand in the rural India. Favourable demographics: A large youth population potentially offers a sizeable market for consumer products. India currently has a very favourable demographic profile with average age of 25 years, which is 9 years younger than China, and more than 12 years and 19 years younger than the US and Japan, respectively. Around 33% of Indias population of 1.2 billion belongs to the age bracket of 20-40 years. Within this, the population of males, which is the key target segment for motorcycles, is estimated to be 206 million and females, which is the key target segment for scooters, is estimated to be 189 million, suggesting existence of large size of the addressable market. Low sensitivity to interest rate and fuel price changes: The 2W market is less sensitive to interest rate changes because only around 30% of two wheelers are financed compared to around 80% of financing rate in passenger vehicle segment. Also as the 2W industry bets on rural spending, the sensitivity to interest rate further comes down. Since the deregulation of petrol prices, the prices have almost become 1.7 to 1.8 times, still the growth of two wheelers has been buoyant mainly because of high fuel efficiency and low cost of operating compared to passenger vehicles. Rising per capita income: 10 Unnati Investment Management and Research Group
The growth rate of Indian GDP has remained far above the levels of developed and a number of developing economies, even in the time of recession during 2008 to 2010 and has slowed down only recently in 2011-12 to 6.5% due to lack of economic and political factors. But still, the per capita income has increased from Rs. 24,143 in the year 2004-05 to Rs. 54,835 in the year 2010-11, showing an increase of more than 120%. And it is expected to grow at similar levels in the next 5 years showing huge market potential for two wheeler industry.
Key supply side growth factors

Expansion plans of major players. Growing reach of established players. Entry of new players. Increasing options of consumer finance to aid low income rural consumers.
Key concerns
Increased dependence on monsoons. Fluctuation in foreign exchange rates for exports. Increased environmental and safety requirement for OEMs. Increasing input costs.
MARKET SHARE SEGMENT WISE

MOPEDS 5% ELECTRIC TWO WHEELERS 1%
SCOOTERS 18%
MOTORCYCLE S 76%
MARKET SHARE IN 2W
YAMAHA 3% OTHERS 6%
HMSI 14%
TVS 13% HERO MOTOCO RP 41%
BAJAJ AUTO 23%
MARKET SHARE IN MOTORCYCLES (Economy Segment)

YAMAHA OTHERS 2% 1% TVS 21% HERO MOTOCOR P 44%
BAJAJ AUTO 32%
MARKET SHARE IN MOTORCYCLES (Executive Segment)

OTHERS HMSI TVS 3% 11% 1%
BAJAJ AUTO 17%
HERO MOTOCORP 68%
12
MARKET SHARE IN MOTORCYCLES (Premium Segment)

HMSI 10% ROYAL ENFIELD 6% OTHERS 1%
TVS 8%
YAMAHA 14% HERO MOTOCORP 20%
BAJAJ AUTO 41%
MARKET SHARE IN SCOOTERS

M&M 7%
SUZUKI 11%
TVS 19%
HMSI 48% HERO MOTOC ORP 15%
Domestic sales trend

The domestic sales for two wheelers have grown at a CAGR of 15.93% over the past four years from 2008-09 to 2011-12. Two Wheelers sales registered a growth of 14.16% during April to March 2012. Mopeds, Motorcycles and Scooters grew by 11.39%, 12.01% and 24.55% respectively in the said year.
DOMESTIC SALES TREND FOR TWO WHEELERS

16000000 14000000 12000000 10000000 8000000 6000000 4000000 2000000 0 2008-09 2009-10 2010-11 2011-12 7437619 11790305 13434846
9268240
DOMESTIC SALES TREND FOR TWO WHEELERS
Exports trend
Bajaj Auto Ltd is the largest 2W exporter from India, followed by TVS, with both companies exporting to a large number of countries. Together, Bajaj and TVS accounted for 79% of all 2W exports from India in 2011-12. HMSI has also expanded its export base and has a current market share of 7%. Also, Hero Motocorp, Indias market leader in motorcycles, has announced plans to increase its exports revenue to 10% of total revenues by 2016 from current 2-3%. This is after the joint venture between Hero and Honda ended in 2012 as now it is not restricted by the agreement with Honda. Now, since the developed markets like the United States and Europe have altogether different product and technology requirements as compared to emerging markets, they are not considered as target markets for the Indian players. Therefore, a large majority of 2W exports from India are to developing markets like South Asia, Africa and Latin America. In 2011-12, two-wheeler exports from the country grew 27.13% at 1.94 million units compared with 1.53 million units in 2010-11. Bajaj Auto was the largest exporter with 1.26 million units, followed by TVS Motor (2.6 lakh units). India Yamaha Motors was the fourth largest with shipment of 1, 29, 394 units, a growth of 45%. Over the past four years from 2008-09 to 2011-12, exports of two wheelers has grown at CAGR of 18.01%, outpacing the growth in domestic numbers.
14
MARKET SHARE OF MAJOR PLAYERS IN EXPORTS

YAMAHA OTHERS 1% 5% HERO MOTOCO RP 8% HMSI 7% TVS 13% BAJAJ AUTO 66%
MAJOR EXPORT MARKETS FOR 2W Nepal

6% Phillipines 7% Bangaldes h 9% Sri Lanka 12% Kenya Brazil Uganda 4% 2% 4% Others 25% Nigeria 19%
Columbia 12%
EXPORTS SALES TREND FOR 2 WHEELERS

2500000
2000000
1500000 1000000 500000 0 2008-09 2009-10 2010-11 1004171 1140008
1947266
1539590
EXPORTS SALES TREND FOR 2 WHEELERS
2011-12
Outlook
Hero MotoCorp and Bajaj Auto, the country's largest two-wheeler makers reported a YoY decline in sales for Jul'12. Some other auto firms reported a decline in sales because of the slowdown in the Indian economy. A drop in rural income and weak monsoons has especially hit 2W sales. This trend will lower the growth of 2W industry in the short term due to low monsoons and negative consumer sentiments. The scooters segment will drive the growth in the industry with new models from Hero, Honda, M&M coming up in the near future. But despite the economic slowdown, Indian 2W industry has done well compared to other major markets of the world. Also, in the long term, rise in rural demand, increasing urbanization, increasing income, shrinking replacement cycles, increasing fuel efficiency, favourable demographics, increasing women consumers boosting scooter demand, rise in exports, and rise of electric two wheelers will drive the 2W industry to grow at CAGR of 11-12% in the next five years.
16
Three Wheelers
Overview
India is the worlds foremost producer, consumer and exporter of three -wheelers (3W) with domestic sales of 5.13 lakh units and exports of 3.63 lakh units in the financial year ending March 31, 2012. 3Ws are widely used in India as an affordable means of short-to-medium distance public transportation and last mile connectivity for goods transportation. Apart from the domestic demand, India has also emerged as important export hub for 3Ws with presence in some of the South Asian, African and Latin American markets that are replicating Indian 3W story with rising disposable incomes but inadequate public transport systems. Overall, the 3W industry has witnessed relatively healthy 15% CAGR volume growth over the last decade driven by moderate domestic growth (~10% CAGR) and robust exports growth (~38% CAGR).
THREE WHEELERS
GOODS CARRIER
PASSENGE R CARRIER
Growth drivers
Greater reach within the area compared to other public transport means like metro, buses. Ideal for congested roads of India particularly because of increasing urbanization. Inadequacy of public transport to server the last mile transportation needs of population. Feasibility of carrying goods from low accessible areas like Tier 3 cities. Low cost of ownership compared to taxis and small commercial vehicles. Self-employment opportunity for youth. Low operating costs both for passenger and goods carriers.
Concerns
With the successful launch of four-wheeled Small Commercial Vehicles (SCVs) (mainly Tata ACE), the industry dynamics have altered especially for the cargo segment, considerably over the last five years. High tonnage (0.75T and above) 3W cargo segment has made way for 4W SCVs that provide higher stability, safety, Unnati Investment Management and Research Group 17
speed, space and style. While domestic 3W goods segment has de-grown at 9% CAGR, SCVs have reported robust 21% CAGR growth over the last five years.
MARKET SHARE IN 3W (Passenger Carrier)

ATUL AUTO OTHERS 6% 3% M&M 12% BAJAJ AUTO 47%
PIAGGIO 32%
MARKET SHARE IN 3W (Goods Carrier)

BAJAJ 8% SCOOTERS INDIA 9%
ATUL AUTO 12%

M&M 17%
PIAGGIO 54%
Sales Trend
Total 3W sales have grown at a CAGR 15.18% over the past four years from 2008-09 to 2011-12. Export contribution has also risen from 30% in 2008-09 to 41% in 2011-12 with Bajaj Auto being the largest exporter of three wheelers.
18
TOTAL 3W SALES
1000000 900000 800000 700000 600000 500000 400000 300000 200000 100000 0 2008-09 2009-10 2010-11 2011-12 497793 613606 TOTAL 3W SALES 795992 876127
EXPORTS CONTRIBUTION AS A PERCENTAGE OF TOTAL SALES

45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
41%
30% 34% 28% EXPORTS CONTRIBUTION AS A PERCENTAGE OF TOTAL SALES
2008-09
2009-10
2010-11
2011-12
Outlook
The three-wheeler industry continued to remain under pressure owing to flat demand in the domestic market for passenger carriers and negative demand for goods carriers. Exports were impacted due to a disruption in demand from Sri Lanka due to an increase in import duty for three-wheeler vehicles. The domestic goods carrier segment has de grown at 9% CAGR while SCVs have grown at a CAGR of 21% Unnati Investment Management and Research Group 19
over the same period. Moreover, high inflation, slow economic growth, increase in financing costs will affect the sales of goods carrier segment in the medium term. Increasing export contribution is expected is expected in the medium term as India enjoys the dominant position in the global 3W market. In the medium term, the passenger carrier segment will benefit from improving road infrastructure, increasing demand for motorized transportation, inadequate public transport, and new permits from state governments like Delhi which will drive its growth.
20
Passenger Vehicles
Overview
The Passenger Vehicle industry has always been a barometer for the economic strength of a nation. The Indian PV market sentiments have been significantly positive post the economic downturn.. Even in the wake of economic slowdown, the industry sustained its positive growth momentum mainly because of strong domestic demand for passenger vehicles. The economic recovery coupled with introduction of new models, easy availability of finance and aggressive pricing by almost all the players has helped the industry to post strong growth over the past few years. The competitive advantage arising out of low-cost destination, proximity to Asian markets and lower shipment costs makes India a sourcing hub and a manufacturing base for the major Original Equipment Manufacturers (OEMs). Indian passenger industry has seen a drastic change in the post liberalization era with Indian manufacturers like Maruti Suzuki, Tata Motors, Mahindra & Mahindra, expanding their operations and global manufacturers like Hyundai, Honda, Skoda, Nissan, Mitsubishi coming up with their range of vehicles from small cars to SUVs and sedans. Even the luxury car makers like BMW, Audi, Mercedez Benz, have tapped the high income groups and upper middle classes in India. India has been one of the worlds largest markets for small hatchbacks. Even Tata Motors launched Tata Nano in 2009 which is the worlds cheapest car and now competitors like Bajaj Auto are going to launch their low cost cars in the next fiscal year. Passenger Vehicles segment grew at 4.66% during April to March 2012 over same period last year. Passenger Cars grew by 2.19%, Utility Vehicles grew by 16.47% and Vans by 10.01% during this period. The growth in the UV segment of the passenger vehicle industry has outpaced other segments due to new models, usage of diesel and low cost launches like Mahindra XUV 500 and Maruti Ertiga. Buoyant economic growth, rising disposable income levels, favorable demographics, strong growth from tier II and III cities and rural India, increasing trend of nuclear families, improving availability of vehicle financing at competitive interest rates have been the key factors fuelling growth in the Indian passenger vehicle market. The domestic PV market has grown at a CAGR of 11.22% in the past five years and exports have grown at a CAGR of 18.84% and the industry is expected to grow at a CAGR of 11% over the next five years.
Growth drivers
LOW PENETRATION LEVELS Currently the penetration levels in India for passenger vehicles is at 17 per 1000 compared to world average of 144 per 1000. This shows that there is a huge potential for the new and existing manufacturers to penetrate in different segments which will be complemented by increasing growth of the economy and changing mind set of the consumers who are shifting from two wheelers to passennger vehicles. INCREASING PER CAPITA INCOME The per capita income of the Indian consumers has been on a rise due to an average GDP growth rate of around 7-8% for the last four years which has outpaced the growth rate of many developed countries like US, Japan and France and has been only next to China in terms of percentage growth rate. FAVOURABLE DEMOGRAPHIC PROFILE India currently has a very favourable demographic profile with average age of 25 years, which is 9 years younger than China, and more than 12 years and 19 years younger than the US and Japan, respectively. Around 33% of Indias population of 1.2 billion belongs to the age bracket of 20-40 years. This young population and changing lifestyles of the consumers, provide a huge opportunity to OEMs to penetrate and expand their markets. INCREASING TREND OF NUCLEAR FAMILIES 56% of households in urban India now have four or less members. This is a marked change from 10 years ago, when the median household size in urban India was 22 Unnati Investment Management and Research Group
between four and five members. This shows that India is gradually moving from the concept of joint family system to that of nuclear family system. So as the needs of families rise, the demand will also increase in the same or higher proportion providing new opportunities to passenger vehicle industry. LOW RURAL CONTRIBUTION TO SALES Rural contribution to sales of passenger vehicles has been on a relatively lower side (around 11%) compared to two wheelers (around 45%) mainly because of high cost of ownership, maintenance and operation of vehicles. But as the income of rural people is on a rise, the rural market provides the opportunity to OEMs to tap and penetrate the markets.
Concerns
HIGH INTEREST RATES High cost of financing the passenger vehicles has been a major cause of concern for Indian passenger vehicle industry. In India ~70% of the cars are financed, which means that any increase in interest rates for loans will drive away the consumers from passenger vehicles to two wheelers. From 2009 to mid 2012, the RBI has revised the interest rates thirteen times causing low sales growth in recent years compared to other industries. HIGH FUEL PRICES High fuel prices since the deregulation of petrol prices in 2009 have caused great concerns in the industry due to falling petrol vehicle sales. Buyers are moving towards diesel vehicles due to difference in prices which has caused huge inventory pile up for petrol car manufacturers and ultimately falling profitability for the manufacturers like Honda, which has lost significant market share. LOW INFRASTRUCTURE GROWTH COMPARED TO VEHICULAR GROWTH Over the last four decades, the growth in road network has lagged the growth in net vehicle addition by a factor of 1/3 times. Urban road network growth situation has been worse. The World Economic Forums Global Competitiveness Index placed Indias infrastructure at 91st out of 139 nations. The other aspect of the infrastructure issue is available public space for parking of personal, commercial and public vehicles. This is forcing various local governments to implement punitive measures that may adversely affect the growth of automotive industry in the long run.
Segmentation
PASSENGER CARS CATEGORY Micro Mini Compact C1 C2 D E F CRITERIA <= 800cc <=1000cc 1001cc to 1400cc 1401cc to 1600cc 1601cc to 2000cc 2001cc to 3000cc 3001cc to 5000cc >5000cc LENGTH (mm) <=3200 3200 to 3600 3600 to 4000 4000 to 4250 4250 to 4500 4500 to 4700 4700 to 5000 >5000
UTILITY VEHICLES There are now five sub-segments : UV1, UV2 and UV3 including UVs that cost up to Rs 15 lakh. -UV4 vehicles are the ones priced at Rs 15-25 lakh. -UV5, the ones price more than Rs 25 lakh. MULTI-PURPOSE VEHICLES -V1, vans with hard tops used for personal transport. -V2, those with soft tops used for public transport. Classification based on Shape ONE BOX (VAN/MPV): Engine area, Passenger area & luggage area all in one box. There wont be separate compartment. For eg. Omni, Ace Magic, Versa TWO BOX (HATCHBACK): Engine area has a separate cabin while Passenger area and luggage area are together. For eg. M800, Alto, Santro, i10, A star, Swift etc. THREE BOX (SEDAN/SALOON/NOTCHBACK): Engine area, Passenger area & luggage area all are having different cabin. For eg. SX4, City, Fiesta, Dzire, Ambassador, Indigo CS etc. ESTATE/STATION WAGON: A sedan whose roof is extended till the rear to create more boot space. For ex. Indigo Marina, Octavia SUV (Sports Utility Vehicle): These vehicles have large tyres, higher seating, and higher ground clearance. The engine area is separate, but the passenger & luggage area are enclosed together. Most of these vehicles are equipped with either 4 wheel drive system or has the option for that. For ex. CRV, SAFARI, GRAND VITARA, PAJERO SEMI NOTCHBACK: A sedan whose boot door can be opened like a hatchback (wagon r, swift), where the rear wind shield too opens along with the boot door. Unlike sedan whose rear wind shield is always fixed. Examples for SEMI NOTCHBACK - Skoda Octavia, Accent. 24 Unnati Investment Management and Research Group
DOMESTIC SALES TREND (PV)

3000000
2500000
2000000 1500000 1000000 500000 1552703 1951333
2520421
2638023
DOMESTIC SALES TREND (PV)
0
2008-09 2009-10 2010-11 2011--12
The domestic sales have grown at a CAGR of 14.17 over the past four years and slowed down only in the last year with YOY growth of 4.67%
CARS, UVs and MPV sales

3000000 2500000 2000000 1500000 1000000 500000 0 CARS UTILITY VEHICLES MPV (vans)
2008-09
2009-10
2010-11
2011-12
Over the past four years, car sales have grown at a CAGR of 13.26% while the MPV and UV sales have grown at a CAGR of 17.09% and 16.39% respectively during the same period. But in the year 2011-12, UV sales far outpaced both MPV and car sales by growing at a rate of above 14% while car sales grew by 2.02%.
26
EXPORT SALES TREND (PV)

600000 500000 446145 400000 300000 200000 100000 0 2008-09 2009-10 2010-11 2011-12 335729 EXPORT SALES TREND (PV) 453479 517782
The exports of passenger vehicles have grown at a CAGR of 11.44%. Exports remained flat during 2010-11 due to uncertainties in the global environment due to Euro crisis.
Outlook
The passenger car segment grew only 2.2% in FY 12, mainly driven by sales of diesel models. Sales are expected to be sluggish with growth coming from diesel variants for most passenger vehicle players. Increase in excise duty, successive interest rate hikes and fuel price increases, coupled with pressure on disposable income due to inflation remaining near double digits in the Indian economy, will curtail the growth of PVs in the near future. Also labour strife at Maruti's Manesar plant which forced the company management to shut the plant for more than a month will have a bearing on the growth of this segment. The growth in UVs and MPVs will benefit the PV growth in the near future. But in the long term, due to under penetrated market, rise in per capita income, rural participation, increasing proportion of exports, new OEMs participation, Indian PV industry is poised to reach the level of 6 mn units from current level of ~3 mn units
Commercial Vehicles
The CV industry is cyclical in nature as the demand depends on the pace of the overall economic growth (GDP) and industrial activity in particular (IIP). Among segments, M&HCVs tends to be more influenced by the macro-economic indicators than LCVs. The share of roadways in freight movement is one of the critical factors. Though India has one of the most extensive railway networks in the world, the bulk of the commercial goods movement is by road. The current share of freight traffic in India through road is around 64%, which is much higher when compared to other countries like US & China. The rebuilding of the countrys main highways under the National Highway Development Program has made road transport easier and more efficient. Unlike in the past when only single axle trucks were suitable for narrow Indian roads, the new highways can easily accommodate large multi-axle tractor-trailers. Another factor that pushed up demand for trucks is the substantial increase in construction of buildings and infrastructure.
Market Segments:
Light Commercial Vehicle: <7.5 tons Medium Commercial Vehicle: 7.5 to 16 tons Heavy Commercial Vehicle: > 16 tons
Market leader Tata Motors Major Players:

Tata Motors Mahindra & Mahindra Ashok Leyland Eicher Motors Force Motors SML Isuzu
28
Market Share in Commercial vehicles

Eicher 6%
Others 6%
Ashok Leyland 11%
Force Motors 3% Mahindra & Mahindra 16%
Tata Motors 58%
Market Share in M&HCV Goods Carriers Ashok Others

Eicher 11% 3%
Leyland 20%
Asia Motor Works 4% Tata Motors 62%
Market Share in M&HCV Passenger Carriers

Eicher 8% Others 1%
Ashok Leyland 42%

Tata Motors 42%
SML Isuzu 7%
Others 4%
Market Share in LCV Goods Carriers

Mahindra & Mahindra 32% Tata Motors 61% Piaggio vehicles 3%
Eicher 7%
Market Share in LCV Passenger Carriers

Others 1%
Force Motors 35% Tata Motors 42%
SML Isuzu 6%
Mahindra Navistar 9%
Growth Drivers
Emergence of hub-n-spoke model + new models With the emergence of the hub-n-spoke model and increasing demand for last mile connectivity, LCV segment continues to register growth. It has in fact been one of the strongest growing segments in the entire automobile space. SCVs driving growth in this segment The SCVs segment within LCVs which accounts for over 3/4th of the LCV market is driving its growth on account of the following factors: Strong demand for transportation of consumer goods within cities Replacement demand from upper-end three wheelers Demand from tier II & III cities rising Passenger variants have also been successful, replacing the clumsy upper-end three wheelers 30 Unnati Investment Management and Research Group
Global comparison indicates strong growth potential for LCV In 2008, India had the lowest LCV to MHCV ratio compared to countries like Indonesia, Brazil, China and Turkey. This indicates significant growth potential for the LCV segment in coming years. Benefits from infrastructure With the budget focus on developing highways (target of covering a length of 8800 km in NHDP), allocation of 10 billion to the NSDF (National Skill Development Fund) and increasing investments in infrastructure the Medium and Heavy commercial vehicle segments could see considerable growth in the long run.
Factors of concern
Industrial production (IIP) growth to remain low M&HCV demand is highly sensitive to growth in Index of Industrial Production (IIP) figures. It recorded a 1.8% contraction in June 2012. Given the current environment, outlook for IIP in the near term appears to be subdued, resulting in a slowdown in CV sales. Increasing interest rates having an adverse impact on demand Almost 70% of commercial vehicles are bank financed. So tightening liquidity is a key negative for commercial vehicles since demand for trucks and liquidity in the banking system go hand in hand. Threat of diesel price hike: Diesel prices were last revised in June 2011. Oil marketing companies are losing Rs 14 on every litre of the diesel sold due to the regulation by the government. So any hike in diesel price would result in a slow down in CV sales since almost all of them are diesel driven. Stagnant freight rates could continue The freight rates across major routes have only risen to the extent of diesel price increases and the rise has not been enough to compensate for the inflation in other operating costs. So the operators are forced to absorb this price hike, which has adverse effect on their margins.
Outlook
A sluggish outlook is anticipated for M&HCV industry in general and truck industry in particular in FY 2013 on account of weak macro economic environment (fall in IIP numbers), hikes in vehicle prices and fuel costs. The medium & heavy (M&HCV) segment has grown 8% in FY12; we can expect the growth in this segment to slow further to 5% in FY13. However increased manufacturing for goods for festive season would call for increased freight from current situation thereby aiding the demand for trucks at least in the festive season. The long-term outlook looks healthy with the infrastructure proposals made by the government. The LCV segment has grown 27% in FY12. With new launches, demand for last mile connectivity and replacement demand from three wheelers, we can expect a growth of 14% in FY13 in this segment.
Segment wise Sales

900000 800000 700000 600000 500000 400000 300000 200000 100000 0 FY08 FY09 FY10 FY11 FY12 LCV M&HCV Total CV
Total CV Sales CAGR of 10.54% over the past 5 years LCV Sales CAGR of 16.37% over the past 5 years M&HCV Sales CAGR of 4.90% over the past 5 years
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Tractors
The Tractor industry has always been a barometer for the state of rural economy in India. The growth drivers of tractor demand are the scarcity of farm labour, increase in agri-credit flow and rise in non-agri usage of tractors. The long-term driver is the support from the Government of India (GOI) towards rural development and agrimechanisation. Although agriculture contributes only 15.7% to Indias GDP, it s role remains critical in Indian economy as it provides employment to 58.2% of the workforce, which is why this sector remains a strong focus area for the Government.
Market leader - Mahindra & Mahindra Major Players:

Mahindra & Mahindra TAFE (Tractors and Farm Equipment Ltd) Escorts ITL (Sonalika) John Deere New Holland
New Holland 6% John Deere 10% ITL 9% Escorts 10%
Market Share
Mahindra & Mahindra 41%
TAFE 24%
Growth Drivers
Improvement in monsoons Rainfall deficiency has come down from 30% in July to 12% in August and is expected to come down further. This would boost tractor sales. Strong replacement demand Roughly 40% of domestic demand is from the replacement market and is expected to increase as the average life cycle of a tractor has reduced to ~8-9 years from ~1112 years. Promising exports Outlook for exports also looks promising through inclusion of new export destinations, increased product offerings in the higher HP segment as well as greater acceptability of India as a cost effective and a reliable manufacturing location. Government support for agriculture & rural development continues Budget 2012-13 proposed an increase by 18 % to Rs. 20,208 crore in the total plan outlay for the Department of Agriculture and Cooperation in 2012-13. Also the outlay for RashtriyaKrishiVikasYojana (RKVY) is being increased to Rs. 9217 crore in 2012-13.
Factors of concern
Demand from non-agriculture segments set to decrease Demand from the non-agricultural segment (~20% of sales) is set to decrease due to the slowdown in construction and infrastructure projects. Ineffective implementation of programs proposed The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) is the flagship programme of the UPA government, guaranteeing one hundred days of wage-employment in a financial year to a rural household. Since its launch, spending under MGNREGA has increased three-fold from US$2.6bn in FY06 to US$8.8bn (revised estimates) in FY11. Even for FY12, the government budgeted spending at US$8.2bn. However, the actual utilization rate under this scheme in FY12 is significantly below the budgeted amount. Till 1st Feb 2012, only 54% of the US$8bn of funds allocated under this scheme had actually been utilized. This would have an effect on farm incomes and pull the tractors sales down.
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Outlook
After witnessing 11% growth in FY 2012, the tractor industry in general anticipates flat sales and the growth estimates have been scaled down to 3% in FY 2013. The slowdown is led by eroding purchasing power of farmers, fear of draught effecting consumer sentiments and the decreasing demand from non-agriculture segments. However the hike in minimum support prices across the kharif season would provide some respite for the farmers in face of delayed monsoon in kharif season. The longterm outlook remains stable due to support from the Government of India (GOI) towards rural development and agri-mechanisation, scarcity of farm labour especially during the sowing season, increase in credit flow to agriculture and healthy exports.
Tractor Sales
700000 600000 500000 400000 300000 200000 100000 0 FY 09 FY 10 FY 11 FY 12 SALES
Net Sales CAGR of 15.13% over the past 4 years
Government Policies and Regulations

The National Strategy for Manufacturing, drawn by the National Manufacturing Competitiveness Council (NMCC), has identified the automobiles sector as a priority area. The Government of India has taken a number of initiatives to promote growth in the sector.
Auto Policy 2002

The policy emphasises on low emission fuel auto technologies and the availability of appropriate auto fuels. The policys objective is to establish India as an international hub for manufacturing small, affordable passenger cars and a key global centre for manufacturing tractors and two-wheelers. The policy provides for the automatic approval for foreign equity investment of up to 100 per cent for the manufacture of auto components. With an objective of accelerating and sustaining growth in the automotive sector and to steer, co-ordinate and synergise the efforts of all stakeholders, the Automotive Mission Plan (AMP) 2006-2016 was prepared.
Automotive Mission Plan (AMP) 20062016

The AMP 20062016 aims to make India a preferred destination for designing and manufacturing automobile and automotive components. Establish an international hub for manufacturing small, affordable passenger cars and a key centre for manufacturing tractors and two-wheelers in the world. Ensure a balanced transition to open trade at a minimal risk to the Indian economy and local Industry. Conduce incessant modernization of the industry and facilitate indigenous design, research and development. Assist development of vehicles propelled by alternate energy sources. Develop domestic safety and environmental standards at par with international standards. It proposes to increase the output to US$ 145 billion and account for more than 10 per cent of the countrys GDP. The plan envisages additional employment for 25 million people by 2016. The AMP targets exports worth US$ 4045 billion in 2016, including component exports worth US$ 2025 billion and outsourced engineering services worth US$ 22.5 billion.
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Recommendations of the AMP

Manufacturing and export of small cars, multi-utility vehicles, two and three wheelers, tractors, components to be promoted. Care to be taken of negative like and rules of the country with current negotiation of Free Trade Agreement and Regional Trade agreement with countries like Thailand, Singapore, Malaysia, China, Korea, Egypt, Gulf etc. Attractive Tariff Policy which may follow attractive investment. Specific measures will be taken for expansion of domestic market. Incremental investment of USD 35 to 40 billion to Automotive Industry during the next 10 years. National Road Safety Board to act as the coordinating body for promoting safety. Inspection and Certification system to be strengthened by encouraging public-private partnership. National level Automotive Institute for training on automobile at International Training Institutes (ITIs) and Automotive Training Institute (ATIs) to be set up. An Auto Design Centre to be established at National Institute of Design, Ahmadabad. National Automotive Testing and R&D Implementation Project (NATRIP) to act as Centre of Excellence for Technical Design Data. Integration of Information Technology in manufacturing to be promoted. R&D for product, process and technology to be incentivised. Road Map for Auto Fuel Policy beyond 2010 would be drawn
National Automotive Testing and R&D Infrastructure Project (NATRiP)

The NATRiP was set up at a total cost of US$ 388.5 million to enhance and upgrade the testing and validation infrastructure and establish centres of excellence for automotive R&D by Department of Heavy Industries & Public Enterprises The departments activities include the reduction of excise duty on small cars increase of budgetary allocation for R&D activities and reductions in the duty regime in general. The department has announced a weighted increase in in-house R&D expenditure from 150 per cent to 200 per cent and from 120 per cent to 175 per cent on outsourced R&D expenditure.
FDI, licensing & export-import norms

100 per cent Foreign Direct Investment (FDI) is permissible under automatic route in this sector including passenger car segment. The import of technology/technological up gradation on the royalty payment of 5 per cent without any duration limit and lump sum payment of US$ 2 million is also allowed under automatic route in this sector. The automobile industry is deli censed, and import of components is freely allowed. Automobile exports are being promoted through the Focus Market Scheme (FMS) and the Focus Product Scheme (FPS), wherein automakers receive cash incentives of up to 5 per cent upon the shipping of specified vehicles to specified countries such as Africa, Eastern Europe, Latin America and the Commonwealth of Independent States. Through the enforcement of Euro IV and Bharat Stage IV emission norms and standards, the Government of India is trying to ensure that emission norms and environmental standards are in line with that of the developed world.
NATIONAL AUTOMOTIVE BOARD (NAB)

The Government of India has proposed setting up of NAB, which will act as a facilitator between the government and the industry, promote research and development activities and have a larger role in developing skills for the growing automobile sector. It would also act as a think-tank for the government, especially for the growth of hybrid and electric vehicles in the country. The board would be set up as an autonomous body and will have members from the Department of Heavy Industry, Planning Commission and from various ministries, including Road Transport and Highways, Science and Technology, Environment and Forests. Besides, there would be scientists and industry representatives on the board. The board will be the successor of the National Automotive Testing and R&D Infrastructure Project (NATRiP), which is a project implementation body.
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Society of Indian Automobile Manufacturers

Society of Indian Automobile Manufacturers (SIAM) is the apex Industry body representing 46 leading vehicle and vehicular engine manufacturers in India. It provides a window to the Indian Automobile industry and aims to enhance exchanges, communication, expand economics, trade and technical cooperation between the Automotive Industry and its international counterparts. SIAM also interacts with worldwide experts to assess the global trends and developments shaping the Automotive Industry. It has been actively pursuing issues like Frontier Technologies viz. Telematics: Promotion of Alternative Fuels including Hydrogen Energy for automotive use through cell vehicles and Harmonisation of Safety and Emission Standards etc. It organizes the biennial Auto Expo series of trade fairs in co-operation with Confederation of Indian Industry (CII) and Automotive Component Manufacturers Association of India (ACMA). SIAM has been striving to keep pace with the socio-economic and technological changes shaping the Automobile Industry and endeavour to be a catalyst in the development of a stronger Automobile Industry in India.
Impact of Budget 2012 on Automobile sector

The budget 2012 evoked mixed responses from the industry as they see the increase in overall excise and customs duties to hamper sales in the short run where as the diesel car demand is set to increase with no extra tax and the subsidy on the diesel fuel price expected to continue. The following provisions have been made: Increase in excise duty on cars Fuel variant Petrol/Diesel Petrol/Diesel Petrol/LPG/CNG Diesel Engine capacity < 1200 cc > 1500 cc < 1200 cc < 1500 cc Length > 4000 mm > 4000 mm < 4000 mm < 4000 mm Percentage hike 22% to 24% 22% to 27% 10% to 12% 10% to 12%
Increase in customs duty from 60% to 75% on large cars/ MUVs/SUVs with engine capacity greater than 3000 cc for petrol and 2500 cc for diesel, and whose value exceeds US$ 40,000 per vehicle Increase in customs duty from 10% to 30% on bicycles Decrease in excise duty from 10% to 6% on replacement batteries for supply to electric vehicle manufacturers still March 31, 2013 Decrease in excise duty from 10% to 6% on specified parts (like battery pack, battery charger, AC/DC motor etc.,) of hybrid vehicles Full exemption from basic customs for Lithium ion batteries imported for the manufacture of battery packs for electric or hybrid vehicles Few other provisions, which would have an indirect effect on the industry, are: Allocation of 10 billion to the NSDF (National Skill Development Fund) Investment in infrastructure to go up to 50 lakh crore during 12th five year plan Target of covering a length of 8,800 km under NHDP (National Highway Development Project) next year Enhancing allocation of the Road Transport and Highways Ministry by 14% to 25,360 cr. On the whole, hike in the customs duty would increase vehicle prices. However this is not expected to have any significant impact in the long run. Reduction in the excise duty on parts used in hybrid vehicles is clearly aimed to boost the production for this segment as they are more fuel-efficient and pollution free. The Governments increased focus on infrastructure development, highways would benefit manufacturers of commercial vehicles in the long term.
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Latest happenings, future trends in automobile sector

Inception of Quadricycle a new segment positioned between a threewheeler and a four-wheeler:
Government has given approval for recognizing this kind of segment in the automobile space. With introduction of quadricycle, it aims to bridge the seemingly large gap between a traditional three-wheeler and a passenger car. The idea is to have Higher mileage Lower carbon emissions Greater safety Lesser price Being popular in Europe, already around 3,00,000 quadricycles are registered on the road across France, Belgium, Italy and Netherlands for in town driving. According to the French National Interministerial Road Safety Observatory, they are three times less likely to be involved in an accident than a conventional car. Also the accidents with quadricycles are two times less likely to result in serious injures than cars. However we cannot go for a straight comparison between them as the safety standards for a quadricycle and car differ. For example quadricycles do not have airbags and need not undergo crash testing, as the maximum speed generally wont exceed 75 km/hr. But on the whole it is made sure that appropriate safety measures are implemented in quadricycles. The biggest beneficiary from this development would be Bajaj Auto as they unveiled the RE60 in the Auto Expo, a biennial automotive show earlier this year in New Delhi. Initially it will be available only in petrol. A CNG variant will be launched later. The top speed of RE60 would be 70 kph and is expected to have a mileage of 35 kmpl mainly because of the lightweight and robust monocoque metal-polymer hybrid structure. So this kind of segment could really make an impact in the intra city travel in the days to come especially if the government grants some tax relaxations or subsidies for certain parts encouraging the production in this segment.
Rise of Electric and Hybrid cars:

Electric and hybrid cars use technology that is designed to decrease the use of gasoline fuel for powering car engines. Electric cars are totally electric, meaning that they must be plugged in and charged, and that the range of the car is only as far as the charge. Hybrid cars on the other hand, use a mixture of gas and electric power to create a gas efficient partial electric car. They have a conventional gasoline engine and a bank of rechargeable batteries that charge while the car is running. When the driver makes limited demands on the car's power, such as driving around town or idling at a stoplight, the car runs on the stored electricity in the batteries. When the driver demands a burst of energy or is driving at sustained high speeds, the gasoline engine kicks in. To reduce dependence on fossil fuels, India is set to spend at least Rs 22,500 crore in the next 8 years to promote electric and hybrid vehicles, of which the Government will contribute for around Rs. 13,000-14,000 crore. It will fund research and development, infrastructure and provide subsidies. In return the government would save about Rs. 30,000 crore on fuel. The overall aim is to put 6 million electric and hybrid vehicles on road by 2020.At present, they account for less than 1% share in the overall 17 million automobile units sold annually in the Indian market. As mentioned previously in this report, the budget 2012 also aims to promote this segment by providing the excise benefits for various parts. Current market players in this segment:
Yo bikes Electric bikes Electric cars
Electrotherm (India) Ltd Munjal family-owned Hero Electric Mahindra Reva
Future launches in this segment: Mahindra Reva plans to roll out its NXR electric car by September-end The Verito Electric is expected to be launched in the next two years
Due to the depleting fuel resources, electric and hybrid cars are seen as the future of automobile world. But currently, India lacks the adequate infrastructure like charging points to encourage use of these vehicles. But with a slew of measures coming from the government to make this segment attractive to the customers, we can expect growth in the long run.
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Fuel efficiency norms to be enforced:

After four years of uncertainty, the Prime Minister's Office (PMO) has approved a new set of standards for the automobile industry. At present, the top 10 car manufacturers, with combined sales of over 96 % of the Indian market, have an average fuel efficiency of 16.42 kmpl. By 2015, the average is targeted to go up to 18.15 kmpl and this is proposed to improve to 20.79 kmpl by 2020. The fuel targets will be different for all the 8 different weight categories of cars. The proposed standards are expected to help the country save the following amounts in the coming years:
Will save 3 Million metric tons of oil 2015 Equivalent to Rs13,835 crore Will save 11 million metric tons of oil 2025 Equivalent to Rs.49,806 crore Will save 20 million metric tons of oil 2030 Equivalent to Rs.88,544 crore
But, the automobile industry claims that the targets are too unrealistic and achieving higher fuel efficiency would be a trade-off with cost and safety. The higher you aim to achieve the efficiency, the lighter the vehicle has to be, asking the industry to go in for changes in spares and body shield. One option can be the shift from aluminum to magnesium (more plastics can be used). But the cost of production would shoot up. Also, companies would require a lot of investments in research and development (R&D) for increasing fuel efficiency. So the Indian companies would not be able to compete with the foreign counterparts, say from Europe and Japan. They have huge investment scale for R&D, unlike the Indian market. So if these norms actually come into action in the years to come, only the fuelefficient cars could survive in the market.
Diesel Dilemma:
Unlike petrol, diesel in India is a regulated commodity. The government had last increased prices of diesel, LPG and kerosene on June 25, 2011. Impact on OMCs: The state-run oil marketing companies sell at the government-set discounted prices thereby hurting their profits. They are losing Rs14 on every litre of diesel sold. For instance, the Indian Oil Corporation (IOC) has reported a net loss of Rs 22,451 crore in the quarter ended June 2012, its highest ever reported loss. Impact on Governments fiscal deficit target: The Indian government is targeting a fiscal deficit of 5.1% of gross domestic product (GDP) in the current financial year 2012-13. To achieve this the subsidy bill has to be reduced. It aims to cap this to 2% of GDP in the current fiscal as against 2.5% in the last fiscal. So unless it hikes diesel prices its subsidy bill continues to get inflated. But the Indian government has stated that in the near term it has no plans to increase prices of diesel. The reason behind this is that most of the diesel consumption is by trucks and buses. A diesel price hike would certainly raise road freight rates and increase inflationary pressures. Also the common man travel fare would increase, as the bus ticket prices would go up adding to its political pressure. The poor rainfall this monsoon season has added to the governments woes, as farmers need to use diesel-driven electric pumps for crop irrigation. Hence The Ministry of Petroleum and Natural Gas in its budget proposal to the Ministry of Finance had proposed to levy additional excise duty on diesel cars. The Ministry has sought Rs1.70 lakh additional duty on small cars where as Rs2.55 lakh on medium and large cars. At present, about 16 % of the subsidized diesel sold in India is consumed by cars and SUVs. Power generators used up another 4.60 % of diesel while mobile phone towers used up to 1.93 %. Higher excise duties will help recoup some of the undeserved subsidy that the owners of new diesel cars would have benefitted from. But the existing population of diesel car owners will continue to enjoy the subsidy. So, perhaps the government should consider introducing a variable annual road tax on all cars and levy an appropriate charge on diesel cars pegged to neutralize the advantage of subsidized diesel. The other option for the government is to go for dual pricing. In Ireland, for example, farm diesel sells for roughly 0.5 a litre less than regular diesel. So there could be a differential pricing for various purposes of the diesel used. But stringent monitoring against diversion is essential. By one estimate, roughly around 10% of all diesel sold in Ireland is illegal.
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At present, the diesel car demand is on the rise as their market share has increased from 20% a few years ago to around 40% now. Hence, the car manufacturers insist that any punitive levy on diesel cars will affect the profitability of investments already made in plant and machinery. Considering all these factors, whatever option the government chooses to go for, it will have a major impact on the industry in the years to come.
Key Players
Hero Motocorp
Hero is the worlds largest manufacturer of two wheelers by sales. It ho lds the leadership position in Indian two wheeler markets with 41% market share. Its net sales have grown at a CAGR of 18.7% and PAT has grown at a CAGR of 22.6% over the past five years. Recently, it has parted ways with Honda by ending the joint venture in the name of Hero Honda. Currently exports contribute only 2-3% of companys total sales but after ending the joint venture, it intends to take this level to around 10% in next four years. The motorcycle segment accounts for approximately 95% of the companys two wheeler sales volumes. Within the motorcycle segment, nearly 80% of the volumes are contributed by the executive segment. PRODUCT PORTFOLIO ECONOMY MODELS EXECUTIVE MODELS PREMIUM MODELS SCOOTER SEGMENT CD DAWN, CD DELUXE SPLENDOR, PASSION KARIZMA R, ZMR, HUNK, CBZ XTREME, IMPULSE PLEASURE, MAESTRO
HERO MOTOCORP-SEGMENT WISE SHARE

PREMIUM SEGMENT SCOOTERS SEGMENT 6% 5%
ECONOMY SEGMENT 14%
EXECUTIVE SEGMENT 75%
EXPANSION PLANS Hero Motocorp is planning both brownfield and Greenfield expansions. Brownfield expansion will be achieved by de-bottlenecking operations at its existing plants to free capacity of 0.5m units. On the other hand, Greenfield expansion include a new 46 Unnati Investment Management and Research Group
plant in South India (with a capacity of 0.75m initially) scheduled for completion by March 2013. Other future investments include Plant at Neemrana, Rajasthan by 2014, plant in Gujarat at an investment of Rs1100 crores by 2014 and other investments of around Rs175 crores. KEY FINANCIALS NET REVENUES (Rs cr) EBITDA (Rs cr) PAT (Rs cr) EPS (Rs) GROSS BLOCK (Rs cr) 2011-12 23586.80 3648.02 2378.13 119.09 6308.26 2010-11 19366.97 2597.07 1927.90 96.55 5538.46 2009-10 15839.58 2743.65 2231.83 111.77 2750.98
Bajaj Auto
Bajaj is the second largest two-wheeler manufacturer in India and third largest motorcycle manufacturer in world by sales. The companys turnover has crossed the Rs20, 000 crore mark in FY12. It exports around 69% of all motorcycle exports from India. Its net sales have grown at a CAGR of over last five years and it is currently the market leader in premium bike segment and passenger three wheeler segments with market shares of around 41% and 47% respectively. Three wheelers sales contribute around 12% of total sales of Bajaj. In the FY12, Bajajs total sales grew by 14% to 4349560 units of which 88.15% consisted of two wheelers and the rest comprised of sale of commercial vehicles. PRODUCT PORTFOLIO ECONOMY MODELS EXECTUVIE MODELS PLATINA, BOXER
PULSAR 135cc, DISCOVER 125cc PREMIUM MODELS PULSAR 150, 180, 220 and 200NS, KTM DUKE, NINJA, AVENGER THREE WHEELERS-GOOODS RE 4S, GC MAX, RE 600, MEGA AND PASSENGER CARRIER MAX
BAJAJ AUTO- EXPORT MARKET

Latin America 18% Europe 1%
Asia and Middle East 40%
Africa 41%
EXPANSION PLANS Bajaj Auto has plans to ramp up export production while shifting its export-base to Gujarat over the medium term. This plant is expected to have a capacity of over 5m units in the long term. The company plans to increase the installed capacity to 6.36 million units per annum by March 2013.Commercial launch of the four-wheeler RE 60 is scheduled for second half of 2012-13. KEY FINANCIALS REVENUES (Rs cr) EBITDA (Rs cr) PAT (Rs cr) EPS (Rs) GROSS BLOCK (Rs cr) 2011-12 19516.65 3735.91 3004.05 103.81 3425.94 2010-11 16451.80 3252.44 3339.73 115.42 3395.16 2009-10 11813.25 2520.21 1702.73 117.69 3379.25
Mahindra and Mahindra

Mahindra & Mahindra Ltd. is the flagship company of the Mahindra Group, based in Mumbai. It is the only company in the industry having its presence in all the five subsegments i.e. Two Wheelers, Three Wheelers, PVs, CVs and Tractors. It is the market leader in Utility vehicles with a market share of 56.2% and tractors with a share of 43%. It also overtook Tata Motors in the passenger vehicle category for the first time in Q1 FY2013 with sales of 61,504 units compared to Tata Motors' 60,405 units without having a single small car in its product mix.
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Product Portfolio: SEGMENT Passenger vehicles Tractors Commercial vehicles Two wheelers Three wheelers PRODUCT Verito, Bolero, Scorpio, XUV 500, Xylo Bhoomiputra, Sarpanch, Arjun, Yuvraj Gio, Genio, Bolero Maxi Truck Rodeo, Duro, Flyte Alfa, Alfa Plus
The auto segment comprises about 67% of the total sales and the tractor segment makes up 33% at present, compared with 45-50% two years back. The companys tractor and farm equipment segment enjoys significantly higher operating margins than the automotive segment.
Market Share
MNAL (trucks) 3%
3 wheelers 12%
Commercial vehicles 33%
Passenger vehicles (UV's + Verito) 52%
Mahindra & Mahindra has strengthened its global presence over the past two years. The companys exports have grown in the Asia-Pacific region, Africa, South and Latin America and USA. Recent & Upcoming Investments: Mahindra Reva Electric Vehicles inaugurated a green manufacturing facility in bangalore which is claimed to be the first platinum rated automobile facility in India. The company has made investment of over Rs 100 crore. In the next 3 years, the Unnati Investment Management and Research Group 49
new plant would produce around 30,000 Mahindra Reva electric cars. Besides, the company plans to launch EV 'NXR' by Diwali this year. Mahindra & Mahindra has opened a new R&D centre for two-wheelers in Pune, with the investment of Rs 100 crore. It aims to spend around Rs 500 crore over the next 5 years on this center. Financials Summary (Standalone): KEY FINANCIALS(in Cr) GROSS BLOCK NET REVENUES EBITDA PAT EPS (in Rs) 2011-12 8063 31835 3769 2878 48.88 2010-11 5849 23477 3441 2662 45.33 2009-10 4866 18516 3016 2087 36.89
Tata Motors
Tata Motors is India's largest automobile company, a subsidiary of the Tata Group, based in Mumbai. It has presence in commercial and passenger vehicles segments. It is the leader in nearly all commercial vehicle segments with a market share of around 59.4%. It regained its third position in the passenger vehicles market, in July 2012,after losing out to Mahindra & Mahindra in the first quarter of FY13 .It is also fourth-largest truck manufacturer and second-largest bus manufacturer by volume. Product portfolio: SEGMENT Passenger vehicles Medium & Heavy Commercial Intermediate Commercial Small Commercial Premium and Luxury PRODUCT Nano, Indica, Indigo, Vista, Manza, Sumo,Safari Prima, Construck, Starbus, Divo, City ride Winger, WingerPlatinum Tata Ace, RX pickup, Xenon CNG, Magic Defender, Discovery, RangeRover, Evoque
Through subsidiaries and associate companies, Tata Motors has operations in the UK, South Korea, Thailand and Spain. Among them the most important one is Jaguar Land Rover, the business comprising the two iconic British brands. In its last fiscal year, which ended in March, Jaguar Land Rover posted a 27% jump in retail sales and became the primary driver of profit for Tata Motors.
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Geographical distribution of Jaguar

Russia 6% ROW 11% UK 23%
Europe 20% China 16%
North America 24%
Geographical distribution of LandRover

ROW 18% UK 16% North America 16% Europe 23% China 23%
Russia 4%
Recent & Upcoming investments: Jaguar Land Rover, part of Tata Motors, plans to invest around 320 m$ in a plant in center England. The investment at the factory, which will build Jaguar's new F-type sports car, is expected to create up to 1,000 jobs and increase its capacity by 50%. Also, Tata Motors plans to invest Rs. 2,000 crores in CV segment and add 50 new models to its line-up.
Financials Summary: (Standalone) KEY FINANCIALS(in Cr) GROSS BLOCK NET REVENUES EBITDA PAT EPS (in Rs) 2011-12 27111 54217 4177 1242 3.91 2010-11 21883 47957 4705 1811 28.55 2009-10 18416 35373 4032 2240 39.26
Maruti Suzuki
MSIL is Indias largest passenger vehicle manufacturer with a market share of around 40% at present. It has become the third largest maker of utility vehicles in the Indian market, displacing Tata Motors Ltd, led primarily by the sales of multi-utility vehicle (MUV) Ertiga. Suzuki Motor Corporation (Suzuki) of Japan holds 54.2% stake in the company. MSIL is also set to merge with its associate company, Suzuki Power Train India Ltd. (SPIL). The incident at Manesar this year was a real setback for the company. It is estimated that it lost around Rs 1,500 crore in revenues due to the lockout at its Manesar unit. It has also reported a 40.8% decline in total sales for August at 54,154 units as against 91,442 units in the same month last year.
SEGMENT A1 segment A2 segment A3 segment A4 segment Multi utility, Multi Purpose
PRODUCT Maruti 800 Alto, Estilo, WagonR, A-star, Ritz, Swift Dzire, SX4 Kizashi Gypsy,Ertiga,Omni
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Share of Sales
Exports 11%
A1 1%
A4 1%
MPV+MUV 16%
A2 55% A3 16%
Exports form approximately 16% of its sales. The top export markets include Algeria, Chile, Srilanka, Netherlands, Italy and Germany. Recent & upcoming Investments: Maruti Suzuki plans to set up a new manufacturing unit at an investment of Rs 4,000 crore in Gujarat. The target is to achieve 2.5 lakh cars production capacity annually by 2015-16. It also has plans to establish a skill development centre to meet its manpower needs. Also, MSIL will continue to increase its production at Manesar where a third assembly line with a capacity of 250,000 units is expected to be operational by 201314. Financials Summary: (Standalone) KEY FINANCIALS(in Cr) GROSS BLOCK NET REVENUES EBITDA PAT EPS (in Rs) 2011-12 14734 35558 3019 1635 56.60 2010-11 11737 36561 3473 2288 79.21 2009-10 10406 29317 3824 2497 86.45
Auto Ancillaries
Overview
The auto component industry caters to automobile industry through a whole gamut of auto parts such as engine parts, body & chassis, electrical parts, drive transmission & steering parts, braking, suspension etc. It is directly driven by automobile industry through OEMs, aftermarket and exports.
Revenue Contribution
Exports 15% Replacement 25%
OEM 60%
Size of components industry segmentwise

Three Wheelers 2% Commercial Vehicles 23%
Two Wheelers 50%
Passenger Vehicles 25%
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Turnover:
The turnover of the auto components industry has grown at a CAGR of 18.19% over the period of four year from 2008-09 to 2011-12
TURNOVER-AUTO COMPONENTS INDUSTRY (Rs cr)

250000 200000 150000 100000 50000 0 2008-09 2009-10 2010-11 2011-12 105700 206267 182100 135700 TURNOVER-AUTO COMPONENTS INDUSTRY (Rs cr)
OEMs:
With the kind of growth India has shown over the past few years, growing at a rate of 7-8%, even when other developed countries had a crawling growth rate, the confidence of foreign investors has been boosted. Global OEMs have set up their base in India to tap the huge growth potential through cheap labour, growing per capita income, favourable demographics, growing consumer demand and export advantage. Among the OEMs, Japanese companies have the largest share with 54% followed by Korean OEMs with 18% share of the market.
PRESENCE OF OEMs IN INDIA EUROPE

5% US 9% LOCAL 14% KOREA 18% JAPAN 54%
Imports & Exports:
SOURCES OF IMPORTS
Australia Africa South America 1% 1% 1% North America 7%
Europe 35%
Asia 55%
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EXPORTS DESTINATIONS
South America 5% Australia 1% Africa 7%
Europe 36%
Asia 28%
North America 23%
Profile of Exports:
OEM/TIER-1: 80% Aftermarket: 20%
EXPORTS AND IMPORTS

90000 80000 70000 60000 50000 40000 30000 20000 10000 0 2008-09 2009-10 2010-11 2011-12[E] 18400 23712 16048 33485 38760 51441
31280
30680
IMPORTS (Rs cr)
EXPORTS (Rs cr)
Industry Segmentation
PRODUCT WISE SEGMENTATION

Electrical Parts 9% Equipments 10% Suspension and breaking parts 12% Body & Chasis 12% Others 7%
Engine Parts 31%
Drive Transmission and steering parts 19%
ENGINE PARTS
Engine parts comprise the largest product segment of the auto components industry with a 31 % production share. The sub-segments include pistons, piston rings, engine valves, carburettors, fuel-delivery and cooling systems and powertrain components. Major players The four major players in the pistons sub-segment include Goetze, Shriram Pistons & Rings, India Pistons, while Rane Engine Valves, KAR Mobiles and Shriram Pistons & Rings lead the engine valves sub-segment. Ucal Fuel Systems and Spaco Carburettors & Escorts Auto Components are prominent players that manufacture carburettors. In diesel-based fuel injection systems, Mico, Delphi, TVS Diesel System and Tata Cummins are the major players.
TRANSMISSION AND STEERING PARTS

Transmission and steering parts comprise the second-largest product segment in the Indian auto components industry, with a 19 % production share. The sub-segment comprises gears, wheels, steering systems, axles and clutches. Major players Sona Koyo Steering Systems, Rane Madras and Rane TRW Systems are the key players in steering systems. Gears, Gajra Bevel Gears and Eicher are some of the major players in the gears sub-segment. Two international companies, Graziano Trasmissioni and SlAP Gears India, have set up their base in India. 58 Unnati Investment Management and Research Group
Clutch Auto, Ceekay Daikin, Amalgamations Repco and Luk Clutches are the major players in the clutch sub-segment. Rane Brake 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.
SUSPENSION AND BRAKING PARTS

Suspension and braking parts is the third-largest product segment with a 12 % production share. The primary sub-segments comprise brakes, brake assemblies, brake linings, shock absorbers and leaf springs. The demand share of the replacement market in this segment varies from 30 to 70 %, depending on the product. Major players 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.
EQUIPMENT
Equipment is the fourth-largest product segment with a 10 % production share. The primary sub-segments include headlights, halogen bulbs, wiper motors, dashboard instruments, switches, electric horns and other panel instruments. The demand share of the replacement market in this segment varies from 30 to 70 %. Major players Lumax, Autolite and Phoenix Lamps are the key players in the headlights subsegment. 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.
ELECTRICAL PARTS
Electrical Parts is the fifth-largest product segment in the auto components industry, with a 9 % production share. The primary sub-segments comprise starter motors, generators, distributors, spark plugs, ignition coils, fly wheel magnetos, voltage regulators and electric ignition systems (EIS).
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Value Chain
Till the mid-1990s, Indian components manufacturers were serving to a low demand and low volume domestic market with most of the components supplied to the aftermarket and to a few OEMs and Tier 1s. The post-liberalisation era has seen many global auto majors GM, Ford, Hyundai, Toyota etc. enter the Indian market to set up their manufacturing units and thus serve the domestic market and also export components for their vehicles manufactured in the developed markets. Increasing competition from global majors and a steady growth in the domestic passenger car market showed the way forward for the components manufacturers. To meet the product specifications of global players, the Indian components manufacturers embraced advanced manufacturing technologies and improved capacities and thus moved up the value chain .
Assembly Manufacturers
First tier Manufacturers (Assembly OEM Goods)
Base Raw Materials

(steel, rubber, non steel, glass, textile, paint paper,aluminium)
Semi Finished Materials

Wiring, Cables, Hardware (Screws and Bolts)
Component manufacturers
2nd Tier Manufacturers casting, forging, stamping, extruding, grinding, polishing
Mold/Dye manufacturers 3rd Tier manufacturers Molding, Dying
Government Policies and Regulations

The Department of Heavy Industries (DHI), in the Ministry of Heavy Industries and Public Enterprises, is the nodal authority in India for promising the development and growth of the automotive sector. Following policies and regulations are applicable to the Automotive components industry: Manufacturing and Imports Free from Licensing and Approvals No import restrictions and reduced tariff levels for any kind of imports Legal system is robust coupled with stable Foreign Exchange regime Government has increased budgets for R&D activities 100% FDI is permitted without prior Government approval
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Automotive Component Manufacturers Association of India

The Automotive Component Manufacturers Association of India (ACMA) is the nodal agency for the Indian Auto Component Industry. Its active involvement in trade promotion, technology up-gradation, quality enhancement and collection and dissemination of information has made it a vital catalyst for this industry's development. Its other activities include participation in international trade fairs, sending trade delegations overseas and bringing out publications on various subjects related to the automotive industry. It is represented on a number of panels, committees and councils of the Government of India through which it helps in the formulation of policies pertaining to the Indian automotive industry. For exchange of information and especially for co-operation in trade matters, ACMA has signed Memoranda of Understanding with its counterparts in Australia, Brazil, Canada, Egypt, France, Germany, Iran, Italy, Japan, Malaysia, Pakistan, South Africa, South Korea, Spain, Sweden, Thailand, Tunisia, Turkey, UK, USA and Uzbekistan. ACMA represents over 600 companies, whose production forms a majority of the total auto component output in the organized sector.
Impact of Budget 2012 on Auto ancillary sector

The impact of budget on auto ancillary and the automobile sector would be correlated. For instance, an increase in excise duty for tyres would increase prices of automobiles that is likely to weigh on their demand. Similarly duty hike on automobiles could affect derived demand for tyres with respect to the OEM market. The provisions, which have been mentioned in the automobile sector impact related to auto ancillaries, were: Decrease in excise duty from 10% to 6% on replacement batteries for supply to electric vehicle manufacturers still March 31, 2013 Decrease in excise duty from 10% to 6% on specified parts (like battery pack, battery charger, AC/DC motor etc.,) of hybrid vehicles Full exemption from basic customs for Lithium ion batteries imported for the manufacture of battery packs for electric or hybrid vehicles All the above-mentioned provisions are aimed at promoting the development of hybrid vehicles in the country. Some of the other provisions include: Central Excise Duty on manufactured goods increased from 10% to 12% Weighted deduction of 200% currently available on in-house R&D expenditure extended beyond March 31, 2012 for a further period of 5 years Introduction of weighted deduction of 150% of expenditure incurred on skill development Increase in customs duty on the 'flat-rolled' steel from 5% to 7.5%
Enhancement of excise duty will decrease the margins. Continuity of benefit available from weighted deduction on in-house R&D expenditure would encourage auto ancillaries to invest in building technical capabilities. Introduction of 150% weighted deduction on skill development related expenditure should address the problem related to short supply of skilled labor. Flat rolled steel is used in sheet metal works that goes into many parts of a vehicle like body panels and chassis. Increase in customs duty on it could unfavorably impact the auto component sector as this is one of the key input materials for the industry.
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Macro Factors affecting the industry

Growth Drivers
2 Wheelers & LCV segments to grow The outlook for LCV & two wheelers is on the higher side compared to the other segments due to the advantage of fuel efficiency and lower dependency on auto loans. So those auto component companies that cater mainly to these segments i.e. Suprajit Engineering, Exide Industries, Gabriel India are expected to register healthy sales. Exports driving growth Despite tough market conditions in global market, exports of auto components is likely to register a healthy growth of 15-20% in current fiscal. The realizations will also be better due to sharp depreciation of Indian rupee. Rising share of revenues from non-automotive segment Non-automotive segment includes shafts and components for windmills, rotating components for the aerospace industry, engine components for construction equipment, marine and railways. The demand from this segment continues to scale up.
Maruti Suzuki Manesar plant reopens After a month-long lockout, Maruti Suzuki resumed production at its Manesar plant on Aug 21st. It expects to function at its optimum capacity of annual production capacity of 5.5 lakh units by the end of September with the completion of fresh recruitments. Hence the demand for auto components, which have been affected due to the lockout, will return to normality. Onset of festive season With the onset of festive season, the passenger vehicle segment especially is expected to get a boost, which will result in increase in demand for auto components as well.
Factors of concern
Cars, Medium & Heavy Commercial vehicles segment growth concerns The auto component industry, which directly moves in line with the automobile OEM production, will be affected by plant shutdowns and production corrections. Those players who cater only to cars and CVs i.e. WABCO India, Sona Koyo Steering Systems would be most vulnerable in the current scenario. Other factors of concern include: Volatility of the commodity and raw material costs like aluminum, steel may affect margins. Slower-than-expected recovery in Europe and US auto demand would delay the growth trajectory for export-oriented companies. Increasing competition from foreign suppliers, who leverage economies of scale and high technology to offer at lower costs Lack of infrastructure like electricity, water and roads, significantly increases overheads, affecting the bottom lines of the companies. Increasing cost of skilled labor, reducing the competitive cost advantage
Outlook
The current production corrections at OEM companies have impacted the auto ancillary companies. Auto component manufacturers dependent especially on the M&HCV segment are likely to experience relatively lower growth over the short term. Players that can penetrate global markets and accelerate exports are better placed. Not only do they have spare capacity due to sluggish domestic offtake, the realizations will also be better due to sharp depreciation of Indian rupee. Currently, the auto components industry in India is around two-thirds the size of the OEM segment. This proportion is around one to two times in mature markets of Europe, America and Japan. This indicates higher proportion of imports of auto components in India by OEMs and the lower replacement market sales. Given the growth prospects of the Indian automobile industry over the medium term, we can expect the size of the auto components industry to grow at a rate faster than the OEM segment, driven by OEMs thrust on localization and steadily growing replacement market demand.
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Key Players
Apollo Tyres
Apollo Tyres Ltd is the 2nd largest tyre manufacturer in India and 15th biggest tyre manufacturer in the world. It has its corporate headquarters in Gurgaon. In India, it is a clear leader in the commercial vehicle segment category. Since its inception in 1972, the company has steadily expanded its operations across the world. The company has manufacturing presence in Asia, Europe and Africa, with 9 modern tyre facilities and exports to over 118 countries. Revenues from OEM market account for 20% of revenues where as replacement market contributes 80%. Its 6 key brands include Apollo Vredestein Dunlop Kaizen Maloya Regal
Production Zones:
Zone Zone I Zone E Zone A Headquarters Gurgoan,India Enschede, Netherlands Durban, South Africa Major countries Asia, Middle East & Turkey, Australia, New Zealand Germany, UK, Italy, Netherlands, Swizerland , Austria, Denmark, Greece Africa, South America
Revenue by Geography
Europe 25%
India 62%
South Africa 13%
Revenue by Segments
Agriculture & Offroad 10% Others 4%
Truck-Bus 43% Passenger Vehicles 33% Light Truck 10%
Recent & Upcoming Investments:

Expansion in India: Apollo Tyres Ltd has proposed to invest Rs 300 crore in Kalamassery unit to make it an export-oriented unit to manufacture industrial tyres Expansion in Europe and Brazil: Apollo Tyres Ltd plans to invest around 400 million euro (over Rs 2,700 crore) to set up two new facilities in East Europe and Brazil in the next 3-4 years
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Financials Summary: (Standalone)

KEY FINANCIALS(in Cr) GROSS BLOCK NET REVENUES EBITDA PAT EPS (in Rs) 2011-12 3947 8176 715 181 3.60 2010-11 3299 5480 580 198 3.93 2009-10 2414 5045 817 414 8.23
Motherson Sumi
Motherson Sumi Systems Ltd (MSSL) is the flagship company of the Samvardhana Motherson Group with its headquarters at Noida, India. In March 2009, MSSL acquired Visiocorp (renamed Samvardhana Motherson Reflectec SMR), one of the worlds largest manufacturers of rear view mirror s, thus enhancing its position as a Tier-1 auto component supplier. Currently, SMR, constitutes 39% share of the total business portfolio of MSSL. In July 2011, MSSL acquired Peguform (renamed Samvardhana Motherson Peguform SMP). SMP is a leading supplier to major automobile manufacturers in Europe, especially the German car manufacturers. MSSL now has its own technology in plastic modules backed by SMPs strong R&D capabilities. With 49 molding facilities across the globe in India, Brazil, China, Germany, Portugal, South Africa, Spain and Czech Republic, the contribution of polymer division rose to 39% of MSSLs consolidated revenues in FY12. Business overview: Company Manufacturing facilities 25 Countries Key Customers Patents
SMP
SMR
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14
Volkswagen, 274 Audi, Seat, BMW, Porsche, Daimler, Renault/ Nissan and GM Ford, General 587 Motors, Hyundai Kia, Fiat, Toyota, Tata JLR, Volvo, BMW
MSSL has a diversified automotive products portfolio, which includes automotive rearview mirrors, wiring harnesses, polymer parts, injection molding tools, vehicle air conditioning systems, lighting systems etc. Some of the highlights are: One of the largest manufacturers of rear-view mirrors for passenger cars in the world and it is largest in India for PV & MUV segments One of the largest manufacturers of IP modules, door trims and bumpers in Europe Global technology leader for high quality instrument panels and interior door panels Largest manufacturer of automotive wiring harness in India, with more than 65% market share in passenger car segment
Segmentwise Sales Distribution

Wiring Harness 21%
Mirrors 38%
Polymer components 39%
Rubber components 2%
Recent & Upcoming Investments: SMR has started commercial production and supplies from its second plant in Hungary to support German OEMs. The plant has an installed capacity of 6 million mirrors per annum and sale potential of 150m per annum. SMR is setting up new facilities in Brazil, Thailand, China and Pune (India) for mirror manufacturing and vertical integration, where production will commence in the coming year.
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KEY FINANCIALS(in Cr) GROSS BLOCK NET REVENUES EBITDA PAT EPS (in Rs)
2011-12 1903 3571 571 317 8.16
2010-11 1390 2830 437 287 7.42
2009-10 1031 1740 289 178 4.76
Bharat Forge
Bharat Forge is the largest exporter of auto components from India and leading chassis component manufacturer in the world. Bharat Forge has two distinct business lines component manufacturing, and capital goods and infrastructure. In component manufacturing, throughits domestic operations and overseas subsidiaries, it caters to forging andmachining requirements of the auto and the non-auto sectors. The capitalgoods and infrastructure business focuses on the Indian market and is todayconcentrating on equipment manufacturing and project management in the energy and transportation sector. Despite the sluggish external environment, the Company in FY 2012 registered an impressive performance on back of robust growth in Commercial Vehicleindustry globally, sustained ramp up of non-automotive business and continuedincrease in penetration with major customers.The Companys non-auto business has become a significant contributor to theIndian operations accounting for 38% of sales in FY 2012; from 28% of sales inFY 2009The Companys foray into equipment manufacturing is progressing well withconstruction of the facility of the Alstom JV at Mundra. The non-automotive business of the company has grown from 28% of sales in 2009 to 38% in 2012 The non-auto business of the company can be broadly classified into: o ENERGY, o TRANSPORTATION o MINING ANDCONSTRUCTION. .
Passenger vehicles 6%
SECTORAL SALES DISTRIBUTION BHARAT FORGE
CV chasis 22%
Diesel Engines 34%
Non-Auto 38%
KEY FINANCIALS NET REVENUES (Rscr) EBITDA (Rscr) PAT (Rscr) EPS (Rs) GROSS BLOCK (Rscr)
2011-12 3685.86 917.15 362.07 15.55 3198.40
2010-11 3023.21 720.27 310.57 13.32 2960.82
2009-2010 1892.09 437.36 127.05 5.71 2789.27
PLANNED INVESTMENTS The Company is executing Rs.500 crore investment programmes over FY2012 & FY2013 for capacity enhancement. Most of this is in machinery and facilities that add value to the existing product range. On pure capacity addition in forging, the Company is installing an additional 10,000 tonne press that will produce around 30,000 35,000 MTPA based on a pre-determined product mix.
Exide Industries
Exide Industries Limited (EIL), established in 1947 as Associated Battery Maker, Indias largest manufacturer of lead acid batteries. It manufactures industrial batteries catering to the power, telecom and railways segments, with an overall market share of close to 50% In November 2007, EIL acquired a 100% stake in a Pune based smelter, Tandon Metals Limited in June 2008 acquired a 51% stake in another Bangalore based smelter, Leadage Alloys India Limited, ownership in which was increased to 100% in August 2010. Together, these two subsidiary smelters currently cater to a significant portion of the company's input lead requirement. 72 Unnati Investment Management and Research Group
The Company also manufactures high-end submarine batteries (Type 1, 2 & 3). The Company manufactures two to three submarine batteries a year to meet the countrys defense requirements. The Company is one of the five companies in the World which has the capability to make submarine batteries for both Russian and German types. With the governments permission, in recent years, the Company has exported to Algeria.
The company is the market leader in the domestic storage battery market with a share of around 65% in each of the automotive original equipment manufacturer (OEM) and the organized automotive replacement segments. Exide are the OEM suppliers to almost every car manufacturer of repute like General Motors, Toyota, Hyundai, TATA Motors, Maruti, Honda. It caters to 80% car manufacturers in India.
BRAKUP OF REVENUES
0% 0%
Industrial 35% Automotive 65%
Exide caters to 6566% of OEM demand for batteries, and derives 48 50% of its overall revenues from replacement segment, as it enjoys 6062% market share in branded replacement market In the FY12, the PAT of the company fell from Rs666.36 cr in 2010-11 to Rs461.17 cr. This was mainly due to the inability of the Company to pass on the increases in material costs to the customers due to the price sensitive market sentiments prevailing during the major part of the year mainly in the automotive sector. In the Industrial sector, the de-growth in almost all sections resulted in reduction in profitability. The hardening of prices of lead which is the major
raw material, coupled with the high depreciation in the value of the Rupee affected the profits of the Company significantly.
KEY FINANCIALS NET REVENUES (Rscr) EBITDA (Rscr) PAT (Rscr) EPS (Rs) GROSS BLOCK (Rscr)
2011-12 5117.63 699.39 461.17 5.43 1774.67
2010-11 5074.60 882.26 666.36 7.84 1561.15
2009-2010 4215.97 894.29 537.09 6.32 1336.46
Recent investments In the FY12, Company has consolidated the operations at the two wheeler battery plant in Ahmed nagar, Maharashtra and has also invested around 200 crores in capacity expansion across all plants both for two wheelers as well as other automotive batteries.
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Tyre Industry
The Indian Tyre Industry accounts for approximately 5% of global tyre demand and its fortunes are interdependent with those of the Automobile industry. There are around 43 players in the industry with the top 10 companies accounting for 90-92% of total tyre production.
Demand Breakup
Exports 16% OEM 23%
Replacement market 61%
Revenue Breakup
Three Wheelers 10% Two Wheelers 10% Passenger Vehicles 15%
Commercial Vehicles 65%
Major Players:
MRF Apollo tyres JK tyres Ceat Birla Others
Market Share
Others 15% MRF 27%
Birla 11% Ceat 12%
JK tyres 16%
Apollo tyres 19%
Raw Materials:
The industry is highly raw material (RM) intensive. Raw material costs accounts for 70% of its revenues. Natural rubber accounts for about 44% of the total raw material costs.It are estimated that the tyre sector consumes 63% of total natural rubber in the country.
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Composition as percentage of costs

Butyl Rubber 4% Rubber Chemicals 5% PBR 5% SBR 5% Others 6%
Carbon Black 12% Nylon Tyre Cord 19%
Natural Rubber 44%
The exact proportion varies on the type and the technical specifications of the tyre. Besides NR, most of the other raw materials are crude derivatives and hence linked to crude oil prices.
Radialisation:
A radial tyre is a particular design of the tyre in which the cord plies are arranged at 90 degrees to the direction of travel, or radially. Where as in cross ply tyres the cords are at angles of about +60 and 60 degrees from the direction of travel. This design avoids having the plies rub against each other as the tyre flexes, reducing the rolling friction of the tyre. This allows vehicles with radial tyres to achieve better fuel economy than vehicles with bias-ply tyres. In the US, China and Europe, up to 90% of trucks run on radial tyres. Despite its several advantages (additional mileage; fuel saving; improved driving) radialisation in India earlier did not catch on at a pace that was expected, since its introduction way back in 1978. This could be attributed due to several factors like Indian roads generally not being suitable for ideal plying of radial tyres, older vehicles produced in India not having suitable geometry for fitment of radial tyres, unwillingness of consumer to pay higher price for radial tyres etc. However, the situation has radically changed in recent years. The current levels of radialisation in India are:
98% 15% 18%
Passenger vehicles Medium & Heavy Commercial vehicles
Light Commercial vehicles
Radialisation is the most important innovation in tyre technology. Radial tyres cost 25% more than Crossply(or bias) tyres as the proportion of synthetic rubber/natural rubber is more for radial tyres. But the margins from radial tyres are also higher. Hence it presents a great opportunity for tyre manufacturers especially in commercial vehicles segment.
Impact of Budget 2012 on Tyre industry:

The Budget on the whole has disappointed the tyre industry. It has ignored most of the demands put forward by the industry during pre-Budget discussions like dutyfree import of 100,000 tonnes of natural rubber, removal of anti-dumping duties on import of raw materials like rubber chemicals and carbon black and waiver of customs duty on raw materials not manufactured domestically. The provisions made in the budget are Hike in Central Excise Duty on tyres from 10% to 12% This will lead to an increase in tyre prices and will affect the margins if the tyre sector is not able to fully pass on the hike to the consumers or OEMs Full exemption on basic and additional customs duty on new and retreated pneumatic tyres, used in aircraft; excise duty on the same reduced from 10% to nil This is positive move to help aviation industry but however, according to ATMA (Automotive Tyre Manufacturers Association), the excise duty exemption given to aircraft tyres will have no major impact on the tyre industry as the domestic tyre industry doesn't manufacture certain types of tyres such as aircraft tyres for reasons of limited demand and the minimum size and scale of operations required.
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Growth Drivers
Fall of rubber prices The price of RSS (ribbed smoke sheets)-4 sheet rubber had crossed Rs240 a kg in Apr 2011.It is Rs173 a kg at present. NR prices might continue to fall in the short run due to: Peak production season coming October to January Slow demand from China Euro crisis concerns This will result in increased margins for the tyre manufacturers. Growth of Radialisation With government focus on schemes like NHDP and other infrastructure development initiatives there is high scope for increase in radialisation levels of especially commercial vehicles segment. This is one of the long-term growth drivers, which would improve the sales, as well as margins of the tyre manufacturers.
Factors of concern
Volatile other raw material prices Apart from NR, the other raw materials such as rubber chemicals, Nylon Tyre Cord Fabric, carbon black and synthetic rubber (PBR+SBR) are imported, as domestic supply doesnt match the demand. Rupee depreciation and the high customs duty are a matter of concern. Also since most of them are crude derivatives, any fluctuations in crude oil price could impact the tyre cost. Dependency on Medium & Heavy Commercial Vehicles The Medium & Heavy Commercial vehicles segment accounts for around 65% of total revenues for the tyre industry. As the outlook for this segment in the near term is looking bleak due to stagnant freight rates, slowing IIP numbers, increasing fuel costs etc it would have a major impact in sales for tyre manufacturers.
Battery Industry
Automotive battery segment

Auto OEMs contribute about 30-35% of sales while the balance is driven by replacement batteries. OEM sales, despite being a low-margin business, provides for high visibility and brand building for the players Replacement demand provides a stable business by diversifying risk when OEM demand slows down. Stability is inherent to the industry given the replacement segment accounts for 60-65% of total auto sales and contributes 15-18% to operating margin. Typically, the life of a battery is about three years and has to be replaced after that.
Industrial battery segment

Industrial batteries are classified into conventional (lead acid), valve-regulated lead acid (VRLA) and nickel-cadmium batteries. The VRLA batteries have been gaining increasing acceptance and currently comprise ~75% of the Indian industrial storage battery market. , the sustained demand supply mismatch of power in India has driven a 15% CAGR in UPS demand over the last five years. Telecom towers, which use batteries for power supply, contributes 35% to the segment.
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INDUSTRY COST STRUCTURE

Polypropelene / Poleytheylene 18%
Others 2%
Lead and alloys 80%
There is a virtual duopoly in the industry with the top two players, Exide and Amara Raja commanding over 80% of the organized market share. The unorganized sector comprises the small-scale assemblers and rebuilders, it is currently estimated to have a share of around 60-65% of the replacement market. This sector largely dominates the tractor and commercial vehicle segments although in some areas of the country they have a significant presence in the car and multiutility segments too.
Battery market shares- Automotive

Component Battery (PV) Battery (2W) Battery (CV) Organized Market Share 70% 90% 70% Unorganized Market Share 30% 10% 30%
In automotive segment, Exide caters to 6566% of OEM demand for batteries, and 6062% market share in branded replacement market while Amara Raja has a share of ~25 in Four-wheelers (OEM) and a share of ~34% in branded replacement market.
Industrial Battery Market Share

50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Telecom UPS Other organised players and unorganised players EXIDE AMARA RAJA
MAJOR PLAYERS
Exide industries Amara Raja Batteries HBL Power Systems Ltd Luminous Power Technologies Pvt Ltd Su-Kam Power Systems Ltd Base Corporation Ltd FUTURE GROWTH DRIVERS Robust solar equipments and mobile batteries demand India is witnessing a great change in the demand for solar energy and many new projects are coming up for rural electrification, home lighting, streetlights and also there has been a great increase in mobile phone demands providing a huge opportunity to battery manufacturers. Tubular batteries Demand for tubular batteries is also expected to grow as innumerable government programmes require a five year warranty on batteries, and this warranty can be offered only with tubular batteries.
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Government initiatives Central and state governments are coming up with new circulars, which mandate that 10 per cent of the power used by telecom tower companies must be generated through renewable energy sources. This holds true for even for hospitals, hotels, etc. This would lead to a major spike in battery demand, as all this generated power would have to be stored in batteries. Electric vehicle sales Sales of electric vehicles in India has been increasing at a CAGR of ~20% with companies like Hero, BSA motors, Mahindra Reva, Enigma coming up with their range of electric scooters, four wheelers and three wheelers. This growth provides a great opportunity for auto battery producers like Exide, Amara Raja to tap this growing market. Huge replacement market Expansion of railways Modernization and expansion of the Indian Railways over the next five years is likely to drive battery sales for railway applications.
CAUSE OF CONCERNS
Low sales growth of automobiles Fall in growth rates of passenger vehicles and two wheeler segments which has already affected the profits of leaders like Exide industries. High and volatile input costs Lead is the major constituent (80% of cost) of battery products and its volatile prices are always a cause of concern. Such volatility has a serious impact on the cost of the products and also leads to uncertainties in procurement. Rupee depreciation Rupee depreciation vis--vis US Dollar is also a risk and challenge for the industry as it leads to costly imports and affects profitability. Large unorganized market The unorganized market (estimated at around Rs20-25bn) gives tough competition to the organized players, especially in rural areas where the latter has limited reach. The growing unorganized market poses a serious threat to the organized battery segment in India.
CURRENT STATUS
The domestic Battery Industry suffered a definite set-back during the FY12. Apart from the automobiles, telecom, infra-structure and export sectors continued to be sluggish. Inflationary pressures, rise in the price of petrol and high cost of borrowings generally depressed the overall demand generation and were instrumental for the lower growth. As for industrial battery segment, the recurring power shortages on the top of demand versus supply gap in Grid power, provides a robust demand for Home UPS batteries in the foreseeable future. Further, in spite of delays in commissioning or postponement of projects, infrastructure continues to be a major focus area of the Government.
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Sales and Distribution 8%

Raw materials 79%

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Commercial vehicles 4% Three Wheelers Passenger 4% vehicles 16%

Two Wheelers 76%

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Motorcycles Two Wheelers Scooters Mopeds Goods carriers

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Finance and insurance

2nd hand retailers

Repair and Spare Market

Transport Agencies Scrappage yards 2nd Hand Buyers

Finance 2nd Hand Retailers

Repair & Spare Market

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ECONOMY SEGMENT EXECUTIVE SEGMENT PREMIUM SEGMENT

Key demand side growth drivers

Key supply side growth factors

MARKET SHARE SEGMENT WISE

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TVS 13% HERO MOTOCO RP 41%

BAJAJ AUTO 23%

MARKET SHARE IN MOTORCYCLES (Economy Segment)

BAJAJ AUTO 32%

MARKET SHARE IN MOTORCYCLES (Executive Segment)

BAJAJ AUTO 17%

HERO MOTOCORP 68%

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MARKET SHARE IN MOTORCYCLES (Premium Segment)

YAMAHA 14% HERO MOTOCORP 20%

BAJAJ AUTO 41%

MARKET SHARE IN SCOOTERS

HMSI 48% HERO MOTOC ORP 15%

Domestic sales trend

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DOMESTIC SALES TREND FOR TWO WHEELERS

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MARKET SHARE OF MAJOR PLAYERS IN EXPORTS

MAJOR EXPORT MARKETS FOR 2W Nepal

EXPORTS SALES TREND FOR 2 WHEELERS

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MARKET SHARE IN 3W (Passenger Carrier)

MARKET SHARE IN 3W (Goods Carrier)

ATUL AUTO 12%

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EXPORTS CONTRIBUTION AS A PERCENTAGE OF TOTAL SALES

Unnati Investment Management and Research Group

Unnati Investment Management and Research Group 21

Unnati Investment Management and Research Group 23

Unnati Investment Management and Research Group 25

DOMESTIC SALES TREND (PV)

DOMESTIC SALES TREND (PV)

CARS, UVs and MPV sales

Unnati Investment Management and Research Group

EXPORT SALES TREND (PV)

Unnati Investment Management and Research Group 27

Market leader Tata Motors Major Players: