Unnati - Auto & Auto Ancillaries - 2018 PDF

UNNATI INVESTMENT MANAGEMENT AND RESEARCH GROUP
UNNATI
SECTOR
REPORT
AUTO & AUTO ANCILLARIES
2018-19
Pankaj Bansal | Sanyam Jain

Auto & Auto Ancillaries
CONTENTS
EXECUTIVE SUMMARY 4
AUTOMOBILE INDUSTRY 6
1. Market Overview 7
2. Auto Cluster in India 10
3. Value Chain 11
4. Porter’s Five Forces Analysis 12
5. Impact of GST 13
6. Growth Drivers 14
7. Opportunities 14
8. Government Policy and Regulations 15
9. Important Industry Associations 19
10. Important Laws Affecting the Automobile Industry 20
TWO WHEELERS
1. Industry Overview 22
2. Competitive Structure 23
3. Foreign Trade 24
4. Capacity Utilisation Trends 25
5. Motorcycles 26
6. Scooters and Mopeds 28
8. Key Challenges and Concerns 31
9. Financial Analysis 32
10. Impact of GST 33
11. Future Outlook 34
12. Player Profile 35
THREE WHEELERS
3. Challenges and Key Concerns 39
PASSENGERS VEHICLES
2. Competitive Structure 43
5. Foreign Trade Trends 44
6. Capacity Utilisation 46
7. Segments 46
8. Small Cars 47
9. Large Cars 48
10. UVs and Vans 49
Unnati Sector Report 2018-19 | 1

IMPACT OF EVs on AUTO & AUTO ANCILLARIES SECTOR 55

IMPACT OF SHARED MOBILITY AND CAB AGGREGATORS 58
INDIAN USED CAR MARKET 60
COMMERCIAL VEHICLES
2. MHCV 68
3. ICV 68
4. MCV 69
5. MAC 69
6. Truck Trailers 69
7. Tippers 69
8. LCV 71
9. Passenger Vehicles (CV) 73
TRACTORS
2. Small Tractors 85
3. Medium Size Tractors 86
4. Large Tractors 87
THE AUTO ANCILLARIES SECTOR
1. Overview 96
2. Industry Classification: Product, OEM Consumption and Player Wise 97
3. Value Chain 99
4. Current Scenario 101
5. Foreign Trade 102
6. Automotive Components Manufacturers Clusters 103
7. Replacement Markets 104
8. ACMA 105
9. Key Developments, News and Trends 106
12. Investment Scenario 109
13. Capacity Addition of Key Players 110

TYRES
1. Overview 114
2. Segments 115
3. Financial Performance of Major Players 118
4. Raw Materials 119
AUTOMOTIVE CASTING
1. Overview 125
2. Key Success Factors 126
3. Key Risks 126
BATTERIES
1. Overview 128
2. Major Players 131
4. Key Concerns 132
REFERENCES 134

Executive Summary
The Indian auto industry is the fourth largest in the world with a about 2.9 crore vehicles produced
across segments in 2017-18. The sector contributes immensely to the growth of the country in
terms of GDP, exports and employment.
It is divided in to two-wheelers, three-wheelers, passenger vehicles, commercial vehicles and

tractors. Auto Ancillaries in another big industry related to the automobile sector.
The industry is labor intensive and requires high capital expenditure as well. It is expected to
continue its growth trajectory. Rising demand due to a favorable demographic and a growing
economy will fuel this growth. Improving road infrastructure and policy support will also aid the
sector’s growth. Also, India has significant cost advantage which has led to the expansion of auto
manufacturing in the country. This has also resulted in continuous increase of export.
Implementation of GST, Emission Norms, Electric Vehicles, and Alternate Fuels are some key
areas related to policies and regulations that are likely to have a big impact on the industry.
The two-wheeler industry is the biggest in terms of volume, accounting for approximately 80% of
entire auto sales. Motorcycles, scooters and mopeds are the main segments. Further the segment
can be categories into economy, executive and premium. The industry grew by 15% in 2018.
Growth in rural economy which in turn depends on monsoon is a big factor driving the two-wheeler
sales. Hero, Bajaj and TVS are the major players in this segment.
The Passenger Vehicles (PV) industry in India is the fifth largest in the world in terms of
production. Over 4 million (7.9% growth) vehicles produced in 2018. This industry is highly
organized and requires high amount of R&D. The competition in the segment is intense with top
5 players accounting for 80% of CV sales. Maruti Suzuki is the leader with a massive 50% market
share. The major segments in the car industry are small cars, large cars and, UVs and vans. Small
cars account for about 60% of sales.
Increasing digitization and automation is going to revolutionize the car industry. Countries such
as US and China have seen sales of electric vehicle (EV) pick-up. Diverse mobility – such as car
sharing, e-hailing has the potential to increase revenues for the automotive sector. Maruti sold
around 60,000 cars to cab aggregators between April-Dec’17. Thus, developments such as shared
economy and EV provides potential opportunities as well as challenges.
Commercial Vehicles (CV) industry comprise of medium and heavy commercial vehicles
(M&HCV) and light commercial vehicles (LCV). India is the seventh largest CV manufacturer in
the world. A total of 894551vehicles were produced in 2018. The sales increased by 19.9% over
FY17. The industry in strongly linked with the economic growth of the country. Increase in
infrastructure leads to an uptick in demand for CV. Tata Motors, Ashok Leyland and Mahindra &
Mahindra are the biggest industry players in this segment.
Tractor industry is a barometer for the state of rural economy in India. Indian tractor industry
accounts for one-third of global production. The sector witnessed a growth of 22% in 2017-18.
Today the tractor industry is over 600,000 in volumes. It is segmented into small (up to 30hp),
medium (31-40 hp) and large tractors (over 41hp). The demand for tractors is highly dependent on
irrigation.
The auto ancillaries industry cater primarily to OEMs and export market. It is highly fragmented
comprising over 780 players in the organized sector. The industry contributes ~2.4% to the
country’s GDP. Engine components, suspensions, driving and transmissions, body/chassis,
electronics and electricals are the major products in the industry. Replacement market is a big
segment for the ancillary industry with higher margins than the OEM market.
The Indian tyre industry is around 60,000 crores in size with around eleven players accounting for
90% market share. Replacement market is the biggest category followed by OEM and exports.
The industry is expected to display a healthy overall growth of 9-11% in tyre demand in fiscal
2019.
Automotive Casting and Battery are other industries aligned to the automotive sector. Over 60%
of battery demand is from the automobile sector. Amara Raja and Exide are big players in the
battery industry. The casting industry is also expected to grow by 19-21% in 2018-19 to INR 293
billion.

Automobile Industry
The automobile manufacturing industry comprises the production of trucks, passenger cars and
motorcycles.
The truck manufacturers market consists of the production of light commercial vehicles (LCVs),
heavy trucks, and buses & coaches. The maximum legal weight of each vehicle type varies
between countries. On average, LCVs weigh up to 5.25 tons, heavy trucks weigh greater than 5.25
tons, and buses & coaches weigh greater than 5.25 tons. Sports utility vehicles and similar vehicles
are not included.
Passenger cars are defined as motor vehicles with at least four wheels, used for the transport of
passengers, and comprising no more than eight seats in addition to the driver's seat.
Motorcycle manufacturers are producers of powered two-wheelers (PTWs) that are available to
the public. All designs and engine capacities, including low-powered bikes referred to as mopeds,
are included. On-road (street legal), racetrack only and off-road motorcycles are all included.
Automobile Sector
Commercial
Two-Wheelers Passenger Vehicles Three-Wheelers
Vehicles
Mopeds and Light Commercial

Passenger Cars Passenger Carriers
electric scooters Vehicles
Medium & Heavy

Scooters Utility Vehicles Commerial Goods Carriers
Vehicles
Multipurpose
Motorcycles
Vehicles

1. Market Overview
Source: Crisil and IBEF

The Indian auto industry became the 4th largest in the world with sales increasing 9.5 per cent
year-on-year to 4.02 million units (excluding two wheelers) in 2017. It was the 7th largest
manufacturer of commercial vehicles in 2017.
The industry is likely to grow from 80 Billion USD to 270 Billion USD by 2026 and generate an
additional 65 Million jobs. The Automotive industry is key to the domestic Manufacturing Sector
contributing over 40% and impacting the fortunes of several related manufacturing industries such
as Iron and Steel, Aluminum, Rubber, Chemicals, Molds etc.
The Two Wheelers segment dominates the market in terms of volume with 81% share in the auto
industry, owing to a growing middle class and a young population. Moreover, the growing interest
of the companies in exploring the rural markets further aided the growth of the sector.
India is also a prominent auto exporter and has strong export growth expectations for the near
future. Overall automobile exports from India grew at 6.86 per cent CAGR between FY13-18. In
addition, several initiatives by the Government of India and the major automobile players in the
Indian market are expected to make India a leader in the two wheeler and four wheeler market in
the world by 2020.
Indian automotive industry (including component manufacturing) is expected to reach Rs 16.16-

18.18 trillion (US$ 251.4-282.8 billion) by 2026, if the current trends continue.
In April-March 2018, overall automobile exports increased by 16.12 percent. Two and Three
Wheelers Segments registered a growth of 20.29 percent and 40.13 percent respectively, while
Passenger Vehicles and Commercial Vehicles declined by (-)1.51 percent and (-) 10.53 percent
respectively in April-March 2018 over the same period last year.

Although, the quantum of exports is small compared to domestic sales. And domestic sales are
zooming. But falling exports do not go down well with the aim of making India the automobile
export hub.
The reason may that some global manufacturers have reworked their export strategies. For
example, Hyundai Motor India Ltd, which had 120 exporting countries on its map until recently,
now caters to only 88.
Fortunately, utility vehicle exports rose by 7.8%, helping to offset the overall drop to some extent.
Analysts reckon that perhaps the rising preference for compact utility vehicles over the sedans and
compact cars in some of the developed markets, may be a reason for the steeper drop in car exports.
Category 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

Passenger 32,31,058 30,87,973 32,21,419 34,65,045 38,01,670 4010373
Vehicles
Commercial 8,32,649 6,99,035 6,98,298 7,86,692 8,10,253 894551
Vehicles
Three 8,39,748 8,30,108 9,49,019 9,34,104 7,83,721 1021911
Wheelers
Two 1,57,44,156 1,68,83,049 1,84,89,311 1,88,30,227 1,99,33,739 23147057
Wheelers
Grand Total 2,06,47,611 2,15,00,165 2,33,58,047 2,40,16,068 2,53,29,383 2,90,73,892
Source: SIAM

Positive Negative
Factors Factors
• Expectation of normal monsoon in • Global crude prices remain elevated,
current fiscal and healthy sowing in rabi compared to the previous year. Domestic
season is likely to boost rural income fuel prices are also at record high levels
growth. across the country. Rupee depreciation
may accelerate the increase in overall
• Benign food inflation, on the back of a ownership cost.
normal monsoon, likely to encourage
aspirational spending amongst urban • Vehicle insurance cost are revised
population. upwards post GST which again translate
into higher ownership cost.
• “Make in India” program and launch of
Automotive Mission Plan 2026 by • OEMs are experiencing pressure on
Government to boost investment in the margin performance in wake of firmer
sector input prices as compared to the previous
year.
• GST implementation proved to be
marginally beneficial for incremental • Imported inflation may motivate RBI to
domestic PV sales. adopt a hawkish stance and raise policy
rates preemptively.
• Two-wheelers and passenger

vehicles dominate the domestic
Indian auto market. Passenger car
sales are dominated by small and
mid-size cars.
• Overall automobile exports
reached 4.04 million vehicles in
FY18, implying a CAGR of 6.86
per cent between FY13-18. Two-
wheelers made up 69.7% of the
exported vehicles, followed by
passenger vehicles at 18.5%,
three-wheelers at 9.4%.

2. Auto Clusters in India
Auto industry in India is primarily distributed in four major auto clusters distributed across India.
The pictorial representation of the same has been provided here.
The major clusters are:
• North: Delhi-Gurgaon-Faridabad
• West: Mumbai-Pune-Nashik-Aurangabad
• East: Kolkata-Jamshedpur
• South: Chennai-Bengaluru
The Reasons why the Automotive industry is present in clusters are:
• Special incentives provided by the government of these areas

• Sector specific skilled labour, sharing of knowledge, industry linkages
• Better for customers
• Beneficial geographical locations befitting the purpose of the company
• The vendors are generally located near the OEMs to cut cost and ensure timely delivery of
material. Presence of a lot of OEMs to cater to makes their business profitable
• Presence of vendors nearby also helps the OEMs to continue uninterrupted production while
maintaining minimum inventory

3. Value Chain
Raw • Supplies steel, PU, and other basic materials required for exterior and interior
Material
Supplier
• These are basically small workshops that provide small or may be recycled
components or may be consumables to TIER2 Supplier.
Tier 3 • The company usually does not deal directly with them but could if some
Supplier regulatory requirements are to be fulfilled.
• Manufactures sub components for a number of basic components

• Well integrated with Tier 1 suppliers
Tier 2 • Operate on thin margins
Supplier • Examples are metal rods, axles and carpets
• Makes major components for the OEMs

• Highly integrated into supply chain of OEMs
Tier 1 • Usually dedicatedly supply to one major OEM
Suppliers • They supply products like gearboxes, pistons
• The OEMs actually coordinate with the suppliers for part development and only
deal with designing and assembly of parts.
• Few and specialised, central link to entire value chain, implement and drive
OEMs
innovation
• A dealer basically, acts as an interface between the OEM and the customer.
• dealer plays a crucial role in assessing the demand.
Dealers • Usually have a good financial background and and market presence
• Majority of the passenger vehicles sales is financed by the financing companies.

Increasingly the OEMs are entering into this field.
Finance and • OEMs also have the business tie-ups with the insurance and financing
Insurance companies to aid the customer get easy access to the facilities.

4. Porter’s Five Forces Analysis

5. Impact of GST
Category Engine Pre-GST GST + Cess Final Impact

Under 4 Under 1.2 l
31.5% 28%+1% 29% Positive
meters Petrol
Under 4 Under 1.5 l
33.25% 28%+3% 31% Positive
meters Diesel
Under 4 Above 1.2 l
44.7% 28%+19% 47% Negative
meters Petrol
Under 4 Above 1.5 l
51.6% 28%+25% 53% Negative
meters Diesel
Above 4
- 55% 28%+29% 57% Negative
meters
Hybrid
Vehicles
- 30.3% 28%+25% 43% Negative
above 4
meters
Electric
- 20.5% 12% 12% Positive
Vehicles
Impact on Working Capital:
1. Carrying forward of unclaimed Credit: Depending upon rate of tax on input and spare parts
in GST regime, i.e., 18% and above or below 18%, input tax credit would be allowed only to
the extent of 60% or 40% respectively resulting in residual loss to auto dealers. This is inevitable
as in most of the cases, duty paying documents are not available.
2. Vehicle Transfers: Transfer of vehicle/ spares to other premises will be liable for GST if the
transfer is in the course of inter-state trade. Further, if there are separate dealerships of a dealer
and separate GST registration number is obtained for each such dealership, then transfer of any
goods/ services between such dealerships will also be liable for GST. This shall block the
working capital as the taxes needs to be paid from own funds and collection of taxes will be at
a later date only when such goods/ services are eventually sold.
3. Free Service Coupon vouchers: These coupons are issued at the time of sale of the vehicle.
As per the time of supply rule, GST on such coupons needs to be paid immediately on the date
of issue of such vouchers. As per the policy of some, the amounts in respect of such coupons
will be redeemed to the dealers only once the customer brings the vehicle for repair to the
workshop. Therefore, dealers would have to pay tax on such coupons immediately on its issue
but the said taxes can be collected from the automobile manufacturers only when the vehicle
comes for the repair leading to unnecessary blocking of funds in taxes.

4. Vehicle Booking Advance: It is quite common in this sector that the vehicles will be booked
in advance on payment of certain amount as token. Earlier, VAT is not being paid on such
advances as the same is payable at the time of sale of such vehicle. However, this luxury of
holding advances without payment of taxes is clipped in the GST and taxes need to be paid on
receipt of the booking advances also.
6. Growth Drivers
Support Infrastructure
Growing Demand Policy Support
and high investments
•Rising income and a large ▪Clear vision of Indian •Improving road
young population. government to make India infrastructure.
•Greater availability of credit an auto manufacturing hub. •Established auto ancillary
and financing options. •Initiatives like ‘Make in industry giving the required
•Demand for commercial India’, ‘Automotive Mission support to boost growth.
vehicles increasing due to Plan 2026’, and NEMMP •5 per cent of total FDI
high level of activity in 2020 to give a huge boost to inflows to India went into
infrastructure sector. the sector. the automobiles sector.
7. Opportunities

8. Government Policies & Regulations:
8.1 Automotive Mission Plan (AMP) 2016-2026
The Automotive Mission Plan 2016-26 (AMP 2026) is the collective vision of Government of
India and the Indian Automotive Industry on where the Vehicles, Auto-components, and Tractor
industries should reach over the next ten years in terms of size, contribution to India’s
development, global footprint, technological maturity, competitiveness, and institutional
structure and capabilities.
AMP 2026 also seeks to define the trajectory of evolution of the automotive ecosystem in India
including the glide path of specific regulations and policies that govern research, design,
technology, testing, manufacturing, import/export, sale, use, repair, and recycling of automotive
vehicles, components and services.
Objectives of AMP 2026
• Propel the Indian Automotive industry to be the engine of the “Make in India” programme, as
it is amongst the foremost drivers of the Manufacturing sector: Over the next decade, the Indian
Automotive sector is likely to contribute in excess of 12% of the country’s GDP and comprise
more than 40% of its manufacturing sector. Around 13% of the excise duty collection of the
Government can be attributed to the Indian Automotive industry.
• Make the Indian Automotive Industry a significant contributor to the “Skill India” programme
and make it one of the largest job creating engines in the Indian economy: The potential for
incremental number of both direct and indirect jobs to be created by the Indian Automotive
industry over the next decade is nearly 65 million. This is over and above the additional 25
million jobs created in the previous decade.
• The focus of AMP 2026 is to promote safe, efficient and comfortable mobility for every person
in the country, with an eye on environmental protection and affordability through both public
and personal transport options. The objective is to provide a choice to the consumer to access
multiple options for mobility.
• Increase net exports of the Indian Automotive industry several fold: AMP 2026 recognizes
that the Indian Automotive industry (both vehicles and auto components) has the potential to
scale up exports to the extent of 35-40% of its overall output over the next ten years and become
one of the major automotive export hubs of the world. In line with this, AMP 2026 makes several
prescriptions to improve competitiveness, technological advancement, infrastructure investment,
and branding.

• AMP 2026 also aims to increase the quantum of indigenously carried out research, design,
engineering and manufacturing in both automotive vehicles and components.
• Comprehensive and stable policy dispensation required: Given the distinctive contribution of
the Indian Automotive Industry to the socio-economic development of the country, it is
imperative that the industry is subjected to a comprehensive and predictable policy regime that
governs it in a stable and sustainable manner.
Automotive industry, AMP 2026 spells out the Government’s views on the path of evolution of
key policies for the Auto sector, so that all regulations impacting the industry are formulated
comprehensively in scope and scale to be implemented harmoniously across the nation,
including at the Centre and the States.
8.2 Emission Norms
In view of improving the air quality of our cities and towns, Bharat Stage emission standards
were first introduced in 1991-1992. Thereafter progressively and steadily, the stringent norms
have been rolled out. In 2000 and 2001, BS-II norms were implemented in Delhi, Kolkata,
Mumbai and Chennai and BS-I norms were made mandatory in the rest of the country. Since
April 2010, Bharat Stage (BS) III norms have been enforced across the country and Bharat Stage
IV emission norms in 13 major cities.
Due to increasing levels of pollution in cities the Government in January 2016 took a major
policy decision to leapfrog directly to the BS-VI Emission Norms for vehicles (with 10 ppm
Sulphur fuel) skipping the BS-V norms and that too with preponing the implementation date to
1st April 2020, across the country as one-country one-fuel norm advocated by SIAM. The BS-
VI emission norms have been notified on 16th September 2016 by the Ministry of Road
Transport and Highways in the CMVR, 1989.

The leapfrog to BS-VI norms by 2020 skipping BS-V emission norms will reduce 82% in the
emission of particulate matter and 68% in NOx emission in diesel cars. The additional benefit is
only in terms of NOx emissions, which is tightened by additional 40% over the BS V levels and
HC + NOx is tightened by additional 20%. Around 50% additional reduction in emission of
particulate matter and an additional reduction of 44% in the emission of NOx is expected in heavy
duty diesel vehicles. Therefore, emission benefits by leapfrogging is maximum in the segment of
heavy duty vehicles.
8.3 100% EV in Public and 40% in private sector by 2030
The National Institution for Transforming India or NITI Aayog, has launched a report on ‘India
Leaps Ahead: Transformational Mobility Solutions for All’ on 12th May 2017 for a complete
transformation of mobility to 100% electric vehicles in public and 40% in private sector by 2030.
The report of the NITI Aayog envisioned a paradigm shift of mobility by adopting new and
sustainable model for clean, cost-effective, efficient that is not only safe but job oriented, least
energy intensive (reduced oil import bill) but also have minimum adverse impact on environment
and human health. The report envisages three phased roadmaps for Electric Mobility up to 2032.
The 1stphase (2017-2019) will focus on institutional capacity building and aggregating
Interoperable Transport Data (ITD) with enabling mobility solutions. The 2nd phase (2020-2023)
focuses on the development of markets, infrastructure and production capabilities in tandem with
innovative business models. In the last phase (2024-2032), it is expected that the costs of EVs
would come down significantly and achieve economies of scale.
8.4 Fuel Efficiency Norms
The government of India has recently notified the new fuel efficiency norms for passenger vehicles
in April 2015. The new fuel efficiency standards have come into force in April 2017. The fuel
economy standards have notified for petrol, diesel, liquified petroleum gas (LPG), and compressed
natural gas (CNG) passenger vehicles. The standards are based on a Corporate Average Fuel
Consumption (CAFC) system. The regulations envisaged that between 2017 and 2022 cars should
be 17% more fuel efficient.
The new norms were formulated by the Bureau of Energy Efficiency (BEE) and notified under the
Energy Conservation Act, 2001. As per the notification, these fuel efficiency standards are being
implemented by the Ministry of Road Transport and Highways. After the implementation of these
standards, India will also join the league of developed nations such as United States, Europe, Japan
and China, who have a mandatory fuel efficiency regulation for passenger cars. Recently in August
2017, the Government has notified the fuel efficiency norms for Heavy Duty Commercial Vehicles
(HDVs) i.e. diesel vehicles of category M3 and N3 with gross vehicle weight of twelve tonnes and
above, complying with BS-IV emission norms; the norms will be effective from April 2018. A
star-based rating system has also been proposed by the BEE to rank the vehicles on a scale of one
to five stars based on their fuel efficiency. However, as a voluntary initiative, SIAM members have
been voluntarily declaring fuel efficiency values of all passenger cars since the year 2009 which
is available at the point of sale and also on the SIAM website.
8.5 Alternate Fuels
The ministry of New and Renewable Energy (MNRE) was the nodal ministry for alternate fuels
of the Government of India at the central level, however, the mandate for all matters relating
biofuels has been allocated to MoP&NG in August 2017. Henceforth, the National Biofuel Policy,
Research & Development, marketing, blending, laying down standards for blending etc. will be
handled by the MoP&NG.
On 2nd May 2017, the NITI Aayog has come up with a plan and has announced a complete
transitioning to alternate fuel like methanol produced from coal, biomass. The Union Minister for
Transport on 11 th September 2016 announced that India will leapfrog to ‘Methanol Economy’ to
reduce the import oil bills as well as to reduce the emissions. A feasibility study under the auspices
of NITI Aayog had revealed that the ‘Methanol Economy’ has potential to address the twin
challenges of burgeoning oil import bill as well as country’s growing carbon footprints. The NITI
Aayog is working on the methanol blending up to 85% (M-85) with gasoline.

9. Important Industry Associations
9.1 Society of Indian Automobile Manufacturers (SIAM)
Society of Indian Automobile Manufacturers (SIAM) is the apex industry body in India
representing 46 leading vehicle and vehicular engine manufacturers. SIAM is an important
channel of communication for the Automobile Industry with the Government, National and
International organizations.
The Society works closely with all the concerned stake holders and actively participates in
formulation of rules, regulations and policies related to the Automobile Industry. With its regular
and continuous interaction with international bodies and organizations it aims to facilitate up
gradation of technical capabilities of the Indian Industry to match the best practice worldwide.
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 Harmonization of Safety and Emission Standards etc. Dissemination
of information is an integral part of SIAM'S activities, which it does through various
publications, reports, seminars and conferences.
SIAM provides a window to the Indian Automobile industry and aims to enhance exchanges and
communication expand economics, trade and technical cooperation between the Automotive
Industry and its international counterparts. SIAM organizes the biennial Auto Expo series - The
Motor Show 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.

10. Important Laws affecting the Automobile Industry

10.1 Motor Vehicles Act, 1988 and Central Motor Vehicles Rules 1989
•Governs emission norms and safety standards in India.
•Consolidates the law relating to motor vehicles.
•Lays down law relating to driving license, registration of motor vehicles, control of traffic,
construction & maintenance of motor vehicles
The Ministry of Shipping, Road Transport & Highways (MoSRT&H) acts as the central agency
for formulation and implementation of various provisions of the Motor Vehicle Act, 1988 (as
amended) and Central Motor Vehicle Rules, 1989 (as amended) ("CMVR"). Additionally, the
Ministry of Environment & Forest (MoEF), Ministry of Petroleum & Natural Gas (MoPNG) and
Ministry of Non-Conventional Energy Sources also govern various aspects of the automotive
industry.
10.2 CMVR- Technical Standing Committee
•Advises the MoSRT&H on technical aspects related to CMVR and any amendments that may be
required in light of advancement in technology.
•The Committee comprises of a wide range of stakeholders, from organizations such as the
Ministry of Heavy Industries & Public Enterprises, Bureau of Indian Standards, Automobile
Research Association of India, Society of Indian Automobile Manufacturers etc.
•Recommendations are made to the Government regarding international standards / best practices
which can be used in lieu of standard notified under the CMVR to permit use of components /
parts / assemblies complying with such standards.
•Additionally, CMVR-TSC is assisted by another committee called the Automobile Industry

Standards Committee which advises in drafting the technical standards related to safety.
10.3 Standing Committee on Implementation of Emission Legislation (SCOE)
This committee deals with issues relating to implementation of emission norms.
• To discuss future emission norms;

• To recommend final norms for current vehicles to MoSRT&H
• To finalize test procedures and implementation strategy for emission norms;

10.4 NATRiP
National Automotive Testing and R&D Infrastructure Project (NATRiP), the largest and one of
the most significant initiatives in Automotive sector so far, represents a unique joining of hands
between the Government of India, a number of State Governments and Indian Automotive Industry
to create a state of the art Testing, Validation and R&D infrastructure in the country. The Project
aims at creating core global competencies in Automotive sector in India and facilitate seamless
integration of Indian Automotive industry with the world as also to position the country
prominently on the global automotive map. NATRiP aims at setting up of seven state-of-the-art
automotive testing and R&D centre across the country and thereby:
• Creating core global competencies.
• Enhancing competitive skills for product development leading to deepening of manufacturing.
• Synergizing India’s unique capabilities in Information Technology with the automotive sector.
• Facilitating seamless integration of Indian automotive industry with the world to put India
strongly on the global automotive map.
ARAI Pune, iCAT Manesar, VRDE Ahmednagar are some of the important test centres in India
which have been established as a part of NATRiP.
10.5 Impact of BS VI
• OEMs with strong market share in diesel cars and auto suppliers with strong dependence on
diesel car OEMs are likely to be impacted badly.
• It is estimated that auto & auto parts industry in India will have to invest over USD 10 billion to
be able to manufacture BS-VI compliant cars. Investments have to be made progressively over the
next three years in line with the market demand. There is a need for adding capacity and installing
further manufacturing units for DPF and SCR modules specifically
• Testing, optimization and fitment of DPF and SCR technology to Indian conditions will take a
few years. It is not possible to simply plug and play with the European technology (compliant with
Euro 6 norms) here in India. For example, fitting of DPF into bonnets of small Indian diesel cars
will require major design and engineering work. Making bonnets longer may lead to the car
exceeding the 4-meter mark, hence losing excise benefits.
• Due to low driving speeds in India, it is difficult to achieve temperature (for burning the soot in
DPF) of 600 degrees Celsius prevalent in European conditions and the Indian manufacturers will
have to make do with temperatures around 400 degree Celsius.
Two Wheelers
1. Industry Overview
India is the largest 2-wheelers (2W) market in the world in terms of volume of production and
third largest exporter of two wheelers behind China and Japan. After overtaking China, in FY
2017, as the world's biggest market for two-wheelers, domestic sales of the Two Wheeler industry
crossed the 20 million mark; clocking 20.192 Mn two-wheelers sales in FY2018.
The two-wheeler industry grew by 15% in fiscal 2018 with anticipated improvement in the rural
economy in a good monsoon year.
Motorcycle sales grew by 14% due to good crop output, farm loan waiver in key states, and an
increase in minimum support prices (MSPs).
Scooters grew a strong 20% on the back of new model launches in the 125cc segment, multi
ownership, and increasing rural penetration.
Moped sales dipped by 3% over a high base in fiscal 2018. All key parameters are expected to
remain favorable for this fiscal, barring petrol prices as the crude price movement remains a
monitorable going forward.
Segment wise domestic market share
Mopeds Scooters Motorcycles
Source: SIAM

Scooters are now seen to be substituting motorcycles as family vehicles. Cannibalisation by the
lower executive segment due to similar price points is another key factor that is increasing the
share of scooters in the two-wheeler mix.
The share of scooters in the two-wheeler industry reached 34% in fiscal 2019 YTD, from 21% in
fiscal 2014. Even in this fiscal, we expect the scooter segment to continue its strong growth and
eat further into the motorcycle share. HMSI's Activa remains the most popular model in this
segment. The company's new offerings, namely, Cliq (rural-focused scooter) and Grazia (urban-
focused scooter) are also expected to further widen the player's share.
TVS has launched the NTORQ, a 125cc scooter to compete with the other 125cc scooters such
as Grazia and Suzuki Access. Hero, relatively weaker in the segment, has announced new model
launches and upgrades of the Maestro and Duet this year to gain market share in the segment.
2. Competitive Structure
Market share of major two-wheeler manufacturers
Source: CRISIL
Indian two-wheeler sector can be termed as an organized market with a significantly high
proportion of market concentration amongst 5-6 top players. High initial investment required to
set up a manufacturing facility, advanced R&D capabilities, time required in establishing a dealer
network and effective supply chain has created high entry barriers. Consequently, entry of new
players into the sector is limited.

Key factors intensifying competition include :-
• Expansion of dealership network: Manufacturers have expanded their dealership/service

network into tier 3 cities and beyond, owing to rising demand in non-metro cities. This
expansion across geographies is expected to push up competition.
• Model launches: Across two-wheeler players, there has been a rise in new launches in
scooters and premium motorcycles as well as makeover of the key existing models.
3. Foreign Trade Trends
India is the 3rd largest exporter of 2-Wheelers in the world. Exports have become an increasingly
important part of the two-wheeler sector constituting more than 12% of the total sales volumes in
FY 2018. Exports have grown by a phenomenal 16% CAGR from around 0.3 Mn units in FY 2004
to ~2.8 Mn. units in FY 2018.
However, exports growth witnessed a slowdown in FY 2016 on the back of elections, foreign
exchange availability, adverse currency movements and other geo-political issues in key export
markets like Nigeria and Columbia. Furthermore, exports growth to Sri Lanka slowed down due
to a hike in import duties imposed by the country in FY 2013.
Imports form an inconsequential part of the foreign trade of 2-Wheelers in India as only high-end
sports bikes are imported to meet the luxury demand of elite customers.
Source: SIAM

India traditionally sold motorcycles in the exports market. However, players are now also focusing
on scooters to cater to scooter-oriented markets such as Southeast Asia. In fiscal 2018, scooter
exports rose 7%. Motorcycle exports are also expected to go up by 6% as Bajaj (more than 50%
share in Exports) has diversified its export geographies to reduce its dependence on the volatile
African markets.
4. Capacity Utilisation Trends
Source: CRISIL
Utilisation rate declined from 76% in fiscal 2015 to ~68% in fiscal 2016, as capacities expanded
9-11%, even as demand grew at a subdued pace of 3%. The rate has been inching up as demand
has been favourable in the last 2 years and capacity expansions grew at a slower pace till fiscal
2018.

5. Motorcycles
Based on income and lifestyle of consumers, and on engine capacity, the motorcycle segment is
broadly divided into three sub-segments: Economy, Executive and Premium.
Two-wheeler demand from rural India is predominantly for motorcycles, given their sturdy
structure, superior performance, and lower costs, especially in the economy and executive
segments.
Economy and Executive segments increased by 14% and 10%, respectively, annually.
The Premium segment, however, continued to grow fastest amongst the 3, posting a 24% y-o-y
growth. Premium segment bikes like the Royal Enfield have found favor with a niche segment in
the last few years.
Source: CRISIL
The premium segment is expected to enjoy healthy growth this fiscal, fueled by improving
consumer affordability, strong product launches and upgrades coupled with changing consumer
preference towards-high end bikes.
The premium segment, which comprises 150cc+ motorcycles, caters to the upper income class of
two-wheeler consumers who are not particularly price-sensitive. Better products, improved
features and strong brand value drive this segment.
The premium sub-segment is expected to see more launches in the future. With the entry of global
players such as Harley Davidson, Kawasaki, KTM, and Triumph offering a wider range of
products, coupled with rising disposable incomes, competition is expected to intensify in the
premium sub-segment.

Source: SIAM
Hero leads in economy sub-segment, Bajaj follows
Demand for economy models mainly comes from rural and semi-urban areas. Hero continues to
dominate the economy sub- segment with its CD Dawn Dlx model. Bajaj Auto, which has
gradually lost its market share to Hero, accounted for 34% of the economy sub-segment. Bajaj has
upgraded its CT100 and Platina models, with new features. These models have been receiving
good traction in the market owing to heavy discounts and schemes offered post upgrade. In the
absence of new major models, TVS Motors, too, lost share from 25% in fiscal 2012 to 10% in
fiscal 2019 YTD. HMSI is not present in this segment, but is focusing on new scooter launches
targeted at the rural and semi-urban markets.
Executive sub-segment still ruled by Hero, but Honda eating into Bajaj's share
Hero Motocorp's two major selling models - Splendor and Passion - constitute 61% of the total
sales volume in the executive sub- segment. On the other hand, HMSI is slowly catching up,
recording a market share of 24%, mainly driven by Honda Shine which is performing well.
Bajaj lost considerable market share between fiscals 2013 and 2019 YTD, despite launching
several models of the Discover series. The recently launched V series launch (V12 and V15) were
expected to help Bajaj gain some share in this segment, but failed to do so.
Royal Enfield makes further inroads, Bajaj retains pole position in premium sub-segment
The Pulsar range of models in the premium sub-segment, the KTM range, the Dominar, and the
recently upgraded Avenger contributed to boosting its market share, which was slipping because
of intense competition. Enfield remained the second-largest player in the sub-segment with a share
of 27%. In the past 6 years, it has become the fastest- growing player in this sub-segment, growing
from a modest 7% share in fiscal 2013.

6. Scooters and Mopeds
Between fiscals 2013 and 2018, scooter sales accelerated at a compounded annual growth rate
(CAGR) of 21%, compared with 3% CAGR for motorcycles. As a result, the share of scooters in
domestic two-wheeler sales rose to 32% in fiscal 2019 (YTD) from 21% in fiscal 2013.
Demand for scooters, which is perceived to be urban product, is gradually shifting towards smaller
towns and rural areas.
Structural factors such as changes in perception with the scooter being considered a gender-neutral
vehicle, improving mileage, and expansion in the road network in semi-urban and rural areas;
greater convenience and utility for intra-city transport in tier-II and tier-III cities; and availability
of more variants/choices over the past few years are expected to continue encouraging demand for
scooters.
Many players have lined up new launches for the fiscal, which will also aid growth.
Mopeds account for a minuscule (4-5%) portion of two-wheeler sales. South India dominates
domestic moped sales, with TVS Motors being the sole manufacturer.
Post the launch of the XL 100 and its runaway success in new geographies in fiscal 2017, moped
sales dipped in fiscal 2018 due to the high base effect. The sales are expected to grow by 6-8%
this fiscal over the high base of fiscal 2018 as rural sentiment improves and affordability increases.
HMSI gains; Hero loses share in scooters
Source: SIAM

HMSI, the indisputable market leader, continued to expand its share to 61% in fiscal 2019 (YTD)
from 48% in fiscal 2013.
The Honda Activa is the primary driver, owing to its brand image, unisex design, and appeal across
age groups. Sales momentum is expected to continue, as the company augmented capacity by 1.2
million units by setting up the world's largest scooter plant in Gujarat. Their recent relaunch of the
Activa 5g,Cliq (targeted at the rural and semi urban markets) and the Grazia (urban focused and
sleek design), will further push up its share in the segment.
Further, the company's efforts to widen dealership network is expected to further cement its
position.
TVS managed to increase its market share from 15% in fiscal 2017 to 16% in fiscal 2018 with the
upgraded Jupiter Classic which has been witnessing healthy sales growth. TVS recently launched
the NTORQ, a 125 cc scooter to increase its share. The model is expected to compete with the
likes of Honda's Grazia and Suzuki's Access.
Hero MotoCorp's share declined in fiscal 2018 owing its own weaker product mix (Duet, Maestro,
Pleasure). However, the company has announced that it is focusing on launching 125cc scooters
and an upgrade of the Maestro and Duet in FY19.
Given the higher growth of this segment in the two-wheeler space, more action from existing
players is expected in the near to medium term.

7. Growth Drivers
Higher per capita income increased disposable income of consumers.

India’s total disposable income has increased from INR 125 Tn in
Increase in Disposable 2014 to INR 169 Tn in 2017. Higher disposable income along with
increasing aspiration levels fueled growth in demand for automobiles.
Income
The 2-wheeler sector immensely benefitted from this development.
Currently the demographic profile of the country is leaning towards a

younger population. In addition, a large number of potential
Growth in Consumer consumers – currently in the age group of 14 to 18 – would enter
Base working age in the coming years. These developments are expected
to result in higher demand for two-wheelers.
In the 2-wheeler sector, introduction and aggressive promotion of
vehicle finance solutions has assisted consumers finance their two-
Availability of Finance wheeler purchases.
& fall in interest rates However, strengthening of interest rate by central bank increases the
cost of consumer finance and past experience dictates that 2 wheeler
sales are very much affected by changes in repo rates.
Increasing Demand Going ahead India’s export competitiveness along with the “Make in
from Export Markets India” programme is expected to improve due to rising labor cost in
China, which in turn is increasing its manufacturing cost.
Income levels in rural areas are expected to maintain decent growth
rate in FY 2018 due to improvement in agricultural produce in 2017,
higher support prices (MSP), MNREGA. Increased allocations
towards rural development and welfare schemes in the Union Budget
Improvement in Rural for 2018-19 and growth in National Rural Employment Guarantee Act
Demand (NREGA) expenditure, besides the government’s focus on improving
irrigation infrastructure, augur well for the farm sector in rural areas.
Moreover, increasing road development in rural areas under schemes
like PMGSY, is likely to improve the demand.
The entry and executive segments are generally affected by
macroeconomic factors, unlike the premium and super premium
segments which are dependent on changes in consumer lifestyle,
Urban demand
preferences, availability and income levels. The >250cc category
continues growth continues to report healthy growth numbers on back of the success of
backed by scooters and Royal Enfield, which is has achieved a cult status.
premium segment
Annually, demand for premium segment bikes grew by ~24% in FY
2018, and is expected to grow at higher levels in the near future on
the back of improving lifestyles in urban India.

8. Key Challenges and Concerns
Emission norms compliance to impact demand in 2020-21

The Indian government has been taking stringent steps to converge the Indian emission standards
with global norms. In July 2014, it finalised the roadmap for implementation of the emission
control norms, and in February 2016, it decided to skip the BS-V norms and directly mandate BS-
VI norms from April 2020. Vehicles upgraded on these lines are expected to significantly cut down
emission levels.
BS-VI norms compliance

The BS VI norms, which will become mandatory from fiscal 2021, are expected to have a
temporary impact on demand. BS-VI compliance will entail a major shift from carburetor to fuel-
injection systems for the engines. Currently, only a few vehicles have the fuel-injection type
engines.
The technology shift is expected to increase vehicle prices. The price-sensitive economy segment
to be impacted the most, as this will entail a jump in the vehicle prices. In motorcycles, the high-
end premium segment is not expected to have a major impact, but some shift is anticipated from
the premium to executive segment and executive to economy segment.
Antilock/combined breaking system(ABS/CBS) norms

ABS and CBS norms will be mandatory for newly launched vehicles from fiscal 2019. CBS will
be compulsory for all vehicles below 125 cc and ABS for all vehicles above 125 cc.
It is estimated that an average price hike of ~Rs 5000 to 9000 across segments will take place.
The hike is not significant enough to impact even the price-sensitive economy segment. Hence,
we do not anticipate any noteworthy impact on demand in fiscal 2020.
Cost of ownership to see moderate growth
We expect the cost of ownership to rise by 4-6% this fiscal, owing to a rise in petrol costs (due to
volatile crude prices) along with an annual rise in vehicle prices. Additionally, compliance with
ABS and CBS norms will further push vehicle prices slightly upwards.
Source: CRISIL

9. Financial Analysis
Source: CRISIL
Profitability was range-bound in fiscal 2018
Working capital cycle expected to remain negative this fiscal
Debtor days have been increasing because Hero MotoCorp and TVS Motor have enhanced exports,
resulting in stretched payment cycles. Payments from export sales are realised later than domestic
sales.
Working capital cycles for most original equipment manufacturers (OEMs) have remained
negative from fiscals 2012 to 2017, but have been a little volatile. The negative cycle is due to
high creditor days, indicating high bargaining power over their suppliers. We expect this healthy
working capital cycle trend to continue in fiscal 2019 as players continue to enjoy a high bargaining
power over their suppliers, leading to extended credit cycles.
Source: CRISIL Research

Gearing expected to continue on a downward path in fiscal 2019
The industry's gearing has been declining over fiscals 2012 to 2017 because of the minimal debt-
driven capex over the period. The industry has been deleveraging, and we expect the trend to
continue. We estimate the gearing declined slightly in fiscal 2018 and expect it to ease further this
fiscal as there are no plans for any major debt-funded capex. About Rs 20 billion worth of capex
is planned by TVS Motor and Hero MotoCorp over the next two years, which will be funded
largely by internal cash accrual.
Gearing has been declining due to minimal debt-driven capex plans by players.
10. Impact of GST
When rolled out on 1st July 2017, the Goods and Services Tax was anticipated give the Indian
auto industry, including the two-wheeler market, a fillip. The overall tax rates on the bikes and
scooters seemed to be in favour of the mass market.
Under the GST regime, tax on two-wheelers has been segmented depending on the engine
capacity. The GST rate for bikes and scooters with an engine displacement of less than 350cc was
fixed at 28 per cent, which was 2% less than the direct and indirect taxes levied on the sector prior
to GST, which added up to 30%. However, the same, for two wheelers with a displacement of over
350cc was fixed at 31%, or 1% higher than before.
As anticipated, two-wheeler sales picked up pace in 2nd half of CY2017, with most major
manufacturers recording healthy double-digit growth on an y-o-y basis - albeit on a low base
attributable to demonetization - helped by recovery across rural and urban markets.

11. Future Outlook
The two-wheeler industry is likely to grow by 10-12% in fiscal 2019 assuming normal
monsoons, improved affordability, and positive rural sentiment. Further improvement in
government spending is likely to boost demand in the second half of fiscal 2019, pushing demand
upwards.
In fiscal 2019, affordability will improve as increased disposable income will be supported by
improved gross domestic product (GDP) growth and lower inflation. Moreover, affordability is to
improve, especially in rural areas, on the back of better crop output amidst a normal monsoon.
We expect the cost of ownership to rise moderately on account of a slight rise in vehicle price
hikes due to implementation of ABS and CBS norms and volatile fuel prices.
Scooters are likely to grow by a faster 14-16%, followed by motorcycles and mopeds, growing at
8-10% and 6-8%, respectively.
Two-wheeler prices are estimated to rise on account of compliance with the BS-VI norms in fiscal
2021, thereby impacting sales marginally.
However, on a medium to long term timescale, the Indian two wheeler industry is in a very sweet
spot. Favorable demographics, new model launches, continuous innovation, increasing
aspirational needs, along with increasing disposable incomes in both the rural as well as urban
areas, augurs well for the industry.
As a result, two-wheeler sales in the country are expected to increase by a CAGR of 8.5% during
FY 2018-23 to reach over ~30 Mn units.
Projected Domestic Two Wheeler Sales growth: FY2018-23

(000 units)
30,363
20,193
FY 2018 FY2023(P)
Source: Economic Times

12. Player Profile
TVS Motor Company
It is headquartered at Chennai, India and it is the third largest motorcycle company in India with a
revenue of over 15,000 Cr ($2.12 billion) in 2017-18. The company has an annual sales of 3 million
units and an annual capacity of over 4 million vehicles. TVS Motor Company is also the 2nd
largest exporter in India with exports to over 60 Countries.
TVS Motor Co Ltd was incorporated in 1982 as TVS Suzuki, a joint venture (JV) between the
TVS Group and Suzuki Motors of Japan. It was the first Indo-Japanese motorcycle venture in
India.
TVS started manufacturing mopeds in the early 1980s and Suzuki 100cc motorcycles in 1984.
Suzuki ceased to be a shareholder in the company as the JV agreement expired in 2000-01, after
which, the company's name was changed from TVS Suzuki to TVS Motor Co Ltd (TVS).
In 2009-10, the company forayed into the three-wheelers segment. In April 2013, TVS signed a
long-term co-operation agreement with BMW Motors to develop and produce a new series of
motorcycles that will cater to the segment above 500 cc.
The Company continues to lead the customer satisfaction in products and services, and bagged top
honors at the J.D. Power 2018 India Two-Wheeler Initial Quality Study (2WIQS), Automotive
Product Execution & Layout (APEAL) study and Two-Wheeler Customer Service Index (2WCSI).
The Company has been top ranked in JD Power 2WCSI since its inaugural study in 2016.
Market share trends of TVS have been as follows:

Current Situation of TVS

The Company continued to grow ahead of the industry for the third year in succession, registering
sales of 33.67 lakh two-wheelers in 2017-18, growing by 17.8% over last year. Sale of motorcycles
increased by 25.8% and scooters by 30.4%. Three-wheeler sales of the Company increased by
42.5% in 2017-18.
TVS Motor Company was the only two-wheeler major to have posted growth in market share in
both motorcycle as well as scooter segments (FY2018), unique considering all other major OEMs
have grown market share in one segment and dropped in the other.
• Strong volume performance, market share gain to continue: TVSL volume
outperformance over domestic 2W industry will to continue driven by a) strong growth in
scooters, b) Apache and c) several new product launches in next 6-9 months (like 125cc
Motorcycle and Electric Scooter).
• Although, it’s market share in the 3 wheelers category has fallen, due to more aggressive sales
of Bajaj Auto.
• Capex: Guided capex at INR7b for new products development, technology, BS6 related
spends and maintenance capex. This capex is not going to be funded by debt but from internal
sources.
• Dealer network: Added ~250 sales touch points in FY18 to ~4,150 outlets (1,150 main
dealers plus 3,000 sub dealers as of Mar-18). In comparison, both Hero MotoCorp and Honda
have more than 5000 dealers across India, TVS will have to improve as it seeks to gain a
leadership in the market.
• BMW Motorrad tie-up to give additional revenue stream, technological edge: We believe
this tie-up would give TVSL an additional revenue stream in the form of contract
manufacturing for BMW Motorrad. Moreover, it would give an aspiration value to TVSL
products, particularly premium ones. TVSL has invested ~EUR 20 million.
• Increased penetration in High margin premium Motor Cycle, the company registered
95%YoY in premium segment on its flag ship brand Apache 150 during Q4FY18 and also the
executive segments remained robust at 50%YoY due to lower base and strong rural demand.
Realising its mistake of not introducing newer models and losing a market share of about 13%, it
has taken significant towards it.
The Company’s two-wheeler exports in the year 2017-18 were at 4.9 lakh units and witnessed an
improvement with a growth of 33.7% over 2016-17. The Company’s three-wheeler exports in the
year 2017-18 were at 0.8 lakh units and recorded a 44.4% growth over 2016-17.

Economy
TVS is the third out of only three players in this segment and its model TVS Star City Plus and
Victor caters to about 10% of the demand in this segment. The company has been quite
unsuccessful in capturing this market as it lost about 10% share over a period of 5 years, as it could
not introduce newer models with more features which the competitor like Bajaj did, and captured
a chunk of TVS’s share.
Executive
TVS’s share in this segment is almost non-existent and stands around only 1-2%.
Premium
In the premium segment, TVS has been increasing it’s share and has grown by 20% yoy, faster
than the industry. It has an overall share of about 7%, but it’s Apache has a share of 38% in the
150-250 cc segment.
It has also developed a strategic partnership with BMW, to leverage technical competencies and
innovations. It’s newest foray has been through Apache RR 310.
Scooters
While Honda remains the Number 1, there is a fierce battle between TVS and Hero for the Number 2
position, with TVS currently in the lead with about 15% market share. It’s Jupiter Classic brand has
been able to beat Hero’s Maestro quite comfortably.
It also recently launched NTORQ 125, with new and first in class features like Bluetooth, called
ID, Navigation features etc.
Future Outlook
It is expected that TVS would continue to gain market share in motorcycle/scooter segment on
account of recent launches and network expansion. It has also done so, and has been increasing its
market share albeit slowly.
The increase in raw material prices could impact margins of TVS in the near future.

Three Wheelers
Riding high on the export front, the three-wheeler industry ended fiscal 2018 with a 30.39 %
growth at 10.22 lakh units compared with 7.84 lakh units in fiscal 2017. While the domestic sales
saw a growth of 24.19% to end the fiscal with the sale of 635,698 units as against 511,879 units
sold in the previous fiscal of 2017, exports were at 381,002 units during fiscal 2018 as against
271,894 units, recording a whopping growth of 40.08%, according to SIAM data.
The segment is divided into Goods Vehicles and Passenger Vehicles. Passenger three-wheelers as
usual grew 34% to end the fiscal with 899,023 units (671,361 units in FY17), the goods carrier
saw a growth of 9.37% only to end at 122,888 units as against 112,360 units sold in the 2017 fiscal,
the data pointed out.
Three Wheelers Market Share
100
30.7 30 24.5
36 34 35 32
80
8
11 10 10
60 12
13 13
40 58
47 49
40 42 39 44
20
0
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
Atul Auto Ltd. Bajaj Auto Ltd Force Motors Ltd M&M Ltd
Scooters India Ltd TVS Motor Company Piaggio Vehicles Pvt Ltd
Goods Carrying Three Wheelers
The shift from three wheelers to four wheeled sub-one tons has been significant over the year and
is expected to continue as three wheeler owners replace their aging vehicle with sub-one tons. The
shift is more prominent for large three wheelers (>1T GVW). Sales of large three wheelers has
fallen by a CAGR of ~42% between fiscal 2012 and 2018.

1. Growth Drivers
Rising demand
The under developed public transport system and increasing need for affordable and convenient
transportation will fuel the market for passenger three wheelers.
Shrinking replacement cycles

Healthy demand due to shortening replacement cycle as well as migration to cleaner and efficient
engines will drive the market.
Low cost & Convenience

Lower capital expenditure/operating expenditure costs minimize risks for First Time Users in
difficult economic conditions. Easy to maneuver in the narrow roads and convenience for on
demand deliveries of small consumers are attractive propositions which can aid the growth.
2. Challenges and Key Concerns
Competition from LCV

Large three-wheelers increasingly replaced by SCVs; small three-wheelers to grow marginally
SCVs, especially sub-one-ton models (0.75-tonne payload), can substitute large three-wheelers of
similar payload capacity, given the SCVs' ability to carry loads beyond payload capacity, run on
longer routes, maintain better balance, and be more cost-efficient. The pace of substitution is
expected to slow down as much of the conversion has already taken place.
Government Regulations
Demand for new vehicles in the future will be driven by the age limit enforcement on usage of
three wheelers in large cities. Government regulations and incentives in the form of subsidies on
usage of cleaner fuels like CNG and LPG will force a shift to new vehicles. This trend is already
visible in cities like Delhi and Ahmedabad. Relaxation of ceilings on new vehicle registrations in
cities like Bangalore, Mumbai, Delhi and Hyderabad will also generate demand for three wheelers.
Electric Push
The companies would have to significantly change their stance and start focusing on electric
production of three wheelers. This is likely going to lead to rise in costs in the short term.

3. Player Profile
Bajaj Auto Ltd. (with emphasis on three wheeler segment)
Bajaj Auto Ltd (BAL) began operations in 1948 as an importing agent for the Italian firm Piaggio's
Vespa scooters. The tie-up with Piaggio ended in 1975. BAL was demerged in 2007-08, post
which, the automotive business has been under the parent firm, while the financial services
business has been transferred to a new company - Bajaj Finserv.
BAL also holds a 47.9% stake in Austria's KTM AG (previously KTM Power Sports AG). The
KTM Group provides BAL technical know-how on on the development of high-end bikes, which
are sold in Europe and have been introduced in India recently.
Bajaj Auto is the world’s largest three-wheeler manufacturer.
In FY2018, Bajaj Auto’s domestic three-wheeler sales broke records to reach an all-time high of
369,637 units, representing a volume growth of 46% over FY2017. Consequently, the Company’s
market share in the domestic three-wheeler segment has shot up in the course of a single year from
49.5% in FY2017 to 58.1% in FY2018.
The goods carrier business, which it had entered just two years ago. In a short span of time, it
has ramped up goods carrier sales from 1,325 units in FY2016 to 22,791 units in FY2018, and now
accounts for over 19% market share of this segment in India.
BAL continues to dominate the petrol and alternate fuel market with a domestic market share of
89%. Here, Bajaj Auto sold 277,636 vehicles in FY2018, which was 63% greater than what it did
in the previous year.
Product Offerings under three wheelers:
Maxima Z Diesel/LPG/CNG The Maxima Z, with contemporary styling of the passenger body that
complements its distinctive front has hit a sweet spot of being both a passenger and goods carrier.
The doors for the passenger cabin along with foldable seat and hatch at the back ensure flexible
operations for the driver. The Maxima Z has been a runaway success for the Company, and comes
with all fuel options.
Maxima Xwide, improves upon the Maxima for even higher passenger ticketing applications. The
body is extra-wide and ensures seating comfort for four passengers per seat. The powerful 470 cc
engine is the most powerful in its class, and effortlessly propels the Maxima. The torque is also
class leading. The diesel version will be soon followed by other fuel options.

Passenger Vehicles
1. Industry Overview
With an almost 5% share in global passenger car production, India stood as the 5th largest car
producer globally in 2018. Strong low cost steel manufacturing base, and abundance of skilled and
semi-skilled labour puts India in a sweet spot for domestic as well as global OEMs to set-up their
manufacturing facilities in the country.
Overall, domestic automobile sales (including PV sales) improved in FY 2018. Factors like good
monsoon, a bumper harvest, stable inflation & interest rates, destocking prior to GST rollout,
encouraged households in both urban as well as rural India, to spend on high value discretionary
products such as cars.
However, towards the end of FY 2018, new headwinds like global geopolitical uncertainties,
surging crude oil prices, rising input costs, uptick in inflation confronted the sector. Consequently,
overall domestic sales of PV grew by 7.9% annually in FY 2018, as compared to 9.3% growth
registered in FY 2017.
Policy initiatives like setting up of technology modernization fund, unveiling of AMP 2026, setting
up of National Automotive Testing and R&D Infrastructure project and reviving demand have
helped the sector to achieve healthy production growth of 5.5% in FY 2018 compared to 9.7% y-
o-y growth in the previous year. In FY 2018, annual domestic sale and production of passenger
vehicle reached 3,288 thousand units and 4,010 thousand units, respectively. PV export sales
plateaued in FY 2018, recording a 1.5% decline compared to 16.2% increase in the previous fiscal.
PV industry highly is organized, as it requires huge investment to set up R&D units and assembling
units apart from investment related to the expansion of dealers’ network, and advertising cost,
which restricts the entry of new players. The industry comprises of about 15-18 players, with top
four players – Maruti Suzuki India Ltd. (MSIL), Hyundai Motors India Ltd. (HMIL), Ford India,
and Mahindra & Mahindra Ltd – cumulatively accounting for about 74% of the total sales volume.
PV Industry manufacturers face multiple challenges and roadblocks in terms of high taxation,
increasing competition, fluctuating input prices, inadequate infrastructure, procedural delay on
investment side.
However, the recent GST implementation is likely to streamline the challenge of multiple tax
structure in auto industry along with providing room for overall tax reduction particularly in
premium and luxury car segment.

Monthly Sales Trend
Monthly domestic sales growth on y-o-y basis remained positive in all months during FY 2018
excluding June 2017. In June 2017, domestic PV sales again recorded its sharpest decline since
March 2013. Even with heavy discount offered to clear the inventory before GST implementation,
major OEMs witnessed decline in PV sales as dealers stayed away from buying stock due to
uncertainty over prices post GST implementation. The decline in sales was spread across all
segments of PV.
Historically domestic PV sales remain muted in the first quarter and are below Q4 sales for the
previous year. The sales pick up in Q2, Q3 and Q4 due to festive buying coupled with discounts.
25% Monthly Domestic PV Sales (Y-o-Y change)

22%
20% 20%
15% 17% 15% 14% 14%
14% 10%
10% 15% 11% 10%
6% 6%
4% 9% 5%
5% 9% 8%
3% 8%
2% 0%
0%
Sep-16
Apr-17
Jun-16
Oct-16
Nov-16
Jan-17
Jun-17
Sep-17
Oct-17
Nov-17
Jan-18
Aug-16
Aug-17
May-16
May-17
Apr-18
-1%
-5%
-10% -11%
-15%
Source: SIAM
Barring one-off instances like demonetization and GST rollout, long-term growth prospects remain
intact owing to favourable demographics. Overall domestic PV sales are expected to draw support
from good monsoon in 2018, new model launches, low financing costs, and reduction in costs of
ownership and/or maintenance.
Indian market under-penetrated

India's car market is highly under-penetrated vis-a-vis most developed economies, and some
developing countries, and holds tremendous potential for automobile manufacturers. With the rise
in disposable incomes in the country, it is expected that the number of households that can afford
a small car (addressable households) to have clocked 12% CAGR between fiscals 2012 and 2018
, and would rise further to 9-11% CAGR up to fiscal 2023.
Despite higher affordability, India is an under-penetrated market, with ~21 passenger vehicles per
thousand people in fiscal 2018. The number is significantly lower than both developed as well as
other BRIC nations. The projected healthy rise in addressable households is expected to
increase passenger vehicle penetration to 25-27 cars per thousand people by fiscal 2023.

2. Competitive Structure
Competition within the market is intense and companies have to constantly innovate and introduce
new and better products to remain competitive and gain market share. OEMs are required to
maintain a balance between product features and pricing that best suits their budgets, and best
serves the changing requirement of the customers. After sales service and availability of spare
parts play a vital role in influencing the customer buying pattern in PV segment.
Since product differentiation is the key strategy in PV industry, OEMs are also required to make
considerable investment in marketing, advertising & promotional activities to gain consumer
attention. All major companies have a wide product portfolio catering to all three segments – entry
level, deluxe and premium.
The organised nature of the passenger vehicle industry is well represented by the market share of
top five players, which account for almost 80% of the total PV sales. Market share of the key
players in volumes terms is shown below:
Source: Marketline
Maruti Suzuki - the largest player in the passenger vehicle market - increased its market share from
37.3% in FY 2014 to 44% in FY 2018. Despite seeing its market share drop from 19.8% in FY
2017 to 17.1% in FY 2018, Hyundai Motors continued to occupy the second position. However,
Ford Motors moved 5 placed up to replaced M&M-the third largest player in terms of market share
in FY 2017, and strengthening its market share from 4.3% to 6.7% during FY 2014-18.
Hyundai Motors, on the other hand, saw the biggest fall in market share (-2.7%), from 19.8% in
FY 2014 to 17.1% in FY 2018; followed by Mahindra & Mahindra (-2.1%), and Nissan Motors (-
2%).

3. Foreign Trade Trends
In fiscal 2018, the capacity constraints of industry behemoths Maruti Suzuki and Hyundai Motor
India had put pressure on exports growth. Teething problems in the Goods and Services Tax (GST)
implementation, like exporters experiencing delays in refunds led to a substantial amount of their
money being tied up, affecting the exports business.
However, the jitters have since resolved and it is expected that passenger vehicle (PV) exports will
recover and grow at healthy pace of 4-6% in fiscal 2019. Expected depreciation in the rupee in
fiscal 2019, and focused efforts by foreign players like General Motors (GM), Volkswagen (VW)
and Ford will drive growth. Maruti's fully operational plant in Gujarat and brownfield expansion
by Hyundai are also expected to free capacity and contribute to exports growth.
Overall exports trend
Stagnating domestic demand in the past three years has led foreign automobile manufacturers to
increase their focus on exports, thereby improving utilisation by using spare capacity and boosting
revenue. The ratio of players' exports-to-production has risen steadily from fiscal 2011 onwards.
It is, however, expected to stabilise at ~17% in the future, with domestic sales expected to outpace
exports.
Global players Ford, VW and GM, who are developing India as an export hub, will continue to
spearhead growth. In fact, Ford India dethroned Hyundai Motor India as the largest exporter in
fiscal 2018. Ford's Ecosport was the top exported model in fiscal 2018, overtaking VW's Beat.
Domestic players such as Maruti Suzuki are battling capacity constraints amid domestic traction.
With new capacity becoming operational in fiscal 2018, Maruti Suzuki is expected to be well-
equipped to service global demand for its products, including the Baleno and Brezza this fiscal.

Manufacturers' exports market share
Source: CRISIL Research, SIAM
Ford India led the exports business from India in fiscal 2018 period, taking the top spot from
Hyundai Motors which led for the preceding five years. Hyundai has been continuously losing
market share, which contracted to 21% in fiscal 2018 from 46% in fiscal 2013. Maruti Suzuki also
lost market share, although the drop was not as sharp. Foreign players have gained at the expense
of Maruti Suzuki and Hyundai Motor India, with the market shares of Ford, VW and GM rising
sharply from fiscal 2013 to date.
Region-wise share of India's exports
• Growth in exports to South America

was driven by VW, Ford and GM.
VW commenced exports of its Vento
and Polo models to Mexico, its
largest export market from India.
Maruti Suzuki began exporting the
Ciaz even as GM commenced exports
of its Beat hatchback.
• North American markets currently do
not seem very attractive, given US
President Trump’s strong
protectionist stance towards
Source: UN CompTrade automakers from the US, and the
threat to impose 35% import duty on
vehicles built outside the country.

4. Capacity Utilisation Trends
No substantial capacities were added during fiscal 2018. However, Hyundai is expected to expand
its capacity by 50,000 units via a brownfield project in fiscal 2019. Maruti, which began a second
Trend
shift at its in capacity
Gujarat utilisation
plant from October 2017 onwards, is also expected to roll out 2,50,000 units
from fiscal 2019.
Source: CRISIL
Research
The utilisation rate of the cars and UVs industry are set to increase to 78-80% levels in fiscal 2019,
from ~75% in fiscal 2018, as production growth is likely to accelerate to 8-10%, driven by
improved affordability, successful model launches, low cost of vehicle ownership and the
improving global economic scenario.
5. Segments
Small cars segment includes

micro, mini and compact
segments, according to SIAM
classification
Large car segment includes super

compact, mid-sized, economy,
premium and luxury segments,
according to SIAM classification
Source: CRISIL Research, SIAM

6. Small Cars
Segment Length Major Car Brand

Mini Upto 3400 Mm Tata Nano, Alto,
Compact 3,401-4000 Mm Wagonr, i10, Maruti Ignis, Swift, , Tiago, Indica,
Baleno, i20, Honda Jazz, Xcent, Brio, Amaze
Maruti Suzuki is undisputed small car leader; Hyundai a distant second
The top two players, Maruti Suzuki and Hyundai Motor, accounted for 80% of the segment's sales.
The mini sub-segment, which accounts for ~25% of small car sales, is dominated by Maruti
Suzuki, with its flagship models Alto and Wagon R making up 78% share. The compact sub-
segment and premium hatchbacks, which accounts for ~75% of small car sales, is also dominated
by Maruti Suzuki, with its popular models Swift, Baleno, Dzire, and Ignis accounting for 44%
share in fiscal 2019 YTD(April-June) period.
With no new launches in the small car segment in fiscal 2019 YTD(April-June) period, Hyundai's
share dropped marginally to 17% from 20% a year earlier.
Compact sedans (a category in the compact sub-segment), which include sedans measuring
under 4 metres, have seen a significant increase in demand. Priced attractively, these models have
helped meet the changing aspirations of customers inclined towards sedans.

7. Large Cars
Source: CRISIL
Segment Length Major Car Brand
Mid-size 4001-4500Mm City, Dzire, Accent, Fiesta,
Executive 4501-4700Mm Corolla, civic, C class, Optra, Octavia
Premium 4701-5000Mm Camry, E class, Accord Laura,
Luxury, Coupe Roadster & Exotic Above 5001 MM Mercedes S class, 5 series
Maruti Suzuki's share in the large car segment declined in fiscal 2018 owing to Goods and Services
Tax (GST) implementation, which imposed a higher cess on hybrid vehicles than earlier tax rates.
Also, it received stiff competition from Hyundai Motor's Verna, Toyota's Etios, and a range of
large cars from other manufacturers.
Sales of Honda's City helped Honda in fiscal 2018 partially regain its market share which it lost in
fiscal 2016. However, Honda City sales are losing momentum which led to fall in Market share of
Honda in FY 19 YTD(April-June) period.
Hyundai has been able to extend its share as Verna sales improved after it was relaunched in
August 2017. Skoda Rapid has also gained significant traction in this segment, bumping up
Skoda's market share.
Toyota gained 7% market share in FY 19 YTD(April-June) period due to its feature laden launch
of Yaris model which is gaining traction.

8. UVs and Vans
Source: SIAM, CRISIL Research

Changing UV profile has also altered the competition dynamics. M&M, which was the largest
player in the UV segment, has seen its share steadily contract since fiscal 2013, owing to stiff
competition from compact UV models launched by Ford and Renault in fiscal 2013, as well as
launches by Maruti Suzuki, Fiat, Tata Motors, and Hyundai.
The increase in diesel prices, following deregulation of the fuel, has aggravated contraction in
M&M's share as all its models are powered by diesel power trains, while most compact UVs are
available with a petrol option.
Compact UVs continue to dominate

The UV segment, which traditionally appealed to customers who valued a larger seating capacity
and the ability to drive on rough rural roads, witnessed a major shift in customer preference with
the launch of compact UVs such as Renault’s Duster and Ford’s EcoSport.
The launch of these models caught the fancy of the urban buyer, pulling demand away from large
cars with their attractive pricing and features. Several manufacturers, including Maruti Suzuki,
Hyundai Motor, Tata and M&M, have shifted their focus to the compact UV segment.

9. Growth Drivers
Favorable demographics, like growing working and young

population, are the drivers that are fueling growth of domestic
automobile industry in India. By 2026, the country is expected to add
Access to Large Market about 186 Mn people to its total population. Rising population, along
with higher percentage of working group segment is likely to support
the automobile demand in India.
Rapid urbanization and enhancing employment opportunity in the past

has resulted in per capita income growth. India’s per capita income has
increased from INR 63,462 in 2012 to INR 1,12,835 in fiscal year
Per Capita Income 2018, registering a CAGR of 10.1%. Income along with increasing
Growth aspiration levels fueled growth in demand for automobiles including
PV demand.
Furthermore, the demand for PV is expected to continue growing on the
back of healthy urban as well as rural aspirational demands.
In the last 5 years, PV exports from India have increased by a CAGR of

Increasing Export 9.5% while it surged to 4.9% y-o-y growth in fiscal year 2018, by
Demand value. Going ahead, India’s export attractiveness is expected to
improve due to favorable exchange rate, along with the “Make in
India” program.
Well-developed road network is a key success factor for the PV
industry. At ~5.6 mn Kms, as of FY 16 India’s road network is the
Increase allocation to second largest in the world. In Union Budget 2018-19, a capital outlay
Road Network of INR 710 Bn was announced for the road & highway sector stood;
higher, by 100 Bn or 16%, than the previous year’s revised allocation.
Allocation to road sector as a proportion of overall allocation to
transport sector has steadily increased over the last four years.
Rising income coupled with this easy availability of credit has
enhanced the potential customer base for PV industry by enabling
them to make purchases on credit on customized monthly installment.
However, imported inflation may motivate RBI to adopt a hawkish
Availability of Finance
stance and raise policy rates preemptively. As a result, vehicle
& fall in interest rates
financing rate may go up which along with elevated fuel cost may
increase vehicle ownership cost and thereby adversely influence
consumer PV buying decision.

• Rising fuel prices and insurance cost (post GST implementation) to translate into increasing
vehicle ownership cost.
Oil prices are expected to remain higher in range of USD 65-75 per barrel in FY 2019, up from
USD 56 in FY2018; while the GST related increase, in service tax on financial services, from 15%
(including Krishi Kalyan Cess and Swacch Bharat Cess) earlier, to 18% will translate into higher
ownership cost. Additionally, SIAM expects the cost of ownership further increase by about 4-6%
in FY 2019 due to increasing raw material costs.
• Raw material price fluctuation risk
Prices of aluminum, and steel, the 2 key input materials for automobile industry, have shown
considerable upward movement, so far, in FY 2018. This may affect margin performance in FY
2019. However, volume of top line growth and proportion increase in input costs shifted to end
consumer through price hike will determine the overall margin performance.
• External factors threaten to derail a competitive domestic PV industry.
While the domestic consumption story still remains intact, India’s increasing integration with the
global economy render it increasingly susceptible to any tremors rocking the global
macroeconomic landscape.
Faced with rising crude oil prices, and a weakening currency, along with an increasing interest rate
domestic PV sales may face challenge during FY 2019, primarily due to the impact of external
factors on the domestic economy.

11. Future Outlook
Despite occasional knee jerks like demonetization, BS III ban and ambiguity over product pricing
under GST, overall PV sales have been improving on an annual basis for 4 straight years since FY
2015.
While the improving global economic growth prospects augur well for external demand, an
inherently strong domestic consumption story will ensure domestic sales growth. However, the
very same factors contributing to strong growth in exports, could undermine domestic sales. More
so on the urban side, than the rural front.
The inflationary pressures arising from higher crude oil & commodity prices, and weakening
currency have already lead to one rate hike from RBI in Q1 FY 2019. In a scenario of increasing
cost of ownership, and an increasing cost of maintenance, urban demand for automobiles is likely
to stall or even decline.
On supply side, profit margins of the OEMs are already reeling under pressure due to rising input
costs. Having taken one price hike in Q4FY2018, the manufacturers are already contemplating for
another one.
However, in a price conscious country like India, passing on the input cost increases isn’t an option
available all the time. Hence, we believe profitability will likely be under pressure for the OEMs,
atleast on the domestic sales front. Exports, however, are likely to become more rewarding for the
OEMs due to a weaker currency, and improving external demand.
Other factors such as faster replacement, quick and easy financing option, growing aspiration to
upgrade for premium car, reduction in tax rates for salaried class in lowest income brackets coupled
with new product launches are other key factors that will continue to support PV demand in current
fiscal.
All of this, however, will not have more than a minor impact on the long term growth potential of
the industry. It remains strong backed by low penetration of passenger vehicles, favorable
demographic, increasing working age population, rising income levels, increasing affordability &
aspiration level of Indian consumers.
Further, thanks to the government’s incentives and support, India is all set to become the global
leader in production and sale of small cars, and third in PVs, by 2026.

12. Player Profile
Maruti Suzuki India Ltd (MSIL)
Maruti Suzuki India Limited, formerly known as Maruti Udyog Limited is a leading automobile
manufacturer in India. Originally, 74% of the company was owned by the Indian government, and
26% by Suzuki of Japan and the Government sold its entire stake in the company. It is now a
56.21%-owned subsidiary of Japanese automobile and motorcycle manufacturer Suzuki Motor
Corporation. The company is headquartered at New Delhi.
Full year sales in FY18 stood at 17,79,574 units showcasing a growth 13.4% y-o-y which was
majorly driven by company’s compact and UV segment which grew by 28% and 29.6% y-o-y
respectively. Out of the above, domestic sales and exports grew by 14.5% y-o-y and 1.6% y-o-y
respectively.
In FY18, MSIL’s market share in passenger vehicles improved by ~2.5% to 50% and company
successfully gained pioneer positions in UV and vans segment.
Growth Drivers and Investment Hypothesis
• Over the years, MSIL has built largest distribution network across the country which is very
difficult to replicate. It further plans to increase its dealer network to 4000 by 2020 from 2500
currently.
• NEXA has been a transformational brand for the company, bringing Maruti in a different light
to its customers with special service, premium offerings and an altogether different buying and
after sales experience.
• Strong order backlog coupled with robust product pipeline to boost growth, 40% of the portfolio
is having a waiting period of 5 to 14 weeks. Moreover, it plans to launch newer models of Ciaz
and Ertiga with a much larger 1.5 litre engine, this is likely to increase sales of the new models.
• Also, it aims to launch refurbished Wagon R. MSIL is ahead of the industry in terms of new
launches/upgrades, which help to keep the portfolio product cycle young, resulting in continued
strong demand for its products.
• Gujarat plant to reach Phase 1 full capacity of 7.5 lakh units by the beginning of 2020,
improving its production capabilities to about three times in 2020.
• MSIL has been gradually increasing its product offerings in premium car segment, which is
aiding to scale up in terms of realisation. These strategies will help company to gain not only
in terms to volume, but also value.

Source: Mint
Recent/Key Developments
• Maruti Suzuki and Toyota motors have announced an agreement that will see both carmakers
cross sell certain models in India. Maruti Suzuki will supply the Baleno hatchback and Vitara
Brezza compact SUV to Toyota, while Toyota will produce the Corolla sedan for Maruti.
The first of the shared models will come out in the second quarter of 2019. Under the agreement,
the Maruti and Toyota models will be identical and will share engines and gearboxes.
• The other big announcement is that Suzuki will be developing what they are terming as an
‘ultra-high-efficiency’ powertrain, with technological support from Toyota and Denso
Corporation. The engine will be a new family and be available in both a petrol and a hybrid
setup.
• Maruti Suzuki India (MSIL) is expected to launch its first electric car in 2020 with an e-version
of WagonR, being developed in partnership with Toyota
• Maruti crosses 20 million production it has achieved this milestone after 34 years and 5 month
whereas Japan took 45 years and nine months to reach the 20 million production milestone
number.

Impact of Electric Vehicles on Auto & Auto Ancillaries Sector

The US and China have seen sales of electric/ hybrid cars pick up, with most major global OEMs
having one or more models in their portfolio. With more models to pick from, issues of range
anxiety are being addressed gradually and battery prices are reducing as we expect volumes to
grow at a faster pace globally.
Currently, in India, the charging infrastructure required for electric vehicles (EVs) is not in place.
With a slew of regulations and norms that the Indian automotive industry has seen in the past few
years, OEMs are skeptical of investing in EVs unless the government policies and a road map
addressing the key issues are in place.
The implementation of the National Electric Mobility Mission Plan 2020 and other policy
initiatives by the government to address infrastructure-related issues are key monitorables for the
sector over the next five years.
The government aims to develop the hybrid/ electric vehicles market and has subsidised over 1000
EVs with charging infrastructure for public transport (buses, taxis, three-wheelers) in eleven cities.
It will lead to adoption of environment-friendly technology and also reduce dependence of the
country on fuels.
However, we believe this subsidy is too miniscule to aid the government’s vision of moving
towards an all-electric fleet by 2030.
A few OEMs have lined up investments in battery manufacturing plants in collaboration of global
peers. However, it still needs to be watched closely as to how the scenario shapes out from OEM
side as well as government side to see path breaking changes in the EV side of the story. Also,
infrastructure challenge remains a key challenge to be resolved.
Electric vehicles are expected to grow in a big way and could disrupt the traditional automotive
supply chain globally. OEMs, component suppliers and raw material providers are expected to
witness a shift in the balance of power which has evolved in over 100 years of dominance of
internal combustion engines (ICE).
While there will certainly be challenges for the incumbents, it is expected that an equal measure
of new opportunities will also be created.
It is, therefore, important to have a relook at areas that will remain core / non-core from a future
competitive differentiation standpoint and accordingly invest in capability/portfolio building to
successfully ride the impending EV wave in India.

It will not be an overstatement to mention that the role of the traditional auto OEM is set to
transform drastically. One of the biggest constituents of the OEM value addition to the vehicle is
the outgoing Internal Combustion (IC) engine and some powertrain components.
In a world without IC engines, the auto OEM’s value addition would shrink, limited to chassis,
body and vehicle assembly (unless battery and motor manufacturing are retained in-house).
The shift will be in favour of certain new entrants in the automotive value chain such as the lithium-
ion battery manufacturers. Producers of other EV powertrain components such as motor and
controller are also expected to gain a share of this valuable addition.
Raw Materials
• Major gainer will be copper, with usage expected to increase by 75-80 percent to make up the
electric motor and increased wiring harness and battery active material (lithium, cobalt,
graphite) which are estimated to be 7-8 percent of the new raw material mix for the EV.
• Cobalt which is a key ingredient for Lithium-ion batteries which could hit a roadblock in terms
of supply and demand mismatch, once various manufacturers go electric.

Automakers
• Various manufacturers like MSIL, Hyundai and Toyota have started making huge investments
in the electric car divisions
• Significant internal changes will take place as teams fight for their share of budgets in R&D
activities and existing powertrain heavyweights refuse to budge.
• Many new supply chain partnerships will have to be created.
• The focus will move to new technologies like digital media onboard, AI, virtual assistants and
to some extent driverless car investments.
Dealers
• They will have to learn and unlearn to sell both electric and conventional vehicles.
• Personnel will have to trained and their skills and knowledge would have to improved by the
dealers leading to additional costs.
• Profitability from service operations is likely to come down as EVs require less amount of
maintenance.
Suppliers/Auto Ancillaries Manufacturers
• These include component manufacturers like Bosch, Exide and Amara Raja
• Only those component manufacturers who have a good market standing and availability of
capital to invest in EV technology would be able to survive.
• The introduction of EVs will have an adverse impact on the forging industry in the long run, as
60 per cent of forging units are into manufacturing auto components particularly engine and
transmission related application.

Impact of Shared Mobility and Cab Aggregators on the Sector

The global automotive industry is fast changing, triggered by technological advancements and
changing consumer preferences. Increasing digitisation and automation is soon going to
revolutionise the industry where everything will happen at the blink of an eye.
Diverse mobility – car sharing, e-hailing, etc has potential to generate 30 percent more revenue by
2030 for the automotive sector, states McKinsey report. Auto companies are trying to expand
towards on-demand shared mobility by tying up with cab service companies.
In late 2015, Nissan Motor India and taxi hailing app Ola entered into a strategic partnership.
Under the agreement, Ola will now purchase cars from both Nissan and Datsun brands.
Toyota Kirloskar Motor also provides its vehicles to Meru Cabs. Even in US, automotive
giant General Motors has tied up with Lyft to provide fleet of its cars to the ride-hailing company.
This point has been reiterated by industry experts, who think that taxi-hailing apps such
as Uber and Ola could push some people into giving up on ownership of cars and pose a threat to
auto industry volumes.
This threat will further coincide with much shorter life cycles for cars as they will be utilised
much more heavily, on average, than they are now. According to analysts, the life expectancy of
an on-demand vehicle is expected to be just three years.
In such a scenario, carmakers will constantly work towards technology upgradation in vehicles.
It’s not just the carmakers who are shifting towards this platform, even consumers’ perception
towards shared mobility is also transforming.
Consumers today use their cars as an all-purpose vehicles. In the near future, they will be looking
for more flexibility in choosing the best solution for a specific purpose, on demand and via their
Smartphone.
As a result of this shift to diverse mobility solutions, up to one out of ten new cars sold in 2030
may likely be a shared vehicle. On this trajectory, one out of three new cars sold could
potentially be a shared vehicle as soon as 2050.
However, case for ownership is the growing base of youthful buyers who have more money to
spend. Now put this along with the craze for SUVs and it is clear that people are not going to give
up buying cars in a hurry.

An alternative view
At one point in time, taxi was considered as demeaning segment for carmakers to unleash their
models. Today, the taxi market in India is the best bet for them to grow their business. Where
manufacturers were coy about being associated with cabs, they are now competing with each other
to grab a share of this rapidly growing pie.
Clearly, the revolution has kicked off with the Ola and Uber, which are proliferating across the
Indian landscape. These cab aggregators were said to be the biggest threat towards new car
ownership and buying.
Realities of urbanisation have led to clogged cities and overcrowded roads where there is really no
compelling reason to buy a car and then plan other overheads like drivers’ salaries and parking
charges. Unlike the distinctly uncomfortable traditional cabs, the newer alternatives are cool,
comfortable and clean.
Maruti Suzuki sold over 60,000 cars to cab aggregators between April and December 2017, which,
in turn, accounted for nearly six per cent of its retail sales. For the entire fiscal, it delivered nearly
50,000 cars to this user segment.
Maruti had a 67% growth in sales to cab aggregators in FY18 over the previous month.
In the case of Toyota, the taxi segment has always been an important part of its business as it
represents a true test of product durability. The Tab Cab initiative was a key start in this space and
became the best piece of news to commuters in big metros.
What are companies doing?
OEMs are now setting up dedicated teams to cater to this growing business. Some have entered
into tie-ups with fleet operators and cab aggregators to sell cars through attractive financing rates
and other benefits.
Clearly, the idea is to leverage on the growing demand for taxis and push slow moving models in
the product line up.
Impact
Since running cycles of cabs are more than personal vehicles, companies are assured of consistent
demand as owners will go for quicker replacements. Some will even buy larger fleets as the
business grows. How will this affect the personal space is the million dollar question. But this may
not really matter in a country where car penetration levels are still less than 20 per thousand people.

Indian Used Car Market

The India used car market has grown at a tremendous pace since the beginning of the 20th century.
The market for used car in India is expected to reach a market size of USD 75 billion by 2023,
recording a CAGR of 15.2% during the forecast period.
The main reason for the same has been the emergence of organized players in the market, as these
players have taken care of the trust deficit and the plaguing India used car market since ages. Even
a decade back, almost all sales in the India used car market took place in the unorganized sector.
Sellers would palm off substandard products to buyers, which made many prefer to buy cars in the
circle of family, friends, and acquaintances.
The used car market in India accounts for nearly 3.4 million vehicles per year. But only a minority
of used car sales originate from businesses to consumers and are processed by organized dealers,
around 400,000 unit per annum or about 13%.
Current Market Scenario

According to the estimates in India, for every new car purchased, one used car is sold. In other
parts of the world, like Europe, the number of wished-for new car buyers is increasing, whereas
the number of intended used car buyers is falling. In India, however, there is a reverse trend, which
can be attributed to the rising cost of fuel and increasing disposable income.
Though the general economic slowdown has hit the sales rate of new cars, the used car market has
seen an uptrend, which clearly indicates that the sales rate of used cars will continue moving
forward.
There are various reasons for the evolution and growth of the used car market in India, which
include enhanced quality, better maintenance because of latest technological services, and less
usage because many urban families having more than one car, due to which the second car is less
driven and well maintained.
During 2005-2007, the used car market was dominated by unorganized players, and C2C with
more than 95% of the market share. The number of organized players was just 4% in 2005 - 2007,
the share increased around 15% in 2010-2012.
In future, the role of these organized players is likely to increase substantially.

India Used Car Market Dynamics

The lack of financing or expensive financing options for used cars is the major drawback in the
market space. While the finance for new cars is easy to get, used car finance attracts a higher rate
of interest and is not given so easily. However, the rise of the organized sector has taken care of
that aspect. Major players, like Toyota, Maruti Suzuki, dealing in the used car sector, have tie ups
with financial agencies that give out loans for used cars.
Leasing option is a concept, which has not taken off in India, and is offered by very limited outlets.
But this financing option has massive growth potential in the market, as the burden on the
consumer comes drastically down. Due to taxation, Indian cars are one of the most expensive in
the world, which influence the consumers to go in for used cars. With the prices of diesel cars
increased further in the latest budget declaration, diesel cars are becoming increasingly expensive,
which means their sales in the used car market will get a boost.
Small SUVs have registered a tremendous growth rate over the recent years, which is expected to
record the highest sales growth in the used car market till 2023. Organized space is likely to gain
a large market share in the next 5 years, and control more than 3/10th of the market by 2023.
India Used Car Market Major Players:
• Toyota.
• Mahindra & Mahindra.
• Carnation.
• CarDekho.
• Quikr Cars.
• Maruti True Value
It was the first major organized player in the market. Maruti Tue Value started in 2001 and since
then has grown consistently. It has a pan India reach with 1190 outlets spread across 936 cities as
of March 2017.
Growth Drivers
Changing perspectives
Buying a used car is no longer looked down upon. A car has long since moved from being a
status symbol to a need instead. The need often precedes the affordability and hence, whether it
is a first-time buyer, or a second car for the family, pre-owned vehicle is an economic and
practical choice. Affordability apart, the brand and model choices, as well as the lure of a bigger
car at a lower price have contributed vastly to its growth as well. The used car market today is
viewed as making better economic sense and providing value for money.

Shortened ownership
The average period for which the cars are used before being traded in or sold is now between 3-4
years. With the advances in technology and latest innovations, better cars are now available in
the used car segment giving the buyer greater options to choose from. This also means a second-
hand car has not run the roads for long and is considered as good as a new one.
Organized Sales Channels

With the increasing presence of original manufacturer owned/backed used car dealers, both
consumer confidence and credibility have increased. Certified vehicles, warranties, competitive
rates, transparency in dealings, insurance and even finance options have all served to boost
confidence. The consumer experience in buying a used car is at par with experience of buying a
new vehicle, swanky outlets included. Online auto portals have contributed significantly to the
growth of the pre-owned car industry, providing more information, enabling comparisons at a
click and offering services and assistance with paper work, transfers, insurance, etc.
Pricing
The used car market continues to be dominated by the small cars and compacts, with average spend
of 3-3.5 lakhs. Most buyers of pre-owned cars are young, first timers. The price band suits them
well until they are ready to buy a new car at a higher EMI. The consumer behavior is witnessing
a change. Bigger cars and SUVs are also increasingly flooding the car market. As aspirations rise
and finance for used cars become easier, this will translate into greater demand for premium and
luxury cars too.

Commercial Vehicles
Commercial vehicle sales comprise of medium and heavy commercial vehicles (M&HCVs) and
light commercial vehicles (LCVs). India is the seventh largest Commercial vehicle manufacturer
in the world. Indian CV industry accounts for around 3.5% share of the global production in 2017.
India will likely witness robust growth in the next decade as the country strives to develop a
modern infrastructure spanning the metros, Tier 1, 2 and 3 towns.
Domestic Sales Volume

5,00,000
4,50,000
4,00,000
3,50,000
3,00,000
2,50,000
2,00,000
1,50,000
1,00,000
50,000
-
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
LCV M&HCV
CV Domestic Sales Trend

110000
100000
90000
80000
70000
60000
50000
40000
30000
20000
10000
0
2014-15 2015-16 2016-17 2017-18

CV production increased by 10.4% y-o-y compared to 3% in FY17 and domestic sales increased
by 19.9% y-o-y compared to 4.2% in FY17. A total of 895K CV vehicles were produced and 856K
were sold.

Based on its usage, CV usage is bifurcated into goods carrier and passenger carriers while based
on tonnage, it is segmented as medium & heavy commercial vehicles (M&HCVs/HCVs) and light
commercial vehicle (LCVs). Goods carrier and passenger carrier segments account for ~90:10
market share while LCV and HCV account for ~60:40 market share of the CV industry.
Source: CMIE Industry Outlook
CV exports grew at a CAGR of 5.9% over the period FY14-18 to reach 96.9 thousand. The industry
continues to be dominated by three players. Tata Motors account for about 45% of market share
followed by M&M with a market share of nearly 25% and Ashok Leyland with a share of 18%.

Based on the usage the segment can also be divided into Passenger Vehicle (PV) and Goods
Vehicle (GV).
• Passenger Vehicle (PV): used to transport people as in public transportation, corporate transport
and public buses.
• Goods Vehicle (GV): used to transport freight.
Freight transportation is much larger than passenger transportation, with private transporters being
classified as large, mid and small operators, depending on the number of vehicles they own. While
both these markets are classified as LCVs and MHCVs based on vehicle weight, the CV market is
dominated by GVs over PVs.

The Indian CV market is still in a developing phase and opening of new markets is slow due to the
requirement of high infrastructure development such as construction of roads, warehouses etc.
But over the last few years, leading CV manufacturers have significantly enhanced focus on
technological innovations to develop next generation of trucks and buses having superior
technology, conforming to international standards and emission norms, and are worth competing
with products from leading international CV manufacturers (thereby boosting exports).

1. MHCV
Medium and heavy commercial vehicles (MHCVs) are designed to transport heavy loads over long
distances. The vehicles have higher payload and engine capacity vis-a-vis light commercial
vehicles (LCVs) and, hence, can carry a variety of loads; though are primarily used to transport
industrial and agricultural goods. Depending on freight availability, fleet operators offer to operate
on full truck load (FTL) and less than truck load (LTL). Large fleet operators, however, have more
flexibility with combining loads on common routes to reduce operating cost.
Depending on gross vehicle weight and subsequently payload capacity, MHCVs are further
classified as ICVs, MCVs, MAVs and Tractor Trailers.
Segment Wise MHCV Sales

1,40,000
1,20,000
1,00,000
80,000
60,000
40,000
20,000
-
2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
ICV MCV MAV TT
Source: SIAM
2. ICV
Intermediate commercial vehicles (ICVs) were introduced to bridge the gap between LCVs and
MHCVs. These vehicles are used primarily to transport goods from primary warehouses to local
distributors. The introduction of ICVs initially led to some cannibalization of sales of higher GVW
LCVs. However, this segment's growth has been constrained due to restrictions in higher payload
within city limits. Eicher is the market leader with 38.5% market share, Tata with 33% has
consistently lost market share to Ashok Leyland (20%). A total of 44,235 ICVs were sold last year
as oppose to 44,230 in 2015-16.

3. MCVs
Medium commercial vehicles (MCVs), with their higher payloads, can also be modified to cater
to specialized loads, e.g. as tankers. This segment includes tippers which are used in construction
and mining activities. Tata Motors and Ashok Leyland dominate this segment. Market leader Tata
(51%) has lost share to Ashok Leyland (38%). 45,122 units were sold in 2016-17, 44,361 units
were sold in 2015-16.
4. MAVs
Multi-axle vehicles (MAVs) are trucks with more than two axles. This helps distribute the vehicle's
weight over a greater number of axles. Such vehicles, therefore, have higher load carrying capacity.
However, the vehicles are also characterized by higher operating cost. This segment includes
tippers which are used in construction and mining activities. There has been a structural shift in
sales to MAVs from MCVs because of better cost economics. Tata is the market leader with 65.7%
market share, Ashok Leyland has 26.1%. 128227 units were sold last year as compared to 1,13,076
units in the year 2016-17.
5. Tractor Trailers (non-rigid vehicles)
Tractor trailers are non-rigid vehicles that have a towing engine to which trailers can be attached.
This allows for more flexibility as the trailer size can be changed as per requirements. However,
maneuverability is a key issue with tractor trailers, as the vehicles are very long. In India, tractor
trailers with a lower power-to-weight ratio are preferred as infrastructure issues do not allow
trailers to run at an average speed of more than 30-40 km per hour. Ashok Leyland is the market
leader with 52.9% market share in the segment. Tata follows with a 38.6% market share. 84,205
units of tractor trailers were sold throughout the country in 2017-18.
6. Tippers
Tippers are manufactured as MCVs and MAVs. These vehicles are used for mining and
construction activities, and are used to transport loose material such as sand, gravel, coal, etc.
Tippers are equipped with hydraulic pistons to lift the rear platform to tip the material it carries at
the construction/delivery site. Most higher-end MAV tippers are used for deep mining while MCV
tippers are used for surface mining and construction activities. Tippers are increasingly being
purchased as fully-built vehicles unlike trucks where mostly the chassis is sold.

MHCV (GV) Market Share
VECV -
Eicer12%
Tata Motors 53%

Ashok Leyland
Ltd. 35%
MHCV (GV) Market Share
11% MCV
28% TT
19% ICV 42% MAV

7. LCV
Light commercial vehicles (LCVs) have gross vehicle weight (GVW) of less than 7.5 tons. Due to
their lower engine capacities and payloads, the transportation of goods by LCVs is constrained to
a small area. Therefore, the nature of freight carried is usually redistribution freight or is used for
last mile transportation. Before 2005, large three-wheelers primarily catered to last mile transport
and redistribution demand. In 2005, Tata Motors launched Tata Ace, creating a new segment of
sub-one-ton vehicles (or minitrucks).
Based on GVW, the vehicles are further classified as Sub-1-tonne vehicles, Pick-ups and Upper
end vehicles.
Segment wise LCV Sales Trend

3,00,000
2,50,000
2,00,000
1,50,000
1,00,000
50,000
-
2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
Sub-1-tonne Pick-ups Upper-end vehicles
Source: SIAM
Sub-1-tonne
Sub-one-ton vehicles (minitrucks) typically have a loading platform size of 3-4 sq meters,
wheelbase of 2,100-3,400 mm and payload capacity of 0.7-1.0 tons. The first minitruck launched
by Tata Motors (Ace) led to cannibalization of large three-wheeler sales. Ace has an engine
capacity of 700 cc, with maximum output of 16 HP, wheelbase of 2,100 mm, a GVW of 1.55 tons
and rated payload of 0.745 tons.
The minitruck segment has become more competitive with new model launches - Tata Ace's new
variants, Mahindra & Mahindra's (M&M) Jeeto. Maruti has also entered the CV space launching
Super Carry in 2016-17. With transporters increasing focus on the hub and spoke model, new
entrants and new models will ensure competition to rise further. 1,65,479 units were sold last year,
1,16,565 were sold in 2016-17. Tata is the market leader with 67.7% market share.

Pick-ups
Pick-ups have a loading platform size of 3-4 sq meters, wheelbase of 2,400-3,400 mm and payload
capacity of 1-2 tons. M&M's Bolero range dominates this segment. The vehicles are used for urban
and rural distribution of goods as well as personnel-based applications such as maintenance crews,
courier vans, etc. M&M has 62% market share. 2,55,599 units were sold in 2017-118, where as in
2016-17 2,07,939 units were sold.
Upper-end vehicles
These vehicles have a larger loading platform and load-carrying capacity of 2-4 tons. Their
engine capacities range from 2,488-3,783 cc, wheelbase size from 2,500-3,785 mm and have an
output in the range of 75-90 brake horse power. Tata motors with 56.5% market share and Eicher
with 24% are prominent players. A total of 46,140 units were sold in 2017-18 as opposed to
36,339 in 2016-17.
LCV (GV) Market Share
Upper end
Vehicles 10%
Sub-1-Tonne
35%
Pick-ups 55%
CRISIL Research
LCV GV Market Share
Others 6%
Tata Motors
Mahindra & 41%
Mahindra
44%
Ashok
Leyland 9%
CRISIL Research

8. Passenger Vehicles (CV)
Bus industry is one of the vital integral segments of Indian automobile industry. It is a common
widespread public transport in India. The industry comprises of buses that are categorized into
school buses, mini buses, tourist buses, deluxe buses, commuter buses and others depending on
the use.
Owing to the development of infrastructure and roads, connecting to remote places has become
easier due to which more and more people are availing bus services.
The bus segment witnessed a fall in sales on-year in fiscal 2018, after tepid growth of 5.7% on-
year in fiscal 2017. Within the space, the MHCV segment's sales fell faster than the LCV segment's
in fiscal 2018, after two consecutive years of stellar growth. (Demand for MHCV buses grew by
~22% and 7%, respectively, in fiscals 2016 and 2017).
Fiscal 2019 is likely to see robust growth, aided by revival in most end-use sectors over a low base.
For the year 2017-18 Replacement of JNNURM I buses was low in fiscal 2018 due to lack of funds
with STUs, thereby stifling the demand. MHCV sales fell faster than the LCV segment’s, after two
stellar consecutive years of growth (MHCV bus demand growth for fiscal 2016 and fiscal 2017
was ~22% and ~7% respectively). But fiscal 2019 seems to see a robust growth due to:
LCV demand is expected to be driven from private stage carriage segment (with expected release
of new permits, tourist and school segment). Also demand from STUs, schools and intercity travel
operators is expected to increase.
Domestic PV Sales Trend

60000
50000
40000
30000
20000
10000
0
2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
LCV MHCV

LCV
23,959 units were sold in the less than 5-tonne category (6-16 seater). Force motors with 74.8%
market share and Tata with 20% are prominent players in this segment.
In the 5.0-7.5-tonne category (17-35 seater), 24,676 units were sold in 2017-18 and 25,253 in
2016-17. Tata, Eicher and Isuzu are prominent players with 45%, 23% and 14% market share
respectively
MHCV
In the 7.5-12.0-tonne category (36-52 seater) 18,209 units were sold in 2017-18 and 20,117 were
sold in 2016-17. Tata (37%), Isuzu (13%), Ashok Leyland (26%) and Eicher (17%) are major
players.
Ashok Leyland and Tata dominate the More than 12-tonne category (52-64 seater) with 52% and
38% market share. A total of 17,350 units were sold in 2017-18 as opposed to 27,133 in 2016- 17.
PV Market Share
MHCV 42%
LCV 58%
Source: SIAM

9. Growth Drivers
Growing economy
Economic growth (in particular agricultural and industrial growth) are the major drivers for freight
growth which in turn propels GV sales.
Focus on infrastructure and higher production in mining to bolster tipper demand
The budgetary allocation on infrastructure was about Rs 5.9 lakh crore in Union Budget 2018-19.
The awarding of contracts by the National Highways Authority of India, the nodal agency for road
construction, rose 70% to around 7,400 km in fiscal 2018, much of which will come up for
execution in fiscal 2019.
Execution by the NHAO will reach up to 15.03 km/day in fiscal 2023, as against 8.4 km/day in
fiscal 2018, aided by the Bharatmala project. Projects such as Sagarmala and investments in
various irrigation projects will further drive MHCV demand.
The government also plans to expedite all road construction by December 2018. the government
is expected to push construction projects in the pre-election year. The government is likely to focus
on major river linking projects in its irrigation thrust; housing construction under Pradhan Mantri
Awas Yojna; and LPG cylinder distribution under the Pradhan Mantri Ujjwala Yojana. These
schemes will also boost demand for CVs.
Low diesel prices
Low diesel prices reduce cost of ownership for transporters hence providing more incentive for
GV and PV sales.
Finance penetration to remain high
The CV finance industry is already highly penetrated. Typically, more than 95% of the vehicles
purchased are funded externally. Within segments, MHCVs have marginally higher finance
penetration compared to LCVs owing to the higher vehicle price and the better credit profile of the
customers. Subdued interest rate does provide a fillip to the segment.

Commissioning of dedicated freight corridor (DFC) to restrict road freight growth and CV
sales.
DFCs are intended to help Indian Railways regain lost freight share. Cutting turnaround time
between importing and consuming destinations, they are expected to compel several industries to
realign logistics strategies.
DFCs and associated logistics parks can help lower plant-level inventory greatly, inducing huge
savings in working capital. Sectors such as cold chain, transportation of perishables and express
distribution may be encouraged to choose rail for freight due to DFCs' expected efficiencies.
DFCs would not only bring about faster freight movement but also help the overall economy
through decongestion of major highways due to partial shifting of some freight to rail. It will also
allow for faster evacuation of cargo from ports, improving efficiency.
Thus, roads, which outperformed rail over the last decade, will lose share to rail fast once the DFC
is commissioned.
Rising Raw Material Cost
The Basic Raw Material Cost Index (BRMI), which constitutes ~15% of total costs, is expected to
rise 8-10% in 2017-18, largely due to a rise in iron and natural rubber prices. In 2016-17, BRMI
had risen by 4.9% as the prices of all three raw material components (steel, iron and natural rubber)
rose.
Auto-component manufacturers are expected to pass on this rise in prices with a lag of a quarter.
Removal of check posts and enhanced operations due to better road infrastructure to lower
truck demand.
Removal of check posts post GST has increased truck movement by ~10-15%, with trucks
spending less time at check posts. Moreover, improvement in road infrastructure is expected to
increase the average speed of trucks, leading to a further efficiency gain of ~10%.
Hence, fewer trucks will be required to move the same quantity of goods, lowering truck demand.
On the other hand, increased running of trucks will help improve the competitiveness of the road
transportation industry, helping attract more freight.

GST and better cost economics to shift some demand to higher tonnage vehicles, bringing
about efficiencies
GST is expected to lead to a pan-India realignment of distribution networks and supply chains.
The hub-and-spoke model will gain prominence, with more concentrated hubs and longer spokes
(distance between hub and consumption centers). Companies are expected to consolidate state
warehouses into larger regional warehouses, which will increase the average load size from
manufacturing plants to larger regional warehouses. Thus, the scope to use higher-tonnage
MHCVs would broaden. On the other hand, the spokes will now be catered to by intermediate
commercial vehicles (ICVs), with medium commercial vehicles (MCVs) losing out in the bargain.
ICVs, in comparison, offer higher freight per tonne-km, more trips, and better fuel efficiency,
thereby boosting operator profitability.
The higher payload capacity in recent ICV models has also encouraged rapid substitution of
MCVs. Moreover, the shift to higher tonnage vehicles will be more pronounced with higher
tonnage vehicles having better cost economics in general. However, this consolidation of
warehouses is expected to only be limited to warehouses which store denser goods. We expect,
consumer durables and FMCG sector to have highest potential for consolidation. Though the shift
to higher tonnage segments will be limited for these two sectors, considering they carry less dense
(voluminous goods).
Increase maximum axle load of commercial vehicles by 20-25%
This move in the, first in three decades, is expected to bring India’s truck axle load limits in line
with international norms. This is expected to make the current fleet of trucks legally carry 20-25%
more load than the current rated load. W/e believe, this rule would be applicable to the entire
population of trucks, thus increasing the freight capacity of the population of trucks by 20-25%. A
good year sees BTKM growth of 7-8%. Hence, it will take three years to increase primary freight
demand by 20-25%, whereas increase in the axle load will add 20-25% to the supply capacity.
Following the implementation of this norm, sales will be largely driven by replacement demand.
Low Replacement Demand
Replacement demand is expected to remain stagnant in the fiscal. However, some large fleet
operators are expected to start replacing their vehicles in the fourth quarter of fiscal 2019 to avoid
higher prices following the implementation of BS-VI norms in April 2020
Increasing Cost of Ownership
Increasing cost of ownership amidst increasing diesel prices affect profitability of transporters.
This cost cannot be passed on to customers as the market is very competitive in this segment.

11. Future Outlook
Sales of Medium and Heavy commercial vehicles (MHCV) in 2018-19 are expected to grow ~8%
over a higher base. GDP growth is expected to pick up as negative impacts of demonetization fade.
Industrial GDP is expected to rise to 6.9% in fiscal 2019 compared with 4.8% growth in fiscal
2018.
Also, the increase in infrastructure activities will boost demand for CVs. The government will
push the construction projects in the pre-election year.
Factors limiting MHCV demand in fiscal 2019 would be any leniency in the implementation of
ban on overloading in north India and fleet operators being unable to pass on the rise in fuel prices.
Replacement demand is not expected to be incrementally positive. However, some large fleet
operators are expected to start replacing their vehicles in the fourth quarter to avoid likely price
rise once the BS VI norms are implemented in April 2020.
MHCV sales, which rose at a tepid 1.6% CAGR between fiscals 2013 and 2018, will see a
moderate 5-7% CAGR between fiscals 2018 and 2023. Factors driving the growth will be an
improvement in industrial activity, steady agricultural output, and the government's focus on
infrastructure. However, a full recovery will be limited as better road infrastructure, efficiency
achieved after the goods and services tax implementation, shift to higher tonnage trucks and the
commissioning of dedicated freight corridors could provide some downside to the volume growth
Despite improving penetration, India's LCV-MHCV population ratio (1.4 times, expected to rise
to 1.5 by fiscal 2022) still lags China (1.8); China is a comparable CV market given its similarities
with India in rail-road share, usage of low-cost trucks, and overloading situation.
Light commercial vehicles (LCVs) sales to grow ~16% in fiscal 2019 aided by an improvement in
private consumption (growth of private final consumption expenditure, an economic indicator, is
seen at 7.6% compared with 6.1% in fiscal 2018). Expected normal monsoon is likely to continue
to aid rural consumption and demand for small commercial vehicles (SCVs), especially pickups,
which are used to move the agricultural produce.
Moreover, improved consumption in the urban areas is expected to drive demand for sub-1-tonne
segment. Replacement demand, too, is expected to be incrementally positive during the fiscal.
Improved consumption and rising replacement volume will drive the long-term LCV demand.
However, a shift towards higher tonnage pick-ups from sub-1-tonne vehicles will curb higher sales
growth. The replacement demand of sub-1-tonne segment is likely to taper off by fiscal 2022
leading to weaker sales in the terminal year.
All in all, the LCV sales are expected to rise at a CAGR of 5-7% between fiscals 2018 and 2023
over a high base of fiscal 2018 when the sales rose 29%. CV financing will continue despite short-
term risk in debt serviceability. We believe, that there will be pressure on the debt serviceability
of SFOs as they will be unable to pass on higher fuel prices (as seen in the first half of 2018) due
to limited recovery in freight volumes and fleet utilisation levels.

12. Player Profile
ASHOK LEYLAND
Ashok Leyland (ALL), part of the Hinduja Group, was established in 1948 as Ashok Motors Ltd.
The company was set up in collaboration with UK's Austin Motor Company to assemble Austin
cars. The company was later renamed as Ashok Leyland when British Leyland acquired a 40%
stake in 1955, through which it entered the business of importing, assembling, and manufacturing
Leyland trucks. By 1967, ALL had diversified its business into manufacturing buses and defense
trucks.
Commercial vehicle business
The Indian CV industry is dominated by three original equipment manufacturers (OEMs) - Tata
Motors, Mahindra & Mahindra and Ashok Leyland - together accounting for ~87% of sales in
fiscal 2017.
Tata Motors is the dominant player with 43% market share, followed by Mahindra & Mahindra at
25%. Ashok Leyland, which used to be the second largest player, has now slipped to third slot
with 19% market share.
In the last three years, Tata Motors has lost some market share to Ashok Leyland, with the latter's
share rising to 19% in fiscal 2017 from 13% in fiscal 2014. Mahindra & Mahindra's market share
has remained constant at ~25% during this period.
After JV's with Nissan ended, Ashok Leyland has started its solo run in the light commercial
vehicle (LCV) segment and launched Partner, with another eight LCVs lined up for the next two
to three years.
ALL has further strengthened its portfolio by launching GURU in the intermediate commercial
vehicle (ICV) segment. Tata Motors loses share to Ashok Leyland (domestic sales).
The company's product profile includes medium and heavy commercial vehicles (MHCVs,
including buses), LCVs, defence vehicles, and power solutions under the Leypower brand, which
supplies engines for vehicles and other purposes. Today, ALL is the third-largest CV
manufacturer, selling around 100,000 vehicles and more than 14,000 engines annually.
In the medium and heavy-duty segment, sales volume of 102,313 vehicles was realised in a flat
market of 302,529 vehicles registering a growth of 4% and a market share of 33.8% (PLS simplify
the above sentence). The LCV market grew 7.4% with sales of 31,770 vehicles, while ALL
retained share in this segment despite fierce competition and just one product in the line-up.

Manufacturing Facilities
Ashok Leyland has manufacturing facilities at Pantnagar (Uttarakhand); Ennore, Hosur, and
Chennai (Tamil Nadu); Bhandara (Maharashtra) and Alwar (Rajasthan), with a country-wide
dealership network of 923 touch points. The company also has operations in the UK, Sri Lanka
and Gulf countries. Today, ALL exports to more than 30 countries. The company is broadening
its focus to countries in the SAARC region and Africa, where it has started exporting LCVs.
Key Developments
• ALL is planning to set up new assembly units in Middle East, Africa, South America, and South
East Asia over the next three to five years, with an investment of about Rs 0.3 billion in each
assembly unit.
• Ashok Leyland formed a strategic alliance with SUN Mobility to develop electric mobility
solutions. The company is looking at creating an integrated ecosystem by deploying its electric
vehicles and supporting them with smart batteries with a network of quick inter-change battery
stations developed by SUN Mobility.
• ALL exited the JV with Japanese auto giant Nissan in 2016. The commercial vehicle major has
bought the stake in each of the previous three JVs - the Ashok Leyland Nissan-Vehicles Ltd,
Nissan-Ashok Leyland Powertrain Ltd and Nissan-Ashok Leyland Technologies Ltd.

Tractors
The tractor industry has always been a barometer for the state of rural economy in India. Indian
tractor industry is relatively young but now has become the largest market worldwide (excluding
sub 20 hp belt driven tractors used in China), accounting one third of the global production. The
other major tractor markets in the world are China and US. Up to 1960, the demand of the tractor
was met entirely through imports. Indigenous manufacture of tractors began in 1961. India
continued to import tractors to bridge the total needs up to the late 1970 and had reached just about
50,000 units in the early 1980’s, but today the size Indian Tractor market has grown to over
600,000 units. The Indian Tractor Industry has come a long way since then. Volume growth in the
past 4 decades show a CAGR of 7.5%, despite seasonal vagaries, plummeting and boosting, tractor
demand and consequentially the Industry volumes. The tractor industry did well in the last 5 years
because of good monsoons, easy availability of finance and initiatives from government to boost
up agriculture and agricultural machinery industry. Irrigation intensity and monsoons , healthy
credit availability, moderate penetration and adequate procurement price to farmers are the major
demand factors.
Tractor sales witnessed a robust growth of 22% on-year in 2017-18, owing to two consecutive
years of normal monsoon. Uneven spread of monsoon in 2017-18 did not dent crop production,
however the farm income was impacted on the back of lower prices of pulses and coarse cereals.
However, due to government support in various states, subsidy sales and announcement of the
farm loan waiver in key states, the industry witnessed a robust growth in fiscal in 2018. Exports
grew by 9% from 78,351 units in 2016-17 to 85,263 units in 2017-18. Tractor exports witnessed a
healthy growth in fiscal 2018 after a sluggish growth for two consecutive years in fiscal 2016 and
2017, largely due to improvement in agricultural sentiments in certain markets
The structure of the tractors industry has remained largely static, with Mahindra & Mahindra
(M&M) retaining its leadership position (43% market share), and Tractors and Farm Equipment
Ltd (TAFE) coming a distant second (19% market share) at the end of 2017-18. The scenario
remained similar in the first 4 months of 2017-18, with M&M maintaining its market share of
43%, and TAFE also a 19% market share. A strong pan-India network reach, strategic location of
manufacturing facilities, and a comprehensive product range from <20 horsepower (hp) to >50 hp
have been the major factors behind M&M's consistent dominance of the industry.
International Tractors Ltd (ITL), a manufacturer of tractors under the Sonalika brand, saw its
market share improve 400 basis points (bps), from 8% in 2011-12 to 12% in 2016-17 and
maintained the 12% market share in 2018 as well. On the export side, TAFE leads with a market
share of about 21%. John Deere, Mahindra & Mahindra and ITL have an export percentage of
19%, 18% and 16% respectively.

Tractor Domestic Sales

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
Escorts Ltd International Tractors Ltd Johndeere Mahindra & Mahindra Ltd TAFE Others
Monthly Domestic Sales

120000
100000
80000
60000
40000
20000
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

Export Share
Escorts Ltd.
International Tractors Ltd.

2%
22% 16%
Johndeere
Mahindra & Mahindra Ltd.

9%
19%
New Holland India
14%
18% SAME DEUTZ-FAHR
TAFE
The Indian tractor industry has been classified into small, medium and large tractors, based on
the engine's horsepower (hp). In India, tractors have an average engine size of 35 hp, while in
the international markets, small tractors begin from 50 hp. Over the past few years, the usage of
large tractors has increased across the country on account of upgradation.
Additionally, as per Porter's Five Forces Model, the industry scores 'above average', except for
the threat associated with moderate-entry barriers. Further, while competition remains moderate,
it is rising over time.

Segment Wise Domestic Sales Trend

400000
350000
300000
250000
200000
150000
100000
50000
0
2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
Small Medium Large

1. Small Tractors
(Tractors with engines lower than 30 hp)
Small tractors are popular in Maharashtra, Gujarat and Uttar Pradesh, the states accounted
for more than 60% share in the segment in fiscal 2018.
Leading players: Mahindra & Mahindra (M&M), TAFE and V.S.T Tillers Tractors Ltd with
domestic market share of 49%, 17% and 17%, respectively in fiscal 2018.
Tractors with power output less than 30 HP have shown an outstanding growth in the last few
years. The sales have increased backed by the production of new Mahindra Yuvraj 215 (M&M),
Captain DI 2600, Captain DI 120 (Captain Tractors), Shakti MT 180D, EuroTrac-VST 180D (VST
Tillers), Ustad (Greaves Cotton) and others.
Tractors below 20 HP are ideal for land holding up to 5 acres. The availability of tractors below
20 HP will replace a large number of tractors in 21-30 HP segment. An overwhelming demand is
expected to be created from the farmers’ standpoint (83% who have small and marginal land
holding) who have refrained themselves from buying tractors because of the costs.
The increasing demand is propelled primarily by the cost factor driving a replacement demand
(from higher HP market) and adoption from lower segment market (up-gradation from bullocks).
DOMESTIC SMALL TRACTORS SALES

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
Escorts Ltd. Force Motors Ltd. HMT International Tractors Ltd. Mahindra & Mahindra Ltd. TAFE VST

2. Medium-sized Tractors
(tractors with 31-40 hp engines)
These tractors, best suited for Indian soil conditions, are popular in Uttar Pradesh, Rajasthan,
Madhya Pradesh, Bihar and Gujarat; the states accounted for more than 60% share in the segment
(fiscal 2018).
Leading players: M&M and TAFE, with a domestic market share of 37%, and 28%, respectively.
Over a period of time, market share of Escorts Ltd and International Tractors Ltd has also increased
and stood at 15% and 12% as of fiscal 2018, respectively.
DOMESTIC MEDIUM SIZED TRACTOR SALES

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
Escorts Ltd. Force Motors Ltd. HMT

International Tractors Ltd. Johndeere Mahindra & Mahindra Ltd.
New Holland India SAME DEUTZ-FAHR TAFE
Source: SIAM

3. Large Tractors
(Tractors with over 40 hp engines)
These tractors, preferred by rich farmers with larger landholdings, are suited for the western
and northern regions of India and are seeing increasing demand from the states of this
region. Uttar Pradesh, Madhya Pradesh, Maharashtra and Andhra Pradesh, together accounted for
about 52% segmental share (fiscal 2018). Another factor driving demand is upgradation by farmers
to larger power tractors.
Leading players: M&M, TAFE and International Tractors Ltd with domestic market shares of
45.3%, 13.6% and 13.0%, respectively, dominated the market in fiscal 2018.
DOMESTIC 41-50 HP TRACTOR SALES

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
Escorts Ltd. Force Motors Ltd.
HMT International Tractors Ltd.
Source: CRISIL Research Johndeere Mahindra & Mahindra Ltd.
New Holland India SAME DEUTZ-FAHR
TAFE

DOMESTIC >= 50 HP SALES

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
Escorts Ltd. HMT International Tractors Ltd.

Johndeere Mahindra & Mahindra Ltd. New Holland India
SAME DEUTZ-FAHR TAFE
South: This region continued its growth at 19.7% in fiscal 2018 with robust growth across all
states, and its share stood at 19.9% in fiscal 2018 (from 20.3% in fiscal 2017). Tamil
Nadu witnessed a high growth of 53% on-year, mainly driven by water availability in the state
after two consecutive years of comparatively less rainfall. Overall, a strong improvement in
financing scenario managed to push up sales in the southern region.
East: An overall improvement in commercial demand due to implementation of infrastructure

projects, especially in West Bengal and Jharkhand, led to strong demand for tractor sales in fiscal
2018. Hence, its share in total tractor sales too increased by 40 bps to 15.2% in fiscal 2018.
North: During fiscal 2018, demand in key states like Uttar Pradesh and Punjab was very strong.
Cash flow issues were resolved and of adequate financing was available which led to a steep
incline in Punjab. Tractor sales volume in the region increased by 25.1% on-year owing to a high
growth in Uttar Pradesh (34%) and Punjab (23.4%) coupled with a low base of last year.
West: This region continues to dominate tractor demand, its total tractor sales increased by 18.5%
on-year in fiscal 2018 with a sharp rise in key states such as Maharashtra (39.8%) and Madhya
Pradesh (16.1%). Normal monsoon coupled with sufficient reservoir levels, higher minimum
support prices (MSPs), good crop output (kharif as well as rabi) boosted tractor demand.

Statewise Sales Trend

120000
Andhra Pradesh
Bihar
100000
Gujarat
Haryana
80000
Karnataka
60000 Madhya Pradesh
Maharashtra
40000 Punjab
Rajasthan
20000 Tamil Nadu
Uttar Pradesh
0
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 Others
Source: SIAM

4. Growth Drivers
Irrigation intensity and monsoons

Irrigation plays a vital role in determining the demand for tractors. A farmer will prefer to invest
in costlier assets such as tractors only when he is assured of receiving essentials for farming such
as water supply. The irrigation spends which increased significantly in last two decades have aided
both irrigation and cropping intensity, thus leading to higher and stable farm incomes. Irrigation
intensity is expected to improve further over the medium term, thus supporting tractor sales.
Punjab and Haryana have the highest irrigation intensity and also account for the highest tractor
penetration in India. Thus, as irrigation facilities improve in other parts of India, tractor penetration
will see a corresponding increase. However, extremely fragmented land holdings in certain states
may deter them from reaching higher tractor penetration. Besides, deficient monsoons also impact
reservoir levels and, in turn, irrigation intensity.
Government Initiatives
The government's objective of doubling farm income by 2022 via initiatives like e-NAM (National
Agriculture Market), expanding crop insurance coverage, and improving land productivity via soil
health cards. These measures should improve farmers' affordability, and boost tractor penetration.
Renewed thrust of the government on enhancing irrigation intensity and making the nation more
drought-proof is expected to support agriculture growth, and increase mechanization.
Availability of credit
In India, around 75% of tractors purchased are on credit, so its availability becomes a key demand
driver for the industry. Hence, any major changes in financing norms directly impact the demand
for tractors. Agricultural credit usage in farm mechanization has been growing steadily over the
years, thus enhancing the farmers' ability to buy tractors. Public sector banks and non-banking
financial companies (NBFCs) are major financiers. Over the last decade, the cumulative share of
public sector banks (PSBs), co-operative banks, and regional rural banks has come down from
about 75% to 15-20%, with NBFCs now accounting for about 50-55% of the market.
Minimum support prices of food grains

The government fixes the procurement prices of food grains. These prices affect market prices, as
they are used as a base for their calculation. Change in procurement prices directly affects the
farmer's income as it impacts his loan repayment capability. The government has consistently
raised the minimum support prices (MSPs) of major crops such as wheat, rice, sugar cane and
cotton, starting from 2006-07. MSPs have risen at a CAGR of 10-15% from 2006-07 to 2013-
14, vis-a-vis 1-5% growth during 2001-02 to 2006-07. This has reduced volatility in farm incomes,
notwithstanding some fluctuations in agricultural production arising from deviation in rainfall.
However, since 2014-15 onwards, hike in MSPs has been modest, as compared with a CAGR of
10-15% in previous seasons.

This is in line with the government's resolve to control food inflation by not raising MSP, releasing
excess food stocks and extending credit lines to states to import edible oil pulses. However, this
moderate hike in MSP impacted farm incomes in 2014-15 and 2015-16, as it was over and above
a drop-in crop output in those years. In 2016-17, the MSP hike was around 13% on-year, coupled
with good crop output, which resulted in higher farm income across all the major regions. In July
2018 central government has announced MSP for Kharif crops which is about 1.5 times of
production cost. It is expected to further protect farmers from price volatility and improve tractor
demand.
Non-farm usage of tractors

Tractors are also used in mining, construction and haulage activities. Currently, non-farm usage
accounts for around 30% of demand for tractors. Tractor usage in non-farm activities has been
increasing, with the government's focus on improving rural infrastructure. Tractors are used for
carrying construction material such as bricks, cement and pipes. Tractors are also being looked at
as a better alternative to commercial vehicles, as tractors are more economical, can carry heavy
weight, and also can maneuver easily on rough, rural roads.
5. Challenges & Key concerns
Landholding pattern
The average land holding size in India is very low at 1.16 hectares (ha) as against a world average
of 3.7 ha, with about 65% of farmers being marginal farmers (holding less than 1 ha). This has
been a deterrent for tractor demand. Moreover, the average landholding size has been
declining due to socio-economic factors such as the break-up of joint families and division of
ancestral land. This has both positive and negative impact on tractor demand. With the division of
larger landholdings into smaller ones, the number of tractors required is expected to rise. However,
the purchase of a tractor would become uneconomical for small farmers due to a reduction in farm
size (as a result of the sub-division of already small landholdings). But with the proportion of
landholdings below 2 ha being very high, consolidation of landholdings will drive demand in the
long run.
Input costs
Raw materials cost comprises the largest cost component for tractor manufacturers, at ~70% of net
sales and ~77% of production cost. Steel and pig iron are the major raw materials, comprising 90-
95% of the tractor's weight. The other major input is tyres. In value terms, steel, pig iron, and tyres
each constitute 31-35% of total input cost. Hence, any price volatility in these major inputs affects
industry profitability. Hence, volatility in the prices of these three major inputs affects profitability.

6. Future Outlook
Domestic tractor sales volumes are expected to continue its growth momentum from previous year,
and increase by 12-14% in fiscal 2019, on the back of an expectation of a third consecutive normal
monsoon (as per IMD forecast) and favorable farm sentiments. Favourable government
announcements in terms of higher MSPs and compensation for difference between MSP and mandi
prices are expected to lead to 1-3% incremental growth (this has been factored in our base call).
However in case these schemes are not implemented well, it could shave off around two percentage
points from our forecast for fiscal 2019.
However, support from the government to improve farm income has led to positive sentiments
across states. Moreover, with back-to-back normal monsoons, the financial situation of farmers
has improved compared to the stress faced during droughts in fiscal 2015 and fiscal 2016. Farm
loan waiver announcements in key markets of UP, Maharashtra, Karnataka and Punjab have also
provided the impetus to tractor demand in these states. While commercial demand has taken a hit,
with increased government regulation on illegal mining activities, continued focus on rural
development - road construction and rural electrification - has helped support non-farm demand.
Government’s renewed thrust towards improving the rural economy, via measures such as
doubling farm income by 2022, increasing spend towards irrigation, and improving crop
productivity by distributing soil health cards is expected to drive growth in the long term. With
growth in rural wages also decelerating, and increasing mechanization on farm fields, this bodes
well for structural tractor demand growth. Push for agriculture in the recent budget is also likely
to assist in tractor sales growth. Kharif crops MSP’s to be at least at 1.5x of their production cost.
Additionally, government will put in place a mechanism for farmers to realise deficit between
MSP and mandi price. Moreover, the institutional credit for agriculture sector has been increased
by 10% to Rs. 11 lakh crores for FY19 over FY18. Also, Rs 14.34 lakh crore has been allocated
for creating livelihood in rural sector.
With current tractor population of ~5 million in India, penetration in India is only 1.5 hp/ha which
is much below the 8-10 hp/ha penetration of developed countries, leaving much scope for growth.
Keeping that as a benchmark, nearly 13 million farm tractors are required to till India's arable area
of 159.2 million hectares, indicating a sustained growth potential of 8-10% CAGR (excluding
commercial tractors) until fiscal 2027.
Tractor exports are expected to grow 5-7% this fiscal, as healthy pickup in key markets such as
Asia and Africa would be offset by slowdown in the European markets. The agriculture scenario
in the key markets of Asia (Bangladesh, Myanmar and Sri Lanka) and Africa (Kenya, Tanzania,
Mozambique) has improved, along with increased demand for construction-related activities.
Also, with the line of credit extended to Myanmar, this will likely support tractor exports growth
in the current fiscal. However, with Europe moving to Stage III B emission norms, tractor demand
in this region would be impacted, thus restricting growth of Indian exports.

7. Company Profile
INTERNATIONAL TRACTORS LIMITED
International Tractors Ltd (ITL), incorporated in October 1995, manufactures tractors under
the Sonalika brand. In 2005, ITL entered into a joint venture with Yanmar Agriculture, Japan, to
manufacture tractors in India. Along with launching the technically advanced World Trac series
of tractors, the company also developed a diesel saver unit in-house, for its Sonalika tractors, in
2009. Tractors manufactured since 2010 are Euro III compliant. In 2010, the company
commissioned its greenfield manufacturing facility at Fatuah, Bihar, with an installed capacity of
20,000 units per annum. Further, in 2017 ITL expanded the capacity of its Hoshiarpur plant by
2,00,000 units taking the total capacity of the plant to 3,00,000 units.
Business Profile
ITL is the third-largest tractor-manufacturing company in India (as of March 2017), following
Mahindra & Mahindra and Tractors and Farm Equipment Ltd., with a domestic market share of
11.9% in 2016-17. It has two manufacturing facilities, one each at Hoshiarpur (Punjab) and Fatuah
(Bihar). It also has an assembly line in Himachal Pradesh. ITL invested Rs 800 crore to enhance
the manufacturing capacity of the Hoshiarpur plant. For the new facility, the company is under
the process of hiring 1500 workers to the existing 4,000 workers that will take total workforce to
5500. It was inaugurated on 8th May, 2017. At present, the company’s new plant is producing 380
tractors per day but this will be ramped up to 500 tractors during this fiscal. In the meantime, the
old plant with a 1 lakh annual capacity is being renovated and being brought at par with the new
facility. ITL also plans to start making seats as part of the components that it is currently producing.
Currently, ITL manufactures tractors in the range of 20-110 hp. As of March 2017, the company
had a strong dealership network of over 870 dealers and 1,500 authorised service centers. ITL is
planning to enhance its dealership network, especially in the south.
Overseas Presence
ITL entered into a technical collaboration with Renault Agriculture, France, in July 2000. Renault
Agriculture, a subsidiary of the Renault Group, was bought by CLAAS, Germany, which
manufactures tractors under the Ceres and Solis brands. As of March 2017, ITL exported to more
than 80 countries and had assembly lines in Nigeria, Cameroon, Algeria, Brazil, Germany and
Argentina, jointly owned with local distributors. The company's key export destinations include
Algeria, Nepal and Myanmar. For the European and US markets, ITL introduced 90
hp CRDi tractors and is looking to consolidate its position in these markets. Further, the
company has tied up with Minsk Tractor Works (MTW) to launch Belarus tractors in India and
plans exporting them to other countries, which fall under the network of MTW.
ITL is gunning for the China market where it has a long-term growth plan. While it already has
assembly plants in Cameroon and a couple of other places, its key market will be China going
forward for which it is setting up a manufacturing plant. During the next 5 years ITL plans to grow
between 20-25 percent on-year in exports with revenues contributing 40-50 percent to the total.

Region-wise share in domestic industry sales
Segment-wise domestic industry sales

THE AUTO ANCILLARIES

INDUSTRY

1. Overview
The auto component sector is highly fragmented, comprising of over 780 players in the organized
sector and close to 6,000 small players in the unorganized sector. The organized sector caters
primarily, to OEMs and export market, accounting for about 85% of the total industry turnover.
Manufacturing units in the unorganized sector dominate the replacement market.
Major government decision to implement Bharat Stage VI in April 2020 and mandatory
installation of advance road safety equipments as standard features in all cars is likely to push good
business opportunities for component manufacturing companies in India.
Government measures to boost infrastructure and agriculture, expectation of good monsoon in

2018, income growth and improving global demand are all expected to boost auto demand. Rising
auto demand is likely to translate into higher demand for auto components.
Indian automobile and auto component sector are one of the key drivers of the manufacturing
sector. Auto component industry contributes ~2.4% share to the country’s GDP and 4% share in
overall exports. Development in the automobile sector has strong backward and forward linkages.
• Mining & Steel
• Other Metal : Primary / Fabricated
• Fuel
• Electronic & Software
Upstream • Rubber, Plastic, Glass, Paint, Chemical
• Mobile Tech (Automotive Textile)
• OEMs
• Passenger Vehicle,
• Commercial Vehicle,
• Two Wheelers,
Core • Three wheelers)
Automotive • Components Manufacturers
•
Auto Dealers
•
After market Services,
•
Replacement Market
•
Finance & Insurance, Legal
•
Downstream Car Hire & Rentals
• Logistics (Transportation)
• Fuel Supply
• Warehousing
• Advertising

2. Industry Classification
2.1. Product Wise
The auto ancillary industry can be broadly classified on a functional basis into engine parts,
transmission and steering parts, suspension and braking components, electrical equipment and
others. The engine parts segment is the most significant contributor to the ancillary industry in
terms of value and accounts for around one-third of total production.
Consumables and
Cooling System
Others
3% Product Share
5%
Interiors (non-electric)
12%
Engine Components
26%
Electronics and
Electricals
10%
Body/Chassis/BiW Suspension & Braking

17% 14%
Driver Transmission and Steering

13%
Cooling System Engine Components
Suspension & Braking Driver Transmission and Steering
Body/Chassis/BiW Electronics and Electricals
Interiors (non-electric) Consumables and Others
Source: ACMA
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, carburetors, fuel-delivery and
cooling systems and power train components.
Drive 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.

Suspension and Braking Parts

Suspension and braking parts are 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.
Equipment
Equipment is the fourth-largest product segment with a 10% production share. The primary
subsegments 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%.
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).
Other Parts
In addition to these there are other parts such as sheet metal parts, hydraulic pneumatic instruments,
fan belts, pressure die castings etc. This segment makes up about 19% of the production share.
2.2. OEM Consumption Wise

Three Wheelers Construction EME
Tractors 3% 2%
6%
LCV
13%
PV
43%
MHCV
10%
Two Wheelers
23%
Construction EME PV Two Wheelers MHCV LCV Tractors Three Wheelers

2.3. Player Wise
Share
Organised
15%
Unorganised
85%
Organised Unorganised
Source:
ACMA
The number of manufacturing units in the unorganized sector is far higher than those in the
organized one. In pure number terms, the number of unorganized players in the auto ancillary
segment in the country is more than 10 times the number of organized players in the domestic
market (10,000 unorganized players v/s 700 organized players). However, the organized players
make up only about 15% of the total turnover of the auto ancillaries’ industry.
3. Value Chain

Players in auto components industry are classified based on their class and size as:
Tier 3 Tier 2 Tier 1

Comprises of smaller,
single-auto component
Comparatively Comprises of large
Size manufacturing firms,
medium sized firms firms
largely unorganized
players
Comparatively less Most companies have
access to latest high end research and
Comparatively less
Technology technology and development centers to
access to technology
generally use carry out new
traditional technology innovation
Almost all the
Mostly multiple companies are capable
Mostly single component to manufacture
component manufacturers and multiple auto
Manufacturing
manufacturers and no have comparatively components, equipped
operational efficiency better operational with high-end
efficiency technology and large
number of OEMs
High IT penetration in
these areas which can
Low level of IT
Medium penetration of reduce their
penetration and hence
IT Penetration IT which are mostly operational expenses
use traditional method
fragmented as most of the
of manufacturing
machines are
automatic
Small unorganized
Example Motherson Sumi TVS Group
players
The value chain of the Auto Components segment is similar to that of the Automobile segment.
However, important activities to focus in this case are Design and Quality.
The Design function has to be very closely aligned with the OEM product designs both in terms
of design specifications as well as the timeline for development.
Quality of the product delivered is again a key parameter being assessed by OEMs. Ability to cope
up with the OEMs requirements in these areas are considered critical in the Auto Components
segment.

4. Current Scenario
Source: ACMA
Domestic auto-component production to grow at 11-13% in fiscal 2018 supported by healthy

demand from OEM and exports
In fiscal 2018, OEM off-take has grown at 13-15%.
Total sales of two-wheeler have accelerated by 15-17% due to healthy rural sentiments and new
model launches.
Total sales of commercial vehicles have grown by 9-11%, demand increased because of stricter
implementation of the ban on overloading and push by financiers and OEMs. Demand from
freight-generating sectors, such as infrastructure, container traffic, auto carriers, and cement is
expected to drive volumes in the MHCV segment.
Passenger vehicle total sales have accelerated 5-7% due to dip in exports on account of GST refund
issue and capacity constraints faced by major passenger vehicle OEMs despite healthy domestic
sales in fiscal 2018.
Realisation will grow on account of sale of high-value BS IV components and passing on of raw
material price increase. Basic raw material index has increased by 7% in fiscal 2018.
We expect the organised aftermarket to benefit from the goods and services tax and increasing
presence of large fleet operators

5. Foreign Trade
Exports grew by 13.5% in fiscal 2018 mainly on account of improving global economic
scenario. In major export destinations, such as USA, auto sales mainly class 8 trucks have grown
by greater than 70% in 2017.
Another major economy, Europe has also shown signs of revival. Auto component exports to other
emerging economies such as South East Asia and Latin America have also shown substantial
growth.
Source: ACMA Annual Presentation
India's credibility has also driven global automakers to increasingly source components from the
country. Recovery in North America and Europe, the two primary markets with over 50% share,
has also driven Indian auto component exports over the past few years. Further, India has become
a global hub for compact cars launched by global players, such as Ford, Volkswagen, Renault, and
Nissan, and for export of related components.
Even though these trends are encouraging, India still constitutes only 1% of global auto component
exports, with the US comprising nearly 22% export revenue share.
In the next five years as well, exports will be majorly driven by the US passenger car segment, the
German car industry, and demand from other key destinations such as Italy, Turkey, and Mexico.
While growth in these three countries is expected to increase in the near term, Germany and the
UK will aid Indian export growth only over the medium term, owing to loss in share by domestic
players to other low-cost countries (LCCs) in the near term.
A certain proportion of growth will also be supported by the electric parts segment, as European
countries gradually shifts to electric / hybrid cars, which could offer a huge opportunity for LCCs
such as India.

Imports grew by 16% despite anti-dumping duties and localisation efforts by the players. Higher
imports of components pertaining to safety (due to various mandatory regulations), body parts,
etc. led to this growth
6. Auto Components Manufacturer’s Clusters

• Auto component manufacturers are
mostly found in clusters and are
concentrated around automobile
hubs across India.
• Chennai and Pune are two of the major
automobile hubs in the country and
have the largest concentration of auto
component companies.
• Haryana, near the National Capital
Region (NCR) and Gujarat are
emerging as major auto component
manufacturing hubs with increasing
presence of OEMs setting up their
plants in these regions.
• As per ACMA, approximately 46%
of auto component manufacturers are
concentrated in northern region of
the country, followed by Western
(29%), Southern (21%) and Eastern
(5%) regions.

7. Replacement Market
Growing Market of Pre-owned Vehicle
Poor Condtion of Road Infrastruture
Upgradation of Emission Standard
Replacement market grew by about 7% in FY2018. Rising vehicular population of pre-owned

vehicles and inadequate/low quality road infrastructure in India has led to the growth of auto
component replacement market.
Lower value compared to new vehicles is the major factors that are driving the growth in pre-
owned vehicle sector. Also, with the increase in living standard and demographic profile of
customers, people have started changing their vehicles more frequently leading to higher
availability of pre-owned cars in good condition in India too.
Slower growth in fiscal 2018 was on account of uncertainty due to GST roll-out, which led to de-
stocking by many players. However, the impact on the replacement market was marginal. In 2016-
17, aftermarket growth had slowed slightly to 7.5% on-year with buyers postponing replacement
of parts due to lack of cash on account of demonetisation.
These factors have made pre-owned cars an automatic choice for the segment of population that is
looking to shift from two wheelers without putting much stress on their budget. Propensity of
automobile users to upgrade at a faster pace, due to the availability of large number of newer
models too has helped in the growth of pre-owned car market.
Since, pre-owned vehicle needs to be retrofitted with new auto components, sales growth of pre-
owned vehicles would help auto component sector.
The auto component replacement market is projected to grow at a steady rate of 6-8% CAGR
between fiscal 2018 to 2023. Replacement demand is expected from the higher number of vehicles
sold in the past five year (fiscal 2013 to fiscal 2018) which is expected to lead to greater
replacement demand in the next five years (fiscal 2018 to fiscal 2023).
Demand in the replacement market will grow due to increase in the utilisation rate of CVs and the
increase in penetration of cab aggregator services in the overall stock of passenger vehicles.

8. Automotive Component Manufacturer’s Association (ACMA)

Established in 1959, the Automotive Component Manufacturers' Association (ACMA) represents
the collective Interests of one of the auto-component industries. As an apex body, ACMA has been
relentlessly promoting the interests of the auto-component industry be it for conducive policy
environment or for business development - locally and internationally, or for enhancing internal
efficiencies of its member companies.
The organisation has an illustrious history of executing the objectives of its charter, which is to
develop a globally competitive Indian Auto Component Industry and strengthen its role in national
economic development as also promote business through international alliances. ACMA's active
involvement in trade promotion, technology up-gradation, quality enhancement and collection &
dissemination of information has made it a vital catalyst for this industry's development.
The other activities include participation in international trade fairs, sending trade delegations
overseas and bringing out publications on various subjects related to the automotive industry
Today, with over 750 companies as members, ACMA represents around 85% of the entire auto-
component sector ln the organised sector in India. Its member companies, supply directly to OEMs
or tier one and tier two companies spread across India.

9. Recent Key Developments, News and Trends
Capital expenditure to pick up in view of regulations and uptick in demand

In fiscal 2018, auto-component players are estimated to have incurred high capex on account of
Bharat Stage VI (BS-VI) norms which are to be implemented from fiscal 2021. Many players are
investing in new technology with the possibility of electric vehicles hitting the ground soon.
Critical component mix is increasing in the auto component exports basket
Critical components, such as engine parts, drive transmission and steering, and electricals, are
technologically more complex compared with lower-margin commoditised components, which
were earlier the preserve of Indian players.
Critical components offer higher margins to manufacturers, but require greater investment in
research and development, as well as high-precision engineering to adhere to the stringent quality
standards of global OEMs.
Indian manufacturers are able to gradually increase their proportion of exports of critical
components as they faced relatively less competition from other LCCs in this segment.
Budget 2018-19
• The Government has provided a clear signal to encourage ‘Make in India’ by increasing
customs duty rates on CKD and certain component imports.
• Lower corporate income tax of 25% for company’s up to Rs.250 crore in revenues will
benefit companies in the Automotive value chain including automotive component
suppliers.
• Auto component industry increase in import duty to 15% for select categories of
automotive components.
• The push for localization will have a positive impact on Automotive component and
supplier industry.
Healthy credit quality with improving cash accrual
Auto-component players have healthy credit quality metrics because of better operating efficiency
and higher sales. Credit ratio is above 1x since fiscal 2015. Upgrades happened due to robust cash
accrual, led by cost optimization efforts, moderate capex, prudent working capital management,
and steady accretion to reserves. Operating profitability improved, driven by healthy demand, and
triggered healthy cash generation. Companies with superior technical know-how and those well-
positioned to take advantage of the business opportunities presented by the changing regulatory
environment, have seen upgrades as they began to significantly scale up volumes.

10. Growth Drivers

Economic advancement
India has a young population base with high purchasing power, which will lead to an increase in
first-time vehicle purchases. Increasing disposable income and higher per-capital income of the
middle class will also lead to new vehicle purchases, along with repurchase of vehicles
Per capita income of India is expected to increase by ~8.3% in FY 2018, from INR 0.103 Mn in
FY 2017. Increasing participation of Indian players in the global market for OEMs has made the
country a preferred outsourcing and manufacturing base
Cost-effective manufacturing base
India being the third largest steel producer provides cost advantage to the auto components
manufacturers as steel is a major raw material for the manufacturers. Clusters of the automotive
industry have the advantage of proximity to water-based transport hubs around the country
India is a preferable location for foreign players to set up their manufacturing units due to
availability of cheap skilled labor. The establishment of global OEMs in India is making the Indian
auto component market more efficient with the capability to manufacture at par with international
standards
The geographic proximity to major export regions like the Middle East and Europe marks India as
a strategically important manufacturing base.
Growth of Indian automotive industry
Growth of the Indian auto ancillary sector is directly linked with the development of the Indian
automobile sector. The auto makers are placing bulk orders for supply of auto parts to the auto
parts manufacturer
Auto ancillary companies are dependent on large auto companies such as Maruti Suzuki Ltd.,
Hyundai Motor India Ltd., Mahindra and Mahindra Ltd., Tata Motors Ltd. The players in the auto
ancillary industry are capitalizing on the opportunities provided by the original equipment
manufacturers (OEMs) as increase in production and sales are creating a strong order book for
them
Focus on R&D:
Investments in research & development activities play a major role in maintaining the
competitiveness of Indian auto component players. This further depends on the capacity and speed
of the players to innovate and upgrade.


Technology disruption
New technology like green mobility creates the need for more R&D and new innovation in the
supply chain. It is also required that local suppliers should adapt to the changes and growing needs
for technological advancements
There is a need to increase R&D investments, which currently ranges from ~0-2% of sales.
Operation of electric vehicles and hybrid vehicles will need development of charging stations in
India
Operational challenges
There is a need for quality control at tier 2 and tier 3 suppliers so that rejection rates can be
minimized and profit can be maximized.
Trained managerial staff is very important to efficiently manage production staff in auto ancillary
industry but in India only 43% of managerial staff are trained as compared to 70% in china. Power
cost in India is very high, as compared to other emerging markets which increases the production
cost for manufacturers
The auto component and automobile market are cyclical in nature and two-three seasons of bad
weather decreases spending from rural markets, who are the future potential market
Implementation of Goods and Services Tax
Spare parts for both commercial and private vehicles fall under the highest slab of ~28% which is
a matter of concern as the previous tax rate was 12%. But the impact of GST on the automobile
industry is less than the previous tax scheme due to lowered tax rates
The composition scheme of e-commerce businesses of auto component along with a higher ~28%
tax on auto components and spare parts’ logistics has had a negative impact on businesses.

12. Investment Scenario

• With the launch of “Make in India” initiative, the government is expected to vitalise a
substantial investment in the auto component sector.
• Auto component sector is expected to invest around US$ 4.5 billion for upgradation of
products & keeping up with the new industry regulations.
• Schaeffler India, the Indian arm of Germany’s automotive and industrial parts maker, is
planning to invest Rs 300 crore (US$ 46.66 million) per annum over FY18-19.
• As of February 2018, American company Cummins is planning to manufacture automotive

battery packs in India. The company has already made investments of over US$ 1 billion in
India in the past five years.

13. Capacity Addition of Key Players

Bosch
• It inaugurated its 15th plant in November 2015, specialising in manufacturing power tools.
• As of February 2018, Bosch has decided to invest Rs 500 – Rs 800 crore (US$ 77.58 – 124.13
million) over the next two years (FY19 and FY20) to expand operations in India and increase
R&D to develop products for the global market.
Apollo Tyres
• The company is planning to invest over Rs 1,800 crore (US$ 279.29 million), as of January
2018, for setting up of a new plant in Andhra Pradesh. The new facility will help the company
cater to growing demand for passenger vehicle tyres.
• The foundation stone for the plant has been laid and construction of the plant is expected to
start in the next 6 months and production is expected to commence within 24 months.
Tata Auto Component Systems Ltd
Tata Auto Component Systems is setting up 5 auto component manufacturing plants in Sanand,
Gujarat, at an investment of US$ 62 million. It is also investing US$ 114 million for capacity
addition in its Chakan plant in Maharashtra.
HELLA
HELLA is building its second manufacturing plant in Gujarat with an estimated investment of US$
5.36 million in the first phase.
TVS
• India’s TVS Group has acquired a 90 per cent stake in Universal Components UK Ltd for US$
19.2 million, as part of its expansion plans. Universal Components is a wholesale distributor of
commercial vehicle parts.
• It has also signed a cooperation agreement with BMW Motorrad to develop motorcycles below
500cc segment. Looking for new overseas markets.
• Lucas TVS, a joint venture (JV) between Lucas UK and TVS, is going to introduce traction
motors by 2019, which will cater to the growing number of electric rickshaws and electric three-
wheeler segments.

14. Future Outlook

Domestic automobile demand is expected to accelerate further in FY 2019. Growth in passenger
vehicles and two-wheeler segment is likely to increase as a result of various corrective measure
and structural reforms. Government push to attract investments in infrastructure sector, mining
sector reforms and growth in manufacturing industry will continue to drive commercial vehicle
growth. Thus, accelerating vehicle demand is likely to translate in strengthening demand for
auto components.
Further, expectations of global economic growth picking up in 2018 will provide additional boost
to export demand and thereby support the overall auto component industry growth. Thus, the
industry is poised to witness higher rate of growth in current fiscal fueled by several factors
discussed above.
Further, the launch of AMP 2026 and the “Make in India” initiative adopted by the Indian
Government aims to facilitate investment, foster innovation, enhance skill development, and build
a sustainable ecosystem for the manufacturing infrastructure in the country.
These measures would help in attracting interest and investment from global as well as domestic
investors. Accordingly, auto component industry is expected to grow by about 14% CAGR during
FY 2018-22, influenced by the favorable impact of several policy initiatives to boost consumption
growth, particularly in the rural segment.
Long-term prospects remain robust
We expect domestic auto-component production to grow at CAGR of 10-12% to ~Rs 5,223 billion
between fiscals 2018 and 2023. In the long run, OEM demand is expected to grow at 11-13% and
exports at 10-12%
Higher realisation is expected across vehicle segments over the long term, as regulatory norms
raise the cost of components
Higher cost of vehicles due to BS-VI implementation is expected to lower automobile demand and
component off-take in fiscal 2021, as prices are expected to rise sharply.
Prospects of the auto-component industry will be guided by changes in products (a reduction in

weight of vehicles, by replacing metals with plastics and increasing electronic content) and
regulations (emission and safety norms). Emerging technologies, such as automated manual
transmissions, anti-lock braking systems, electronic control units/sensors, and advance engine
designs, hold immense medium-term growth potential. Requirement for safety systems such as
lane assistance, distance control, and vehicle-to-vehicle communication is also rising.

15. Player Profile

BHARAT FORGE LIMITED
Bharat Forge Limited (BHFC), a Pune-based Indian multinational company, is a technology-
driven global leader in metal forming having trans-continental presence across a dozen
manufacturing locations.
It serves several sectors, including automobile, power, oil & gas, rail & marine, aerospace and
construction & mining. BHFC, a part of the Kalyani Group that is a USD 2.5bn conglomerate with
10,000 global work force, today has the largest repository of metallurgical knowledge in the region
and offers full service supply capability to its global marquee customers from conceptualization to
product design, engineering, manufacturing, testing and validation.
With manufacturing facilities spread across India, Europe and China, it is the largest manufacturer
of forgings globally.
Bharat Forge manufactures a wide range of safety and critical components for the automotive &
industrial sector and is a leading manufacturer of powertrain & chassis components with market
leadership in all major markets.
BFL's "bread and butter" products include front axle beams, steering knuckles, connecting rods
and crankshafts. As part of its risk mitigation efforts, BFL diversified into a variety of industrial
sectors including oil & gas, infrastructure, and marine.
It is aiming to double its revenues by 2020 and is one of the stocks in the Bombay Stock Exchange.
Some of BFL's largest customers include Daimler Group, VW Group, Meritor, Dana etc. with
extensive collaboration with all major truck manufacturers including Paccar, Volvo, Navistar etc.
Growth Drivers and Investment Hypothesis
• BHFC has matured from being a mere supplier of forged components to a preferred
technology-driven development partner for customers in India and abroad.
Apart from several large Indian companies, global auto/industrial majors such as Daimler,
Caterpillar, Cummins and Cameron partner with BHFC from product conceptualisation to
designing, manufacturing and product testing/validation; signifying value addition offered by
the company, also reflected in its India EBIDTA margins (now at 28–30%).
• Over the years, BHFC has strategically diversified into non-auto businesses. While focus on
the non-auto vertical has helped the company scale up its non-auto share in standalone
revenues, the same has come under pressure in the past 12 months.
Company plans to increase the product offerings in its non-auto business (i.e. Oil & Gas, Wind
power, Railways, construction and mining equipments and Aero Space equipments).
Significant uptick is expected in all segments.

• While domestic business remains healthy on improving industrials, exports have begun to
show early signs of recovery led by NA Oil and Gas. The management’s resolve to improve
subsidiary profits appears encouraging to us. Overall, demand in the near term would pick up
from 2HCY17 led by new products and scaling up of new opportunities in aerospace, defence
and ‘Make-in-India’.
• Given that large press lines yield superior profitability, the company has been able to manage
scale with >50% market share in key products and optimal mix reflected in its superior RoE
of 20-25% along with much lower breakeven level versus peers.
Key Recent Developments and Expansion Plans:
• BFL is developing its capabilities in electric vehicles by investing in the development of

market-beating proprietary batteries and a strategic investment in electric motorbike company
Tork Motorcycles. In defense and aerospace, BFL's latest collaborations have made it possible
to develop complete ATV solutions and is now aiming to make its own helicopter engine.
• BFL is setting up Centre for light weighting technology (LWT), a fully automated
manufacturing facility in Andra Pradesh focused on Aluminum and Magnesium and
components products.
• The facility will enable BFL to address the need for light weighting solutions driven by the
shift from BS-IV to BSVI in India and also the evolving Electric Vehicle segment. BFL is the
global leader in the Aluminum forging will be the preferred choice of OEM for any
technological change.
• Given the robust business outlook, BFL has undertaken an expansion of its forging and
machining capacity at Baramati by investing Rs4bn.
• As a part of its focus on enhancing its presence in the light material space, the Company has
planned to set up an Aluminum Forging facility in Tennessee, USA at a cost of $55mn This
facility is likely to address requirement of the North American car market and will commence
production in CY20.

TYRES
1. Overview
The Indian tyre industry is estimated to be approximately 60,000 crores in 2017-2018 and the top
eleven tyre companies’ account for more than 90% of the volume. The industry caters to Original
Equipment Manufacturers (OEM), Export and Replacement markets mainly through four vehicle
categories namely Commercial Vehicle (CV) including Truck and Buses (T&B), Passenger
Vehicles (PV), Two-Wheeler and others including Tractors and Off The Road (OTR). Of these
three distinct markets, Replacement accounts for approximately 60% of the Industry with
Institutional/OEM and Exports making up 22% and 18% respectively. While in the Commercial
and Farm segments, replacement sales form a major chunk, both Institutional/OEM and
Replacement sales play an almost equal role in the Passenger segment.
Traditionally, tyres are classified as Cross-ply (Bias) and Radial based on the technology deployed
in their manufacture. In India, the commercial tyre segment continues to be dominated by cross-
ply tyres due to road conditions, loading patterns and the high initial cost of Radials. While India’s
passenger car segment is fully radialized, radialization in the T&B segment has increased from
36% in financial year 2016 and now stands at 40%.
The expected stable growth in the passenger vehicle segment coupled with strong performance of
the two-wheeler and SUV segments had a cascading effect on the overall tyre demand for personal
vehicles. The domestic tyre sales for financial year 2018 grew on the back of traction in OEM
volumes, pick-up in replacement demand and the positive impact of Anti-Dumping Duty (ADD)
imposition on Chinese TBR in September 2017.
The domestic tyre industry is estimated to be worth around Rs 530 billion as of 2016-17. Exports
revenues account for around Rs 100 billion.
Market Share (2015-16)

MRF Ltd.
1% Apollo Tyres
8%5%
4% 33% JK Tyres & Inds.
14% Ceat Ltd.
Goodyear India
14%
21%
Balkrishna Industries Ltd.
TVS Srichakra Ltd

2. Industry Segmentation
The domestic tyre industry can be classified on the basis of its design, markets and vehicle
category, which has over the years.
2.1 Vehicle Category Wise
Based on the vehicles being catered to, tyres can be classified as:
• Commercial vehicle- It comprises tyres used for medium and heavy commercial vehicles
(MHCV), light commercial vehicles (LCV), small commercial vehicles and tractor trailers
• Passenger vehicle- Includes tyres used in passenger cars and jeeps
• Two/ three-wheeler- This segment includes motorcycle and scooter tyres
• Tractor tyres (agricultural)
• OTR
Since these tyres are used for commercial usages they are sturdier, bigger and heavier than personal
tyre category. The share of trucks and bus tyres has reduced from 64% in 2006-07 to 54%.
However, the share of cars and UV’s has increased from 10% in 2006-07 to 16% in 2016-17 on
the back of strong vehicle sales.
Category wise mix in production

2.2 Market Wise
The Indian tyre industry can be broadly categorised under :
• Original Equipment manufacturers (OEMs) comprising automobile manufactureres

• Replacement tyres used in transportation and corporate sectors and for individual purposes
• Exports
Category wise supply of tyres in 2017-18
2.3 Design Wise
The body of a tyre can be classified into two types i.e. cross-ply tyres and radial tyre. A cross-ply
tyre has a sidewall which reinforces plies running diagonally from the bead towards the tread -
each layer of textile at a different angle to its adjacent layer. These angles determine the stiffness
of the tyre. Radial tyre cords casing run perpendicular to the direction of travel. Viewed from the
side, the cords run radially - giving the tyre its name. The weakness of this arrangement is that the
cords cannot sufficiently absorb lateral forces when cornering or circumferential forces when
accelerating. To compensate this, the cords must be supported or complemented by other structural
elements - steel belts etc.

However, in India it is still dominant. Some of the key attributes of cross-ply tyres which make it
popular in India are its adaptability on poor road condition, suitability in case of overloading of
vehicle and cheaper price.
However, its penetration levels have witnessed gradual decrease in the last few years owing to
increasing awareness about the inherent advantages of radial tyres.
Acceptance of radial tyres, which are of superior quality and have a longer life-cycle, as compared
to bias tyres, has been continuously increasing in the Indian market.
In the passenger cars segment, radialisation levels have reached around 98% in the last 20 years
while in the truck and bus segments, unsupportive infrastructure and short supply have hampered
growth in radialisation levels.
Due to significant capacity additions by major players, radialisation in the MHCV segment is
projected to be around 41-43% in 2018-19.

3. Financial Performance of the Tyre Players
The size of the Indian tyre industry is estimated at around Rs 530 billion, as of 2016-17. Over the
past five years, the industry has grown at 2 per cent CAGR. The Indian tyre industry has over 30
players. However, the top seven players account for over 80 per cent market share. Over the past
several years, Apollo Tyres and MRF Ltd have closely competed for the top slot.
Margins of Tyre Players

20 18.4
18 16.4
16 15
13.5
14
12 11.1
9.9
10 9
8 6.6
5.4
6
3.9
4
2
0
2012-13 2013-14 2014-15 2015-16 2016-17
Operating Margins Net Margins
Cost Structure
4%
21%
9% 66%
Raw Material Staff Cost Other Costs Depreciation

4. Raw Material
Raw material cost forms the largest cost head in the tyre industry accounting for about 65-70% of
the total. The main raw materials used to manufacture tyres are natural rubber, poly butadiene
rubber (PBR), styrene butadiene rubber (SBR) and nylon tyre cord fabric. All these raw materials
impart different properties, which are combined to develop tyres with particular characteristics.
Rubber including (natural and synthetic), nylon tyre cord fabric (NTC) and carbon black constitute
a significant portion i.e. ~60-65% of the overall raw material cost of the industry. Hence any
change in the prices of these materials impact the overall industry’s profitability.
Rubber is a major component in manufacturing of a tyre. There are three categories of rubber used
in the manufacturing process viz natural rubber (NR), styrene butadiene rubber (SBR) and poly
butadiene rubber (PBR).

One of the primary reasons for more usage of natural rubber in India is its local availability with
India being one of the largest producers in the world. In addition to this, natural rubber absorbs
greater amount of heat and is more adaptable to poor road condition and overloading compared to
synthetic rubber.
Styrene Butadiene Rubber (SBR) is a synthetic rubber which imparts abrasion and fatigue
resistance in tyres and is used in blend with natural rubber and accounts for about 5-7% of the total
raw materials costs. The content of SBR is higher in radial tyres than cross-ply tyres.
However due to its poor tear strength especially at high temperatures its usage is observed to be
comparatively lower in heavy duty truck tyres. In India, the demand for SBR has picked during
past few years as penetration of radial tyres in passenger car industry has increased considerably.
Poly Butadiene Rubber (PBR) is the other variant of synthetic rubber used in the tyre industry
which accounts for about 5% of the total raw material cost of tyre manufacturers. It is used as
tyre treads, sidewalls, carcass and beed fillers which gives tyres increased mileage and flex
cracking properties. Reliance Industries is the sole producer of PBR in the country
Break-up of raw material in weight used in a tyre

The government’s decision to leapfrog to the toughest emission standards of BS-VI from the
current BS-IV by 2020, is a game-changer for both Original Equipment Manufacturers and tyre
manufacturers who need to demonstrate agility in adapting to a volatile market situation.
An overcrowded market, stringent regulations and the increased investment in both cost and
technological compliance with the new emission standards is likely to pose a major challenge.
Further, cost of ownership, and therefore fuel economy, continues to be one of the highest priorities
in vehicle purchase decisions in India. Therefore, consumers advancing their purchases on the
expectation of higher outlay post-2020, would impact Original Equipment & Replacement
demand.
In addition, the recent changes in the proposed scrappage policy (coinciding with BS-VI roll-out
in April 2020), will significantly reduce the potential population of vehicles eligible for scrappage
(20 plus years as opposed to 15 years earlier).
In comparison to developed countries, Natural Rubber dominates the raw material palette of the
Indian tyre industry, and in this context, the gap between domestic rubber production and demand
will continue to remain a concern area.
During financial year 2018, tyre companies had to face a triple whammy of high input costs,
namely those of natural rubber, carbon black and crude oil and this may continue to be the case in
the foreseeable future too.

6. Future Outlook
The tyre industry is expected to display a healthy overall growth of 9-11% in tyre demand in fiscal
2019, as demand from original equipment manufacturers (OEMs) is expected to grow at 14-16%.
Higher demand will be seen across all automobile segments over a high base of fiscal 2018. It is
expected that the demand growth from commercial vehicles, cars and utility vehicles, two wheelers
as well as tractors to be in double digits.
The replacement demand for tyres is expected to grow at a modest 6-8%. This, in turn is expected
because of increased running of trucks owing to pickup in freight, improvement in road
infrastructure, higher gross domestic product (GDP) growth forecast, sales shifting to higher
tonnage vehicles on account of overloading ban and positive impact of Goods and Services Tax
implementation. Also, recovery in replacement tyre demand will be aided by strong growth in Cars
& UVs, tractors and two wheelers, owing to increased cash flow in rural areas post good rabi
harvest.
It is expected that tyre exports will grow at a robust pace of 11-13% on the back of increasing
acceptability of Indian radial tyres across segments in fast growing countries and due to strong
marketing efforts being undertaken by Indian tyre manufacturers leading to increased demand
from European countries
The Anti-Dumping Duty provided a level playing field for domestic tyre companies who had
suffered on account of the predatory pricing of Chinese imports and were consequently not running
to full capacity Given the healthy growth of demand in the industry across segments, capacity
addition will continue to dominate the narrative in the industry given the large cash balances,
strong accrual position and favourable demand scenario.
The competitive intensity in the industry continues to remain at feverpitch with expected ‘on-
streaming’ of several greenfield and brownfield capacities by domestic as well as international
players.
Leading tyre manufacturers have planned capacity expansion to the tune of over Rs 300 billion in
the next three years, encouraged by rising domestic demand and radialisation. It is estimated that
radial tyre capacities of 1.3 million and 3 million were installed in the medium and heavy
commercial vehicles (MHCV) and passenger car radial (PCR) segments, respectively, in fiscal
2018.
Tyre manufacturers in India have been actively involved in Research & Development and a range
of products suited to the Indian market will continue to be launched and aggressively marketed.

7. Player Profile
JK TYRE & INDUSTRIES LTD.
Founded in 1951, JK Tyres & Industries (JK Tyres) manufactures automobile tyres, tubes and
flaps. Its products include radial and bias tyres for trucks, light commercial vehicles (LCVs), buses,
passenger cars, tractors etc. JK Tyres has pioneered steel radial technology in India.
It is one of the India’s leading tyre company present in all tyre segments. The Company enjoys the
highest market share in truck / bus radials in India; it is amongst the largest players in India’s truck
bias and passenger car segments as well.
The company’s manufacturing operations comprise 9 modern plants strategically located across
the country – Mysore, Banmore, Kankroli , Chennai and Laksar (Haridwar) and 3 modern plants
in Mexico. JK Tyre has a wide geographic footprint across the country through its 141 selling
points, which provides sales and service to customers and channel partners.
The company also markets products through 30 JK Tyre Truck Wheels (fully equipped tyre service
centre), 230 JK Tyre Steel Wheels (exclusive passenger car tyre retail) and 11 JK Tyre Xpress
Wheels for small towns & semi urban markets.
Product Mix
The company derives most of its revenues majorly from MHCV segment covering an overall
54% of the company’s revenues. The player is a leader in the MHCV radial segment with a
market share of around 33%.
Segment wise break up (2016-17)

Revenue segmentation by Customer
Key Developments
Acquired in April 2016, State-of-the-art established tyre plant, earlier part of Kesoram Industries.
It has a wide product range of TBB / TBR tyres, 2-3W tyres, tractor tyres, and tubes & flaps. The
plant located at Laksar (Haridwar) with annual capacity of 10 mn tyres
In a landmark achievement, JK Tyre was the first and only Indian Company to roll out the 10
millionth truck/bus radial tyre in a glittering ceremony at the Vikrant Tyre Plant, Mysuru in August
2016. JK Tyre & Industries acquired Cavendish Industries on 13th April, 2016. It will allow JK
Tyre to strategically enter into domestic 2/3 Wheeler segment.
Financial Perfromance
Financial Unit Mar-14 Mar-15 Mar-16 Mar-17

Performance
Asset turnover Times 1.6 1.5 1.3 1.2
ratio
Current ratio Times 1 0.9 1 1
Net Sales Rs. Lakhs 596,334 612,138 582,112 597,674
Operating Profit Rs. Lakhs 65,447 75,173 100,041 74,702
Operating Margin Percentage 11 12.3 17.2 12.5
Profit After Tax Rs. Lakhs 13,468 25,244 41,697 33,213
Net Profit Margin Percentage 2.3 4.1 7.2 5.6
Net Worth Rs. Lakhs 84,265 109,148 141,962 166,965
Total Debt Rs. Lakhs 238,504 261,455 256,496 337,485
Debt-Equity Ratio Times 2.8 2.4 1.8 2
Royce Percentage 13.1 16.4 19.4 14.4
Interest coverage Times 2.4 3.1 4.2 3.4

Automotive Casting
1. Overview
The automotive casting industry manufactures auto components through metal casting. The
indsutry is around Rs 240 bn.Metal castings is a manufacturing process in which metal is melted
and poured into moulds, where it solidifies into components with complex shapes. Castings can
be ferrous and non-ferrous.
The wide application of castings in the automotive industry is due to the complex shapes achieved
through a single piece of metal. Some examples of automotive castings include cylinder head,
cylinder block, brake drums and housings for different applications, including clutch housing and
flywheel housing.
Sand castings and die-castings technologies are the more prevalent processes used in the
automotive castings industry. Although casting processes are common for different kinds of metal
castings, the capacity set up for manufacturing ferrous castings cannot be used to manufacture
non-ferrous castings.
Amtek India, Rico Auto Industries, Hinduja Foundries, Alicon Castalloy are some of the key
players in the Organised sectors.

Key Financial Indicators of Rico Auto Industries Ltd.
Source: Annual Report
2. Key Success Factors
• A player should have access to technology for entering the tier-one segment. Tier-one players
typically have tie-ups with foreign players for the manufacturing technology. Companies
having access to better technology enjoy strong bargaining power with OEMs leading to
better realisations.
• The industry has low bargaining power with suppliers and customers. Hence, the ability to
maintain costs and improve productivity is essential.
The OEM segment, which is the dominant market segment for the industry, insists on cost-
related improvements while negotiating long-term contracts
• The industry has to adhere to stringent quality norms set by the OEMs in the domestic as well
as export markets. Industry players carry out quality checks in-house as well as with third-
party vendors, as requested by the client.
• Availability of skilled labour at low cost vis-a-vis international counterparts is an advantage
enjoyed by the Indian automotive metal castings industry
3. Key Risks
• The industry is solely dependent on the performance of the automobile industry, and any
volatility in automobile sales directly impacts the sector.
• Industry also faces the risk of volatility in raw material prices. Low pricing flexibility on
account of high dependence on the automotive sector and high input cost risks are a structural
weakness of the industry.
• Low entry barriers and the resulting fragmentation in the tier-two and tier-three segments
leads to stiff price competition.

4. Growth Drivers
Growth in automobile sales

Growth in commercial vehicle and tractor sales holds key as they together account for 65%
offtake of ferrous casting. Similarly, passenger vehicles and two-wheeler accounts for 95%
offtake of non-ferrous castings.
India as an export hub

Global OEMs are promoting localisation in India because of its cost effectiveness. Movements
like "Make in India" augurs well for domestic castings industry.
Light weighting
Automakers are trying to reduce weight of a vehicle by using non-ferrous metals like aluminium
to cut carbon emissions from a vehicle. Lighter vehicles consume less fuel. Lower weight helps
in minimizing brake and tyre wear and tear.
Cost competitiveness
Employee cost accounts from ~10-12% of the total turnover. Lower labour cost helps in reducing
the production cost for casting players. However, stringent quality norms tend to weigh on the
overall cost.
International acqusitions
Mahindra & Mahindra had signed a pact in Sept, 2017 with Turkey based Erkunt growup to
acquire its tractor and foundry business. Erkunt Foundry manufactures engine blocks, cylinder
heads and transmission cases.
5. Future Outlook
Automotive castings industry to grow by 19-21% in 2018-19 to rs. 293 bn.
In terms of tonnage,, demand for auto castings is expected to grow at 12-14% aided by strong
production growth in CV. Further, normal monsoon is expected to drive demand from rural
dependent segments like motorcycles and tractors.
It is expected that the automotive castings industry is projected to grow at a CAGR of 11-13%
over the next 5years to Rs. 420-430 bn (FY18-23).
The operating margins to remain lower in the range of 6-8%.

BATTERIES
1. Overview
A battery is a rechargeable energy storage device that consists of positive and negative electrodes
called cathode and anode, respectively. Electrolytes are placed in between cathode and anode to
allow ions to move from the anode (negative terminal of battery) to the cathode (positive terminal
of battery) to perform work.
There are different types of batteries available in the market depending upon the application. Lead-
acid batteries(LAB) are the most widely used battery in the market, including valve regulated lead-
acid (VRLA), absorbed glass material (AGM), and gel batteries.
The Battery industry has witnessed a slew of new product introductions, technology innovations,
and emergence of domestic competition, joint ventures, and corporate consolidations that have
totally altered its landscape. The lead acid battery market can be divided into two broad market
spectrums: automotive and industrial batteries.
Split of Indian Rs. 300b LAB market
Automotive Batteries
The automotive segment contributes about 60% of the total turnover of the Indian lead acid battery
market. Automotive batteries are start, light, and ignition (SLI) batteries, though they are expected
to fuel a greater number of functions including in-vehicle entertainment systems, power steering,
power locking, power window systems, etc. Demand for auto batteries can be divided into the OE
(original equipment) market and the aftermarket segments.

Automotive Battery Segment Mix
The OEM Space
This is a difficult segment to service as each automobile manufacturer has different specifications
for which the battery has to undertake mass customization. As leading international auto giants
have established their production bases in India, their demand for world- class batteries has
mandated Indian battery manufacturers to keep pace and meet the high standards expected.
Additionally, margins for battery manufacturers are usually thin.
The Aftermarket Space
The replacement market is where the margins are, and hence battery majors are now paying a lot
of attention to this segment. Considering the fact that the discerning Indian vehicle owner is today
more quality and brand conscious is willing to pay more to be free from battery problems. The
introduction of maintenance free batteries in the OE and replacement segments, led to longer
trouble free life of batteries. This space is very substantial. The replacement market also has a
sizeable unorganised component, which is continuously shrinking.
Battery Segment Mix

Industrial batteries
Batteries here are used as a standby source of power for various application like Telecom,
Railways, Utilities, UPS, Defence etc. Motive Power application where the batteries are used to
power the Forklifts etc (Material Handling equipment) too are classified as Industrial segment.
Industrial batteries are of three types – conventional flooded (lead acid) batteries, valve regulated
lead acid (VRLA) batteries, and nickel cadmium batteries. VRLA batteries have, within a very
short period of time, gained leadership as the highest selling industrial batteries, replacing
conventional flooded and Ni-Cad batteries.
The VRLA battery works on the principal of Oxygen Recombination there by eliminating the need
for periodic water additions. Since they are sealed in construction, they are more environmental
and user friendly. The demand for stationary / standby batteries has increased over the past 10
years owing to huge gaps in supply and demand of power.
With the emergence of India as an IT super power, and the liberalization of the wired and wireless
telecom sector, there has been a swift rise in deployment of computer and communication
networks. This has augmented the demand for industrial batteries, and this trend is only bound to
increase as India continues to develop the service sector that includes call centres, data centres,
banking networks, etc. The industrial battery market has a few established players as capital
investment in technology and the manufacture of these batteries is considerably high.
• The Indian lead acid battery industry is ~INR300b (~USD4.7b) in size and has been growing
at a CAGR of 10-12%.
• The industry is divided into three segments: (a) organized segment (INR150b market
controlled by five manufacturers), (b) SME (INR100b-120b), and (c) SSI(INR30b).
• Given high share of demand from replacement demand for segments like automotive, home
inverter, UPS, traction etc, share of unorganized/semiorganized players is high at ~50% of
the total demand.
• Unorganized players price their batteries at about 20-25% lower than branded batteries. Also,
they cater larger to commercial vehicles segment which is less quality sensitive and more
cost sensitive.

2. Major Players
• Exide Industries
• Amararaja Batteries
• Su-Kam Power Systems Ltd
• Luminous Power Technologies Pvt Ltd
• Base corporation Ltd
• HBL Power Systems Ltd
3. Growth Drivers
• Growth in Automotive Industry: The growth in the automotive industry , especially the PV,
twowheeler and the CV segment will drive the automotive batteries market
• Growth in telecom and UPS segments: With telecom companies transforming their towers
from diesel to battery based, demand for industrial batteries will rise. Moreover, companies like
Reliance Jio Infocom are setting up new towers which are battery powered in order to cut costs
and carbon dioxide emission.
• Power Shortage: With several parts of the country being short of power, the use of inverters too
has gone up significantly boosting the growth of battery industry.
• New Product Applications: The application of SMF batteries in traction sector, in material
handling applications etc is also a key driver of growth in this industry..

4. Key Concerns and Challenges
Cheaper Imports from China: Cheap imports especially from China have been another area of
concern mainly in the industrial battery segment. Unfortunately, the present anti-dumping laws do
not provide adequate protection against such imports. Companies should try to retain its existing
customers as well as to attract new customers by mitigating this risk through consistency in quality
of its products and efficient after sales service.
Unorganized Market: Growing unorganized market has posed serious threat to organized players
in the sector. The share of the unorganized segment in the replacement market has been gradually
declining, but is still 40-50%. The share of unorganized/small organized players in the CV, tractors
and home inverter segments is higher at 50-60%.
Uncertainty in lead price: Lead is the major constituent of batteries and the volatility in its price
is a cause for concern. This not only has a major impact on costs but also leads to uncertainty in
procurement. The Companies should seek to mitigate this risk through continuous monitoring and
prudent business practices. Further, the companies should try to increase the production and
supplies from the captive smelters so that the dependence on imported lead is reduced.

5. Future Outlook
EVs not to displace lead-acid batteries; to create opportunity to manufacture lithium-ion batteries:
Contrary to general perceptions, electric cars (EV) have a 12v lead acid battery (LAB) as auxiliary
battery for SLI (starter, lighting and ignition) applications. LAB will remain relevant even in the
EV world. Localization of Li-ion battery is expected to be the highest priority for OEMs to reduce
cost of batteries and lower forex exposure. Given the criticality of the battery and scope of
differentiation it offers, we expect OEMs to manufacture EV batteries in-house. Lion batteries
could be a ~USD42b opportunity by 2030 (9x the automotive LAB opportunity). Based on this,
the cell manufacturing opportunity would be ~USD15b.
GST to drive consolidation. The share of the unorganized segment in the replacement market has
been gradually declining, but is still 40-50%. Cost of doing business is expected to increase for
non-compliant players, as the government’s focus shifts towards higher compliance. In the overall
battery replacement market, the share of unorganized players is expected to reduce from ~45% to
~27% by FY22.
The automotive replacement battery segment to offer a secular and profitable growth opportunity,
driven by (a) increasing penetration of automobiles driving expansion in automobile population,
and (b) GST-led consolidation. The auto replacement segment enjoys the highest profitability due
to (a) B2C nature of the business, (b) high pricing power with diffused customer base, and (c) low
competitive
E-rickshaw, motive power, solar applications – new avenues can drive growth in industrial sector:
The e-rickshaw battery market is estimated to grow at ~16% CAGR over FY17-20 to ~INR41b.
Though big players such as Amara Raja and EXIDE have been late entrants in this segment, they
are now heavily focused on this fast growing and lucrative segment. The GST-led consolidation
of warehouses should boost demand for forklifts, pallet trucks, stackers, order pickers, and reach
trucks among others, in turn driving demand for motive power batteries. Assuming motive power
contributes ~15% to the industrial segment by FY22 (v/s 1% currently and 34% globally), this
segment offers an opportunity of INR25b-30b as against <INR2b currently intensity.
Industrial segment to stabilize over 6-9 months: The conventional industrial segment (ex e-
rickshaw, motive power and solar) is likely to stabilize from 2HFY19 and grow from FY20, driven
by 8-10% CAGR in UPS, stabilization in the telecom segment (from 2HFY19) and continued
weakness in inverters. In the telecom tower battery segment, demand is bottoming out and
competition is peaking out. Demand from this segment is expected to recover, led by increase in
tenancy ratio to 2.45x in FY20 (from 2.3x in FY17). Also, stabilization in competitive intensity
should support full pass-through of lead cost inflation.

REFERENCES
• CRISIL Research
• MarketLine
• Fitch Solutions
• Dun & Bradstreet Sector Outlook Reports
• Research on India by Netscribes
• SIAM
• ACMA
• ATMA
• Tractor Manufacturer’s Association
• MRF Annual Report FY18
• IBEF

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UNNATI INVESTMENT MANAGEMENT AND RESEARCH GROUP

Pankaj Bansal | Sanyam Jain

Unnati Sector Report 2018-19 | 1

IMPACT OF EVs on AUTO & AUTO ANCILLARIES SECTOR 55

Unnati Sector Report 2018-19 | 2

Unnati Sector Report 2018-19 | 3

It is divided in to two-wheelers, three-wheelers, passenger vehicles, commercial vehicles and

Unnati Sector Report 2018-19 | 5

Mopeds and Light Commercial

Medium & Heavy

Unnati Sector Report 2018-19 | 6

Source: Crisil and IBEF

Indian automotive industry (including component manufacturing) is expected to reach Rs 16.16-

Unnati Sector Report 2018-19 | 7

Category 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

Unnati Sector Report 2018-19 | 8

• Two-wheelers and passenger

Unnati Sector Report 2018-19 | 9

2. Auto Clusters in India

The major clusters are:

The Reasons why the Automotive industry is present in clusters are:

• Special incentives provided by the government of these areas

Unnati Sector Report 2018-19 | 10

• Manufactures sub components for a number of basic components

• Makes major components for the OEMs

• Majority of the passenger vehicles sales is financed by the financing companies.

Unnati Sector Report 2018-19 | 11

4. Porter’s Five Forces Analysis

Unnati Sector Report 2018-19 | 12

Category Engine Pre-GST GST + Cess Final Impact

Impact on Working Capital:

Unnati Sector Report 2018-19 | 13

Unnati Sector Report 2018-19 | 14

8. Government Policies & Regulations:

8.1 Automotive Mission Plan (AMP) 2016-2026

Objectives of AMP 2026

Unnati Sector Report 2018-19 | 15

8.2 Emission Norms

Unnati Sector Report 2018-19 | 16

8.3 100% EV in Public and 40% in private sector by 2030

8.4 Fuel Efficiency Norms

8.5 Alternate Fuels

Unnati Sector Report 2018-19 | 18

9. Important Industry Associations

9.1 Society of Indian Automobile Manufacturers (SIAM)

Unnati Sector Report 2018-19 | 19

10. Important Laws affecting the Automobile Industry

•Governs emission norms and safety standards in India.

•Consolidates the law relating to motor vehicles.

10.2 CMVR- Technical Standing Committee

•Additionally, CMVR-TSC is assisted by another committee called the Automobile Industry

10.3 Standing Committee on Implementation of Emission Legislation (SCOE)

This committee deals with issues relating to implementation of emission norms.

• To discuss future emission norms;

Unnati Sector Report 2018-19 | 20

• Creating core global competencies.

• Enhancing competitive skills for product development leading to deepening of manufacturing.

Segment wise domestic market share

Mopeds Scooters Motorcycles

Unnati Sector Report 2018-19 | 22

Unnati Sector Report 2018-19 | 23

Key factors intensifying competition include :-

• Expansion of dealership network: Manufacturers have expanded their dealership/service