REPORT ON AUTOMOBILE INDUSTRY ANALYSIS

Submitted By Gaurav Somani Roll No. 101113047

2012

Submitted To Sheena Mam Institute Shanti Business School, Ahmadabad

Submitted By :Mrinkal garg Ashish Jain Gaurav Somani Steffi Paul

Steffi Paul

MARKET STRUCTURE OF AUTOMOBILE INDUSTRY: There are many ways to describe the market structure of the automotive industry. It can be considered as OLIGOPOLY MARKET. Here are the reasons on the basis of our analysis: In automobile industry, the market consists of few sellers. They are highly sensitive to each others pricing and marketing strategies. It is difficult for new sellers to enter in the market. Each seller is alert to competitors strategies and move No huge difference in pricing of the product in the industry, which means the price of the product having almost similar range throughout the market.

Market Overview of Automobile Industry As per industry estimate the Indian automotive industrys turnover, is $43296 US in 2009-10 and it has increased up to $58583 US in 2010-11. The demand expansion in all vehicles segments indicated a growth of over 22%. Domestic demand of passenger cars and multi utility vehicles was more than 800,000 cars in 2004-05. Also, the Industry has witnessed an unprecedented increase in exports. After a temporary slump during 1998-99 and 1999-00, exports registered robust growth rates of well over 50 percent in 2002-03 and 2003-04 each to exceed two and-a half times the export figure for 2001-02. The Industry Exports for AprilNovember 2005 grew by a good 34 % over the corresponding period last year of which maximum growth was witnessed by CV segment with 72% growth YOY, followed by two-wheeler segment with 38% YOY growth.

Performance of INDIAN VEHICLES SECTORS: In India, the vehicles population currently at more than 60 million, is growing at a rate of 11% per annum from 2009 -10 to 2012-13. Of this, 76% are two wheelers and 3.39% are three-wheelers and 4.36% are commercial vehicles and remaining 16.25% are passenger vehicles are among them. Growth rate has been very high for passengers cars and 2/3 wheeler vehicles. Performance of sector in terms of production, sales and export growth rates and names of major manufacturer is depicted in the following segments: Medium and Heavy Vehicles Light Commercial Vehicles Passenger Cars and Multi-Utility Vehicles Two/Three wheelers

Sales Growth in Automobile Industry: The 2010 calendar year was great for the Indian automobile industry, and sales of vehicles are expected to continue upward journey in 2011. However, the industry may not be able to copy the growth rates registered in the last two years. In the first half of 2010, the industry witnessed a steep 32% average monthly sales growth, which came down to 25% in the latter half. In addition, the year-on-year growth in sales is expected to be higher during the latter half of 2011 as compared to the growth in the first half of the year. Along with the high base effect of 2010, the awaited firm up of interest rates could also bring about the reduction in growth rates this year. Exports to increase in 2011: Almost 65% of total automobile exports from India are two-wheelers, and as a result, performance of this segment has a major influence on overall auto export volumes. And after experiencing over 30% jump in exports in 2010, the industry is expected to register moderate growths in two-wheeler exports in 2011. Nonetheless, a competitive and aggressive approach from the original equipment manufacturers vehicle categories (commercial vehicles, passenger vehicles and two & three wheelers) would help bring an increase in overall export of vehicles from the Indian market in 2011. Additionally, there are many companies that want to make India their export hub, thereby increasing the chances of increasing exports.
Source: http://www.carazoo.com/article/1001201101/Indian-Automobile-Industry-in-2011

For justifying this, there is the statistics of production of the automobile industry also grown year by year which can be interpret from the following data: Automobile Exports Trends (Number of Vehicles) 2004- 2005- 2006-07 2007-08 2008-09 2009-10 2010-11 05 06 166,40 175,57 198,452 218,401 335,729 446,145 453,479 2 2 29,940 40,600 49,537 58,994 42,625 45,009 76,297

Category

Passenger Vehicles Commerci al Vehicles 66,795 76,881 143,896 141,225 148,066 173,214 269,967 Three Wheelers 366,40 513,16 619,644 819,713 1,004,17 1,140,05 1,539,59 Two 7 9 4 8 0 Wheelers Grand 629,54 806,22 1,011,52 1,238,33 1,530,59 1,804,42 2,339,33 Total 4 2 9 3 4 6 3
Source: http://www.siamindia.com/scripts/export-trend.aspx

Some more information and facts/figures to be taken on the basis of best companies of the industry from various sources to analyze the industry performance which are as follows: Particulars Ashok Leyland Tata Maruti Bajaj Motors Suzuki Auto Hero M&M Average Mototrcorp (Composite Industry)

1 Price history reveals valuable long term relationships Price /earnings ratio Price/book value ratio Price/sales ratio 2 Operating data show comparisons of Return on equity (ROE) Trends in operating profit margin Earnings per share growth Profit margin trends ( net)

12.80 2.44 0.00

59.60 2.21 0.00

23.20 2.10 0.03

13.90 8.93 0.07

16.40 8.52 0.11

16.50 3.87 0.03

23.73 4.68 0.04

25.30 10.70 0.49 0.06

10.40 8.20 -0.27 0.04

17.80 7.20 -0.08 0.05

29.40 13.00 -0.02 0.17

70.20 16.70 -0.14 0.10

60.10 15.50 0.23 0.11

35.53 11.88 0.04 0.09

Source: Capital Market Newsletter, nseindia.com, moneycontrol.com, Annual Report of Companies

MARKET FOR PRODUCTS:

As per the statement of Ratan Tata, C.E.O. of Tata Motors, The Indian economy recorded a robust growth rate estimated at 8.6% over 2009-10, driven by growth in the agricultural sector (5.4%), industrial sector (8.1%) and services sector (9.6%). The growth in the first half of the fiscal year was higher, which moderated in the second half. The year also witnessed inflationary trends beyond RBI targets and followed successive increases in CRR and other monetary policy changes by RBI to curb inflation, which progressively affected the business sentiment through the year. As a result, the second half of the fiscal year saw a drop in the Index for Industrial Production (IIP) as industrial activity was affected. On the back of overall economic growth, the automotive industry recorded an increase of 26% in current fiscal. Facilitated by economic growth, increase in personal disposable incomes, availability of finance and development of infrastructure, the commercial vehicle industry growth moderated to 27% as compared to 40% in 2009-10 and the passenger vehicle industry grew by 30% as compared to 25% in 2009-10, driven by increased level of disposable income. From October 1, 2010, emission norms in India migrated to the Bharat Stage III for the non-metro cities / towns, considering an imminent increase in prices, there was a spurt in buying of vehicles (mainly commercial vehicles) in the first half of the year. The fuel prices, especially the petrol prices increased throughout the year, thereby affecting the consumer sentiment to an extent. The year also witnessed a significant pressure on commodity prices, leading to increase in costs and pressure on margins.

The passenger vehicle market, which constitutes around 80% of automobile sales, has immense growth potential as passenger car stock stood at around 11 per 1000 people in 2008. Anticipating the future market potential, the production of passenger vehicle is forecasted to grow at a CAGR of around 11% from 2009-10 to 2012-13. The Indian automobile market is currently dominated by two-wheeler segment but in future, the demand for passengers cars and commercial vehicles will increase with industrial development. Also, as India has low vehicle presence (with passenger car stock of only around 11 per 1000 population in 2008), it has possesses substantial potential for growth.
Source: Management Discussion of Companies

FINANCIAL PERFORMANCE: The financial performance of the automobile industry can be interpret through the performances of the top companies of industry and on the basis of this, it is interpret that the overall performance of the automobile industry is the increase day by day. The following table shows that the financial indicators of various automobile companies performance which have an effect on the performance of entire industry.
Ashok Maruti Bajaj Heromotor Tata M&M Leyland Suzuki Auto Corp Motors 18.60% 21.69% 67.57% 52.13% 10.19% 26.96% 23.80% 50.87% 1 10.34 1.73 16.50% 88.72% 0.02 42.93 3.13 68.01% 46.73% 0.07 51.77 4.85 65.21% -34.38% 0.5 162.08 3.7 9.06% 22.42% 0.8 19.2 2.22 25.92% Average 32.86% 34.75%

Return on capital employed Return on net worth Earnings retention rate Total debt to owners fund Debtors Turnover ratio Fixed assets turnover ratio

67.88% 40.37% 0.23 17.97 4.08 0.43 50.71 3.28

Source: moneycontrol.com

From the above table, it can be interpret that the average return on net worth of the industry is 32.86% that means it generates good return. It also interprets that the capital structure of automobile companies have less debts as it is only 0.43 and it also shows that most of the companies have given less dividends to their shareholders and take more earnings as retention for further investments.

OPERATIONS: In operations, the following table shows the trend of capacity of consolidate industry for its all diversified products and from this it can be interpret that two & three wheelers have more scope to produce in India.

Installed Capacity (In Millions) Capacity Vehicles 3.88 Four Wheelers 14.31 Two & Three Wheelers 0.049 Engines
Source:http://www.siamindia.com/scripts/installed-capacities.aspx

This shows the distributions of vehicles production with the changing market trend from 2008-09 up to 2020-21 are shown in shown in the below graph:

Source: http://www.rncos.com/Report/IM200.htm

As the above data, it can be say that the production capacity for all the products and production of the products which is in increasing in trend year by year and forecasted also but not up to the installed capacity. In Indian automobile industry, the companies are normally in assembling process, thus the auto components industries are very important for operation of the auto mobile industry. Diversification:

Most of the companies of automobile industry are in diversification of various products of the industry like passenger cars, commercial vehicles, etc.

Michael Porter identifies five forces that influence an industry. These forces are as follows: Degree of Rivalry Despite the high concentration ratio seen in the automotive sector, rivalry in the Indian auto sector is intense due to the entry of foreign companies in the market. The industry rivalry is extremely high with any being product being matched in a few months by the competitors. This instinct of the industry is primarily driven by technical capabilities acquired over years of gestation under the technical collaboration with international players. Threat of Substitutes The threat of substitutes to the automotive industry is fairly mild. Numerous other forms of transportation are available, but none offer the utility, convenience, independence and value offered by automobiles. The switching cost associated with using a different mode of transportation, may be high in terms of personal time, convenience and utility. Barriers to entry The barriers to enter automotive industry are substantial. For a new company, the startup capital required to establish manufacturing capacity to achieve minimum efficient scale is prohibitive. Although the barriers to new companies are substantial, establishing companies are entering the new markets through strategic partnerships or through buying out or merging with other companies. However, a domestic company, with local knowledge and expertise, has the potential to compete its home market against the global firms who are not well established there.

Suppliers power In the relationship between the industry and its suppliers, the power axis is tipped in automobile industrys favor. The industry is comprised of powerful buyers who are generally able to dictate their terms to the suppliers. Buyers Power In the relationship between the automotive industry and its ultimate consumers, the power axis is tipped in the consumers favor. This is due to the fairly standardized nature and the low switching costs associated with selecting from among competing brands.