Automotives: Industry Report, March 2013

Automotives
MARCH
2013
For updated information, please visit www.ibef.org
Automotives
MARCH
2013
Contents
Advantage India Market overview and trends Growth drivers Success stories: Maruti, Tata Motors Opportunities Useful information
Automotives
Advantage India
MARCH
2013
FY16E
Growing demand
Innovation opportunities
Strong demand growth due to rising incomes, growing middle class, and a young population is likely to propel India among the worlds top five auto producers by 2015 Growth in export demand is also set to accelerate
Tata Nano and the upcoming Pixel have opened up the potentially large ultra low cost car segment Innovation is likely to intensify among engine technology and alternative fuels
Market size: USD145 billion
Advantage India
Rising investments
Policy support
India has significant cost advantages; auto firms save 10-25 per cent on operations in India compared to Europe and Latin America A large pool of skilled manpower and a growing technology base will induce greater investments
The government aims to develop India as a global manufacturing as well as R&D hub There has been a wide array of policy support in the form of sops, taxes and FDI encouragement
FY10
Market size: USD57.7 billion
Notes: R&D - Research and development, FDI - Foreign direct investment; FY - Indian financial year (April - March); FY16E - estimated figure for financial year 2016; estimates are from the governments Automotive Mission Plan (2006 - 2016)
ADVANTAGE INDIA
Automotives
MARCH
2013
Contents
Advantage India
Market overview and trends Growth drivers Success stories: Maruti, Tata Motors Opportunities Useful information
Automotives
MARCH
2013
Evolution of the Indian automotives sector
20.4 million units (2012) 11 million units (2007) 2008 onwards 0.6 million units (1992) 1983-1992 0.4 million units (1982) Before 1982 Joint venture (JV) -Indian government and Suzuki to form Maruti Udyog; started production in 1983 Component manufacturers also entered via JV route Buyers market 1993-2007 More than 35 players in the market Removal of most import controls Indian companies gaining global identity Setting up of National Automotive Board to act as facilitator between government and the industry
Sector de-licensed in 1993 Major original equipment manufacturers (OEMs) started assembly in India Imports allowed from April 2001 Introduction of value added tax in 2005
Closed market
Only 5 players Long waiting periods and outdated models Sellers market
Source: Tata Motors, Society of Indian Automobile Manufacturers

(SIAM), Aranca Research, Notes: JV - Joint Venture
MARKET OVERVIEW AND TRENDS
Automotives
MARCH
2013
The automotives market is split into four segments

Automobiles
Two-wheelers
Passenger vehicles
Commercial vehicles
Three-wheelers
Mopeds
Passenger cars
Light commercial vehicles
Passenger carriers
Scooters
Utility vehicles
Motorcycles
Medium and heavy commercial vehicles
Goods carriers
Multi-purpose vehicles
Electric twowheelers
Automotives
MARCH
2013
Revenues have been growing at a strong pace
Gross turnover of automobile manufacturers in India expanded at a CAGR of 17.7 per cent over FY07-11 Excluding three wheelers, trucks account for the largest share of revenues (47.8 percent in 2011)
Revenue trends over the past few years in USD million Market* break-up by revenues (2011)
58.6 20.4% 43.3 36.6 30.5 33.3 47.8% Cars Trucks
Two Wheelers 31.8%
FY07
FY08
FY09
FY10
FY11
Source: SIAM, Datamonitor, Aranca Research

Note: * - does not include three wheelers
Automotives
MARCH
2013
Sectors growing strength evident from rise in total production figures
Automobiles production increased at a CAGR of 13.2 per cent over FY05-12 Passenger vehicles was the fastest growing segment during that period with a CAGR of 14.5 per cent
Total production of automobiles in India (million units)

15.5 13.4
10.5
Notes: CAGR - Compound annual growth rate 6.5 7.6
8.5 8.0
8.4
1.8
1.3 0.5 0.6
1.6 0.6 0.5
1.3 0.4 0.4
2.4
0.8 0.8 FY11
3.0
1.2 0.4 0.4
FY05
FY06
FY07
FY08
FY09
0.4 0.5
FY10
0.6 0.6
FY12 Two Wheelers
Passenger Vehicle
Commercial Vehicle
Three Wheelers
Source: SIAM, Aranca Research
0.8 0.8
3.1
Automotives
MARCH
2013
Market break-up by production volume
Two wheelers dominate production volumes; in FY12, the segment accounted for more than three quarters of total automotives production in the country In fact, India is the worlds second largest two wheeler producer; the country is also the fourth largest commercial vehicle producer
15%
Market share by volume (FY12)
5% 3% Two Wheelers
Passenger Vehicle Commercial Vehicle 77% Three Wheelers
Automotives
MARCH
2013
Market break-up of individual segments by production volumes (1/2)
Shares in production of passenger vehicles (FY11)
Shares in production of commercial vehicles (FY11)
11.5%
Passenger cars
8.1%
MCV & HCV Passenger Carriers 36.0% MCV & HCV Goods Carriers LCV Passenger Carriers
Utility vehicles/multipur pose vehicles 88.5%
49.7% 6.1% LCV Goods Carriers
Source: SIAM, Aranca Research Notes: LCV - Light commercial vehicle; MCV - Medium commercial vehicle; HCV - Heavy commercial vehicle
10
Automotives
MARCH
2013
Market break-up of individual segments by production volumes (2/2)
Shares in production of three wheelers (FY12)
Shares in production of two wheelers (FY12)
15.8% Goods carriers
15.6%
5.3% Mopeds
Motorcycles Passenger carriers Scooters 84.2%
79.1%
11
Automotives
MARCH
2013
Exports have also grown strongly (1/2)
Automobiles export volumes increased at a CAGR of 22.4 per cent over FY05 FY12 Over this period, the fastest growth was in the two wheeler segment (25.8 per cent) followed by three wheelers (21.9 per cent)
Exports of automobiles from India (million units)

2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0
2.0 1.5 1.1 1.0
0.8
0.5 0.5 0.3 0.04 0.2 0.08 0.3 0.4 0.5 0.2 0.04 0.1 0.4 0.6 0.2 0.05 0.1 0.2 0.06 0.1 0.5
0.2 0.03 0.1
0.04 0.2
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
Passenger Vehicle
Commercial Vehicle
Three Wheelers
Two Wheelers
0.1
12
Automotives
MARCH
2013
Exports have also grown strongly (2/2)
Two wheelers accounted for the largest share in exports (by volume) at 67 per cent in FY12 Passenger vehicles account for a sizeable 18 per cent of overall exports
Exports shares by volume (FY12)
18%
Passenger Vehicle
3% 12% 67%
Commercial Vehicle Three Wheelers
Two Wheelers
13
Automotives
MARCH
2013
Presence of a clear leader in each segment of the market
The automotives industry is concentrated with market leaders in each segment commanding a share of over 40 per cent
Market Leader
Others
45% 16% 15% 7%
Passenger Vehicles
MCVs & HCVs LCVs Three Wheelers Motorcycles Scooters
63%
23%
7%
59%
30%
4%
4%
41%
40%
10%
59%
24%
7%
6%
51%
21%
14%
10%
Source: SIAM, Aranca Research Notes: Data is for FY10
14
Automotives
MARCH
2013
Notable trends in the Indian automotives sector
Large number of products available to consumers across various segments; this has
New product launches
gathered pace with the entry of a number of foreign players

Reduced overall product lifecycle have forced players to employ quick product launches
Improving product development capabilities
Increasing R&D investments from both the government and the private sector
Private sector innovation has been a key determinant of growth in the sector; two good
examples are Tata Nano and Tata Pixel - while the former has been a success in India, the latter is intended for foreign markets
In FY11, the CNG market was worth more than USD330 million and CNG cars and
Alternative fuels
taxis are expected to register a CAGR of 28 per cent over FY11-FY14

The CNG distribution network in India is expected to increase to 250 cities by 2018
from 30 cities in 2009
15
Automotives
MARCH
2013
Contents
Advantage India Market overview and trends Growth drivers Success stories: Maruti, Tata Motors Opportunities Useful information
16
Automotives
MARCH
2013
Sector has been benefitting from strong demand and product innovation
Growing demand demand Growing
Policy support Strong government support Goal of establishing India as an automanufacturing hub Inviting Resulting in R&D focus; GOI has set up technology modernisation fund Large domestic market Policy sops, FDI encouragement
Increasing investments
Rising incomes, young population
Rising investments from domestic and foreign players
Greater availability of credit and financing options
Greater innovation in products; market segmentation
Strong growth in exports as well
Strong projected demand making returns attractive

Notes: GOI - Government of India
GROWTH DRIVERS
17
Automotives
MARCH
2013
Rising incomes and a growing middle class driving domestic demand growth
Changing income dynamics of Indias population
70 60 50 40 30 20 10 0 2005 Strivers 2010 Seekers 2015 Deprived 2020 Aspirers 2025 Globals Aspirers: annual income INR90,000 200,000 million households Seekers: annual income INR200,000 500,000
Rising incomes; growing middle class
Personal (nominal) disposable income is expected to rise annually by 8.2 per cent over FY11-17
Rising middle class-size of the middle class expected to touch 550 million by 2025 from 50 million in 2010 Favourable demographics - a young population is also driving up the demand for cars Demand for commercial vehicles have got a boost due to development of roadways and greater market access
Deprived annual income <INR90,000
Strivers: annual income INR500,000 1,000,000 Globals: annual income >INR1,000,000
Source: McKinsey Quarterly,

Aranca Research
GROWTH DRIVERS
18
Automotives
MARCH
2013
Easier access to credit has also been a key determinant of growth in automotives
Easy availability of credit
Indian auto finance market size (USD billions)

25.0 20.5
Greater access to credit makes purchases of both passenger and commercial vehicles easier
20.0
15.1 15.0 10.6 10.0 5.0 8.0 11.9 8.5 11.9 7.7 10.6 14.8
The auto finance industry has grown at an average annual rate of 13 per cent during FY08-12
The private sector banks like ICICI, HDFC are also showing increasing interest in the segment which was previously dominated by public players
Notes: Greater distributional efficiencies, increasing demand (especially from rural areas) due to rising disposable incomes have created new markets for products within the country
0.0
FY07
FY08
FY09
FY10
FY11
Car Industry sales volume
Vehicle Finance Penetration
Source: Kotak Mahindra Prime, Aranca Research
GROWTH DRIVERS
19
Automotives
MARCH
2013
India has a huge competitive advantage over peers

Design & Engg skills
Korea China
Manufacturing skills
Manpower costs
Supplier base
Raw materials
East Asia
Thailand Indonesia Vietnam Czech Republic Romania Poland
Central & Eastern Europe
Slovakia Russia Hungary Turkey Brazil
Latin America
Mexico
In competition with India
Less competitive than India
Source: ACMA, Aranca Research

GROWTH DRIVERS
20
Automotives
MARCH
2013
Strong policy support has been crucial in developing the sector

Auto Policy 2002
Automatic approval for foreign equity investment up to 100 per cent; no minimum investment criteria Encourages R&D by offering rebates on the R&D expenditure spent by the companies AMPs vision is to make India a preferred destination for design and manufacturing of automobiles
Automotive Mission Plan (AMP) 2006-16
and to achieve market size of USD154 billion by 2016

Setting up of a technology modernisation fund focussed on SMEs Automotives training institutes, auto design centres, special auto parks also established
Set up at total cost of USD388.5 million to enable the industry to implement global standards
NATRiPs
Nine R&D centres of excellence with focus on low-cost manufacturing and product development
solutions
Worked towards reduction of excise duty on small cars and the increase of budgetary allocation for
Dept. of Heavy Industries & Public Enterprises
R&D
Weighted increase in R&D expenditure to: 200 per cent from 150 per cent (in-house); 175 per cent
from 125 per cent (outsourced)

Excise duty on large premium cars increased from 22 per cent to 27 per cent
Union Budget FY13
Increased custom duty on cars and MUVs valued above USD40,000 to 75 per cent from 60 percent
5 year extension on deduction of R&D expenditure under Income Tax Act
Notes: SME - Small and Medium Enterprises, R&D - Research and Development, NATRiP - National Automotive Testing and R&D Infrastructure Project, AMP - Automotive Mission Plan
GROWTH DRIVERS
21
Automotives
MARCH
2013
Boost to R&D in the auto components sector - NATRiP centres

Business Description
Vehicles Research & Development Establishment (VRDE), Ahmednagar Ahmednagar

Indore - National Automotive Test Tracks Tracks (NATRAX) Automotive Research Association of India (ARAI), Pune Chennai Centre, Tamil Nadu Rae Bareilly Centre International Centre for Automotive Technology (iCAT), Manesar Silchar Centre, Assam
Research, design, development and testing of vehicles Centre of excellence for photometry, electromagnetic compatibility (EMC) and test tracks Complete testing facilities for all vehicle categories Centre of excellence for vehicle dynamics and tyre development Services for all vehicle categories Centre of excellence for power-train development and material Complete homologation services for all vehicle categories Centre of excellence for infotronics, EMC and passive safety Services to agri-tractors, off-road vehicles and a driver training centre Centre of excellence for accident data analysis Services to all vehicle categories Centre of excellence for component development, noise vibration and harshness (NVH) testing Research, design, development and testing of vehicles Centre of excellence for photometry, EMC and test tracks
GROWTH DRIVERS
22
Automotives
MARCH
2013
Emergence of large automotive clusters in the country

List of companies

North
Delhi-Gurgaon-Faridabad
Ashok Leyland Force Motors Piaggio Swaraj Mazda
Amtek Auto Eicher Honda SIEL Maruti Suzuki
Tata Motors Bajaj Auto Hero Group
Mumbai-Pune-NashikAurangabad Kolkata- Jamshedpur
West
Ashok Leyland Bajaj Auto FIAT GM
M&M Eicher Skoda Bharat Forge
Tata Motors Volkswagen Renault-Nissan M&M
East
Tata Motors Forgings Hindustan Motors JMT Simpson & Co. Exide International Auto
Chennai-Bengaluru- Hosur
South
Ashok Leyland Ford M&M Toyota Kirloskar Volvo
Sundaram Fasteners Enfield Hyundai BMW
Bosch TVS Motor Company Renault-Nissan
Source: ACMA, Aranca Research
GROWTH DRIVERS
23
Automotives
MARCH
2013
Key automobile manufacturing plants across India

NORTH WEST: Rajasthan is a hub for majorly light vehicle manufacturing NORTH: Delhi is a hub for light vehicle manufacturing whereas Haryana and Uttarkhand are for heavy vehicle manufacturing
WEST: Maharashtra, and Gujarat are bases for heavy and light vehicle manufacturing
EAST: Jamshedpur is the site of Tatas heavy vehicle manufacturing
Heavy Vehicle Manufacturing Plant

Light Vehicle Manufacturing Plant SOUTH: Chennai hosts manufacturing plans for heavy and light vehicles
Source: Aranca Research; Note: All figures as of 2011-12
GROWTH DRIVERS
24
Automotives
MARCH
2013
Strong inflow of FDI into the automotives sector in India
Accumulated FDI inflows into the automotives sector over Apr 2000 - Sep 2012 was USD7.4 billion (4.0 per cent of total FDI)
Country
Delhi-Gurgaon-Faridabad
Top 5 origin countries for FDI (2000-2010) FDI (USD million) Share of total (%)
1,155 873 626 25 19 14
Japan US Italy
Ahmedabad
Mumbai-PuneNashik-Aurangabad Kolkata- Jamshedpur
Mauritius
Sweden
373
369
8
8
City
Mumbai Delhi
Chennai-Bengaluru- Hosur
Top 5 destination cities for FDI (2000-2010) FDI (USD million) Share of total (%)
1,609 1,416 497 464 238 34 30 11 10 5
Ahmedabad Chennai Bengaluru
Source: Department of Industrial Policy & Promotion (India), Aranca Research
GROWTH DRIVERS
25
Automotives
MARCH
2013
Increasing investments by global car manufacturers
Global car majors have been ramping up investments in India in order to meet growing domestic demand. They also have plans to leverage Indias competitive advantage to set up export-oriented production hubs
Its Chennai plant has nearly doubled production to 250,000 cars The company has completed 80 per cent investment at Oragadam, a car plant near Chennai Launched an automatic transmission variant in its petrol model of the sedan Fiesta Laid foundation for USD1 billion plant at Sanand in March 2012 Has increased its output annually for its Chennai plant to 11,000 units from 10,000 units
Plans to launch series of cars designed at its Bengaluru based centres

Plans to invest USD167 million in the fourth unit in Karnataka in 2012 Plans to invest another USD163 million at Bidadi plant near Bengaluru Plans to increase capacity to 310,000 units by 2013 with an investment of USD187 million Launched new version of the i20 premium model in both petrol and diesel variant Plans to invest USD89.6 million for a diesel engine plant in India which will be operational from 2013 Plans to invest USD71 million at its plant in Pune and will be launching five new compact cars
Source: Respective company websites, news articles, Aranca Research
GROWTH DRIVERS
26
Automotives
MARCH
2013
Contents
Advantage India
27
Automotives
MARCH
2013
Maruti Suzuki: Continuing strongly on its journey of success

Expansion plans to produce 1.7 million cars by 2013
Continuing market leadership Product portfolio expansion Increased productivity Enhanced R&D capability Capacity expansion Roll out of peoples car (Maruti 800) 1994 Production of 1 millionth car
55 per cent market share in the Indian car market
2012 Exports reached 1 million units in April 2012 2011 Roll out of 10 millionth car
Product portfolio comprising 16 passenger vehicle models

In the process of establishing Suzukis largest R&D facility outside Japan
1983
1994
1997
2001
2004
2006
2007
2008
2009
2010
2011
2012
Source: Company website, Aranca Research
SUCCESS STORIES: MARUTI, TATA MOTORS
28
Automotives
MARCH
2013
Tata Motors: Leading by innovation and global presence
Tata Nano launched Introduction of Megapixel, an electric vehicle
Disruptive Innovation
JV with Daimler AG
Production of 1st indigenously designed LCV Launch of companys 1st indigenous CV
Acquired stake in Hipo Carrocera SA Launched Indica India's first fully indigenous passenger car
Market expansion
Product portfolio expansion Enhancing R&D capability Acquisitions Tata Engineering & Locomotives established
Acquisition of Jaguar and Landrover
Joint Ventures
1945
1954
1961
1977
1982
1986
1991
1998
2005
2008
2010
2012
Source: Company website, Aranca Research
SUCCESS STORIES: MARUTI, TATA MOTORS
29
Automotives
MARCH
2013
Contents
Advantage India
30
Automotives
Opportunities
MARCH
2013
India is fast emerging as a global R&D hub
Opportunities for creating sizeable market segments through innovations
Small-car manufacturing hub
Strong support from the government;
setting up of NATRiP centres
The worlds cheapest car (Tata Nano) has
Private players like Hyundai, Suzuki,
directed focus towards the low-income market
General Motors, Nissan, Toyota have
announced plans to make India their hub for new global small car platforms to cross the 3 million mark by end 2012 cars segment (to developing and emerging markets)
GM are keen to set up their R&D base in India English-speaking manpower as well
Bajaj Auto, Hero Honda and M&M
Strong education base, large skilled Comparative advantage in terms of cost
jointly plan to develop a technology for two-wheelers to run on natural gas market segment in the coming decade
Light vehicle sales in India are estimated
Electric cars are likely to be a sizeable
Strong export potential in ultra low cost
Notes: M&M - Mahindra & Mahindra
OPPORTUNITIES
31
Automotives
MARCH
2013
Contents
Advantage India
32
Automotives
Industry Associations
MARCH
2013
Society of Indian Automobile Manufacturers (SIAM) Core 4-B, 5th Floor, India Habitat Centre Lodhi Road, New Delhi -110 003 India Phone: 91 11 24647810-2 Fax: 91 11 24648222 E-mail: siam@siam.in
USEFUL INFORMATION
33
Automotives
Glossary

MARCH
2013
CAGR: Compound Annual Growth Rate CV: Commercial Vehicle FDI: Foreign Direct Investment FY: Indian financial year (April to March)
So FY10 implies April 2009 to March 2010
GOI: Government of India HCV: Heavy Commercial Vehicle INR: Indian Rupee LCV: Light Commercial Vehicle OEM: Original Equipment Manufacturers PV: Passenger Vehicle SIAM: Society of Indian Automobile Manufacturers ULCC: Ultra Low Cost Car USD: US Dollar
Conversion rate used: USD 1= INR48 34
Wherever applicable, numbers have been rounded off to the nearest whole number
USEFUL INFORMATION
Automotives
Disclaimer
MARCH
2013
India Brand Equity Foundation (IBEF) engaged Aranca to prepare this presentation and the same has been prepared by Aranca in consultation with IBEF. All rights reserved. All copyright in this presentation and related works is solely and exclusively owned by IBEF. The same may not be reproduced, wholly or in part in any material form (including photocopying or storing it in any medium by electronic means and whether or not transiently or incidentally to some other use of this presentation), modified or in any manner communicated to any third party except with the written approval of IBEF. This presentation is for information purposes only. While due care has been taken during the compilation of this
presentation to ensure that the information is accurate to the best of Aranca and IBEFs knowledge and belief, the content is not to be construed in any manner whatsoever as a substitute for professional advice. Aranca and IBEF neither recommend nor endorse any specific products or services that may have been mentioned in this presentation and nor do they assume any liability or responsibility for the outcome of decisions taken as a result of any reliance placed on this presentation. Neither Aranca nor IBEF shall be liable for any direct or indirect damages that may arise due to any act or omission on the part of the user due to any reliance placed or guidance taken from any portion of this presentation.
DISCLAIMER
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Automotives

For updated information, please visit www.ibef.org

For updated information, please visit www.ibef.org

Market size: USD145 billion

For updated information, please visit www.ibef.org

For updated information, please visit www.ibef.org

Evolution of the Indian automotives sector

Source: Tata Motors, Society of Indian Automobile Manufacturers

For updated information, please visit www.ibef.org

MARKET OVERVIEW AND TRENDS

The automotives market is split into four segments

Light commercial vehicles

Medium and heavy commercial vehicles

For updated information, please visit www.ibef.org

MARKET OVERVIEW AND TRENDS

Revenues have been growing at a strong pace

58.6 20.4% 43.3 36.6 30.5 33.3 47.8% Cars Trucks

Two Wheelers 31.8%

Source: SIAM, Datamonitor, Aranca Research

For updated information, please visit www.ibef.org

MARKET OVERVIEW AND TRENDS

Sectors growing strength evident from rise in total production figures

Total production of automobiles in India (million units)

1.3 0.5 0.6

1.6 0.6 0.5

1.3 0.4 0.4

0.8 0.8 FY11

1.2 0.4 0.4

FY12 Two Wheelers

Source: SIAM, Aranca Research

For updated information, please visit www.ibef.org

MARKET OVERVIEW AND TRENDS

Market break-up by production volume

Market share by volume (FY12)

Passenger Vehicle Commercial Vehicle 77% Three Wheelers

Source: SIAM, Aranca Research

For updated information, please visit www.ibef.org

MARKET OVERVIEW AND TRENDS

Market break-up of individual segments by production volumes (1/2)

Shares in production of passenger vehicles (FY11)

Shares in production of commercial vehicles (FY11)

Utility vehicles/multipur pose vehicles 88.5%

49.7% 6.1% LCV Goods Carriers

For updated information, please visit www.ibef.org

MARKET OVERVIEW AND TRENDS

Market break-up of individual segments by production volumes (2/2)

Shares in production of three wheelers (FY12)

Shares in production of two wheelers (FY12)

15.8% Goods carriers

Motorcycles Passenger carriers Scooters 84.2%

Source: SIAM, Aranca Research

For updated information, please visit www.ibef.org

MARKET OVERVIEW AND TRENDS

Exports have also grown strongly (1/2)

Exports of automobiles from India (million units)

0.2 0.03 0.1

Source: SIAM, Aranca Research

For updated information, please visit www.ibef.org

MARKET OVERVIEW AND TRENDS

Exports have also grown strongly (2/2)

Exports shares by volume (FY12)

Commercial Vehicle Three Wheelers

Source: SIAM, Aranca Research