Auto & Auto Ancillaries

Ashwini Prasad - JSA Balram Ramesh - JSA

Auto Sector Introduction

Size - $40Bn a year and contributes to 5% of Indias GDP Scale - 1.5 million vehicles produced and employs in excess of 13 million people

Industry is seasonal in nature

Indian two wheeler segment being 2nd largest in the world 9th largest in the world

Domestic Sales 10 Million(200809) approx with a CAGR of 9.79% (2002-03)

Market Segmentation
2 Wheelers Bikes, Mopeds 3 Wheelers Auto Rickshaws Passenger Cars Cars, UVs and Jeeps Commercial Vehicles LCV,HCV like Buses, Trucks and Tractors

Domestic Market Share for 2008-09

Major Players
2 Wheelers HHML, BAL, TVS, HMSI, Yamaha, Royal Enfield (Eicher) 3 Wheelers Piaggio, BAL, M & M Passenger Vehicles - Maruti Suzuki, Tata Motors, M & M, Hindustan Motors Passenger Cars GM, Ford, Fiat, BMW, MercedesBenz, Skoda, Hyundai Commercial Vehicles Tata Motors, M & M, Eicher, Swaraj Mazda, Piaggio, Force Motors CV- Tractors M & M, Punjab Tractors, Escorts

Major Automobile Clusters

Mumbai-Pune-Nasik-Aurangabad Chennai-Bangalore-Hosur Delhi-Gurgaon-Faridabad

Value Chain

Procurement

Production

Quality/ Testing

Marketing & Sales

Services

Inputs
Steel, Rubber, Aluminium, Plastics Broadly prices aligned to global markets Cost advantage depending on proximity to source Mix of local as well as imports Safety components imported CKDs imported for assembly

Cost

Distribution
Raw Mat cost 79% Manu. Cost 4% Labour Cost 3% S&D Costs 7% Other Costs 7%

Drivers
Sales Discou nts

Comm odities

Forex

Growth Drivers
Increasing consumer demand Cost Competitiveness New Product Launches Government Policies

Government Regulations
Taxation Crash Test Norms Emission Norms
Excise, VAT, Import Duties

Simulated collision of a vehicle or vehicles - Design strengths & weaknesses and Crash compatibility BS IV norms to be introduced in 11 cities by 2010 & BS III to be introduced across India

Sector Characteristics
100% FDI allowed Increased competition with new entrants Capital intensive with high entry and exit barriers Greater emphasis on exports

Key Financial Ratios

Debt to Equity Ratio Price to Earnings Ratio Price to Book Value Ratio Operating profit margin OPM Inventory Dividend Yield Cash Conversion Cycle

Positives
Proactive Government Receding Inflation Softening of Int. rates and lending by PSU banks Stabilizing commodity prices

Challenges

Interest Rates

Crude

Consumer Sentiment

Credit Availability

Global News
Cyclical recovery is underway in the global auto industry Sales in June posted their best performance since last July led by China in the developing markets and Germany in mature markets Car sales in China accelerated by 48% yoy in June Government stimulus and tax incentives are spurring the revival in China. In Brazil, a combination of tax breaks, lower prices and improved confidence lifted sales to a record annual rate of 3.1 million units in June 21% above a year earlier

Global News
Sales in North America bottomed in the opening months of 2009 Sales will increase in coming months by the recently implemented cash-for-clunkers program in the United States In Germany, government scrappage programs have led to stronger-than-expected car sales in the first half of 2009 The program is scheduled to expire at the end of 2009

Outlook
Strong sales figures for August on the back of healthy July numbers Raw material prices are expected to remain stable Deficient Monsoons remain a Concern Cautious with a positive bias

Auto Ancillaries

Auto Ancillaries - Introduction

Industry Size is about $18.7Bn (2008-09) 550 organized & 6000 unorganized players Domestic Revenues have shown a CAGR (2002-07) of 27.2% Exports grew at the rate of 35% during 2002-07 Investments in the industry are estimated at $7.2 Bn in 2007-08

Sector Characteristics
Runs in parallel with automobile sector High Bargaining by the OEMs: Low Margins High Competition: Global Players Presence Competitive Pricing: Low cost & focus on cost cutting Exports on the rise High Barriers to entry: Technology & Relationship with OEMs

Strengths of the Sector

Low Cost of Components Availability of Labour More than 550 ISO 9000 companies Low Cost Automation Flexibility in Small Batch Production

Segments of Industry
Engine Parts Drive Transmission & Steering parts Suspension & Braking parts Body & Chassis Equipments Electrical Parts Tyres Others

Share of each segment

Major Players : Segments

Engine Parts Bosch, Federal-Mogul Goetze, Samkrg Pistons, Ucal Fuel Systems Electrical Parts Exide, Amara Raja, Denso, Minda, Motherson Sumi Drive Transmission & Steering Parts Sona Koyo, ZF Steering, Automotive Axles, Steel Strips Wheels, Clutch Auto, Ceekay Daikin Suspension & Braking Parts Amtek Auto, ANG Auto, Sundaram Clayton, Brakes Auto Equipment Fiem Inds, Phoenix Lamps, Lumax. Tyres Apollo Tyres, MRF Tyres

Sector Characteristics
Runs in parallel with automobile sector High Bargaining by the OEMs: Low Margins High Competition: Global Players Presence Competitive Pricing: Low cost & focus on cost cutting Exports on the rise High Barriers to entry: Technology & Relationship with OEMs

Revenue & Expenditure

The Sources of revenue for auto-ancillary industry : 1. OEMs purchases (50%) 2. Replacement Parts (35%) 3. Exports (15%) The Demand depends on the Domestic (85%) & Global Auto Industry Demand (15%) Expenditure for the industry: 1. Raw Material costs- Steel & Aluminum prices 2. Plant, Machinery & Maintenance, Wages

Future Prospects
Aided by a 7% growth in OEM segment and 8.5% increase in exports and after market segment, ancillary production is expected to grow by 8.2% in 09-10

Why we are hopeful?

Thank You