Contents Indian Automotive Sector ........................................................................................................................................2 Overview .............................................................................................................................................................2 Value Chain of automobile industry .....................................................................................................................5 Industry Dynamics ...............................................................................................................................................7 Market Segments ............................................................................................................................................7 Macro-Factors Affecting the auto-industry.......................................................................................................9 Government Policies and Regulations................................................................................................................ 10 Outlook ............................................................................................................................................................. 12 Auto Ancilliary ....................................................................................................................................................... 13 An Overview...................................................................................................................................................... 13 Investments................................................................................................................................................... 14 Exports .......................................................................................................................................................... 15 Auto Components Industry Value Chain.............................................................................................................16 Industry Dynamic s ............................................................................................................................................. 17 Market Segments .......................................................................................................................................... 17 Macro-F actors Affecting Industry ................................................................................................................... 21 Government Policy and Regulations .................................................................................................................. 21 Outlook ............................................................................................................................................................. 23 Business Model ................................................................................................................................................. 25
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Indian Automotive Sector ......................................................................................................................................Overview ...........................................................................................................................................................
Value Chain of automobile industry ...................................................................................................................
Industry Dynamics .............................................................................................................................................
Macro-Factors Affecting the auto-industry.....................................................................................................
Government Policies and Regulations ................................................................................................................
Outlook ............................................................................................................................................................. Auto Ancilliary .......................................................................................................................................................
An Overview ......................................................................................................................................................
Auto Components Industry Value Chain .............................................................................................................
Industry Dynamics .............................................................................................................................................
Macro-Factors Affecting Industry ...................................................................................................................
Government Policy and Regulations ..................................................................................................................
Outlook .............................................................................................................................................................
Business Model .................................................................................................................................................
The automotive Industry in India is now working in terms of the dynamics of an open market. Many joint venture
have been set up in India with foreign collaboration, both technical and financial with leading global
manufacturers. Also a very large number of joint ventures have been set up in the auto-components sector andthe pace is expected to pick up even further. The Government of India is keen to provide a suitable economic, an
business environment conducive to the success of the established and prospective foreign partnership ventures.
The Indian auto sector was the place to be in for global OEMs right from the early 2000s. At a penetration of less
than ten cars per 1000 persons, the upside was enormous. While many manufacturers were not making huge
profits, they did not want to miss out on what could eventually be amongst the top five markets by volume. As th
middle class India started to buy to its potential and as the roads became better, the anxiety in companies was n
around ‘will we sell’. It was more around ‘do we have the capacity and brand position to convert opportunity int
The value chain in most cases consists of following :
Tier3 suppliers:- these are basically small workshops that provide small or may be recycled components or may bconsumables to TIER2 Supplier. The company usually does not deals directly with them but could if some
regulatory requirements are to be fulfilled.
TIER2 Supplier:- they provide much sophisticated products to TIER1 like metal rods or fabrics that go on produci
the axle rods or carpets. The quality of component they produce could affect the quality of the vehicle.
TIER1 Suppliers:- These are the biggest in operations as compared to the rest and supply the product directly to
the OEM for manufacturing. The company takes a stock of the quality of component supplied. Components could
be gear boxes, pistons or unmachined blocks which the company could process further depending on its
requirement, hence it could not be the final product.
OEMs:- the OEMs actually coordinate with the suppliers for part development and only deal with designing and
assembly of parts. They are the centralized agencies in the overall process.
The processes followed are
1. Procurement of Steel
2. Blanking
3. Welding
4. Painting
5. Assembly ( components are assembled during these operations)
a. Of engineb. Of vehicle
6. Quality Check
7. Stocking
8. Delivery
Dealer:- After the product is made it is supplied to the dealer by the OEM depending upon his request who acts a
an interface between the OEM and the customer
Finance and insurance:- increasing the OEMs are entering into this field due to
• Shrinking margins in the core business
• More returns from this business
Besides this the company can aid in the procurement of the vehicle and increase its sales.
2ndhand retailers:- They procure the used vehicle from the customers and sell them in the 2nd hand car market.
Increasingly this market is also expanding and many OEMs have opened shop in this sector also
Till the mid 1990s, Indian components manufacturers were serving to a low demand and low volume domestic
market with most of the components supplied to the aftermarket and to a few OEMs and Tier 1s.
The post-liberalisation era has seen many global auto majors GM, Ford, Hyundai, Toyota etc. enter the Indian
market to set up their manufacturing units and thus serve the domestic market and also export components for
their vehicles manufactured in the developed markets.
Increasing competition from global majors and a steady growth in the domestic passenger car market showed th
way forward for the components manufacturers. To meet the product specifications of global players, the Indian
components manufacturers embraced advanced manufacturing technologies and improved capacities and thus
moved up the value chain.
As the domestic auto components industry evolved, it witnessed a few notable trends like:
• Global Quality and Service Benchmarking – Indian manufacturers have been successful in their pursuit to meetglobal manufacturing and quality standards with many companies winning the coveted Deming prize in the last
decade.
• Outsourcing – Most of the global Tier 1s and OEMs have their manufacturing centres in India and they source
components from India for their global requirements
• Globalisation - Several top Indian companies have expanded their footprint to other parts of the globe through
1. Engine parts comprise the largest product segment of the auto components industry with a 31 % production
share.
• The sub-segments include pistons, piston rings, engine valves, carburettors, fuel-delivery and cooling
systems and powertrain components.
Major players
•The four major players in the pistons sub-segment include Goetze, Shriram Pistons & Rings, India Piston
and SamkrgPistons, while RaneEngine Valves, KAR Mobiles and Shriram Pistons & Rings lead the engine
valves sub-segment.
•Ucal Fuel Systems and Spaco Carburettors & Escorts Auto Components are prominent players that
manufacture carburetors. In diesel-based fuel injection systems, Mico, Delphi, TVS Diesel System and Tat
Cummins are the major players.
2. Transmission and steering parts comprise the second-largest product segment in the Indian auto components
industry, with a 19 % production share.
•The sub-segment comprises gears, wheels, steering systems, axles and clutches.
Major players
•Sona Koyo Steering Systems, Rane Madras and Rane TRW Systems are the key players in steering
systems.
•Bharat Gears, Gajra Bevel Gears and Eicher are some of the major players in the gears sub-segment. Tw
international companies, GrazianoTrasmissioni and SlAP Gears India, have set up their base in India.
•Clutch Auto, Ceekay Daikin, Amalgamations Repco and Luk Clutches are the major players in the clutch
sub-segment. RaneBrake Lining and Rico Auto are the key players manufacturing clutch-facings.
•GKN Driveshafts (India) and Delphi cater to the drive shaft requirements of passenger cars and SonaKoySteering Systems services to the commercial vehicle segment.
3. Suspension and braking parts is the third-largest product segment with a 12 % production share.
2. Department of Heavy Industries and Public Enterprise
• Initiatives such as increase of the deduction limit for Research and Development (R&D) in the sector from 15
200%, increased budgetary allocation for R&D activities and lowering of the duty regime have been
undertaken to further strengthen the capability of the sector.
• The department has also suggested the creation of a fund, worth US$ 0.2 billion (INR 10 billion), to
modernisethe auto components industry by providing an interest subsidy on loans and the purchase of new
plants and equipment.
3. De-reservation of items for small scale sector
• This will include extension of deemed export benefits to intermediate suppliers of auto components against
the duty free replenishment (DFR) scheme in the government’s EXIM Policy for 2004–05 .
• It is aimed at benefiting all auto component manufacturers to enable them to avail of duty drawbacks, refun
of terminal excise duties and an advance licence for duty free import of input.
4. Other incentives
• These include reduction of excise duty on smaller passenger vehicles and reduction in the duty levied on raw
material to 5 to 7.5 % from the earlier 10 %.
• Emission norms and environmental standards, in line with those of developed world, and enforcement of Eu
IV and Bharat Stage IV emission norms, have fostered the growth of the Indian auto components industry.
• By lowering Customs duty on some critical parts or sub-assemblies of electric vehicles, the Minister isencouraging the vehicle manufacturers working in this area to promote clean technology.
ALL is the second-largest commercial vehicle manufacturer in India. The Hinduja Group holds 51% stake in the
company through a holding company Hinduja Automotive, UK. ALL has six manufacturing plants at four locations
in India: Ennore (Tamil Nadu), Hosur (Tamil Nadu), Alwar (Rajasthan) and Bhandara (Maharashtra). The companyfocused on the M&HCV segment and has a significant presence in the bus segment.
Quarterly Outlook
1) Being the second largest
player in commercial vehicle segment, Ashok Leyland is well positioned among the players. Going forwar
the company is expected to post good numbers due to positive factors like the increase in the freightrates, huge spending on infrastructure space and availability of finance
2) Ashok Leyland will able to cater to the northern market more effectively with its new plant in
Uttarakhand. The company has already started production from this plant, where it is also enjoying the
benefits on excise duty and income tax
3) Ashok Leyland was missing in LCV segment, but with the JVwith Nissan, it will be able to get the traction
the LCV segment. The company will introduce three models in LCV segment by 2HFY11
100% = Rs 8,035 Cr
Ashok Leyland Sales Break-up, by Value, FY 2010
Ashok Leyland CV Volume Break-up, by type, FY 2010
100% = 64,075 Units
Ashok Leyland CV Volume Break-up, by geography, FY 2010
Bharat Forge Ltd., the flagship company of the US $ 2.4 billion Kalyani Group, is a leading global ‘Full Service
Supplier’ of forged and machined - engine & chassis components. It is the largest exporter of auto components
from India and leading chassis component manufacturer in the world. Its manufacturing facilities are spread acro
11 locations and 5 countries - four in India, three in Germany, one each in Sweden, USA and two in China.
Quarterly Outlook
1. The strong growth in the domestic automotive segment along with the rising demand in the export mark
has been a strong supporter for the company’s growth. In FY10, the company had spent Rs 85 crore in th
restructuring of its subsidiaries. This has started to show positive results with all its major subsidiariesincluding FAW China contributing positively to the bottomline of the company. The operations in the US
market have seen completion of the restocking cycle. Going forward, this would signal a further demand
pick-up and rise in production.
2. The management has a strong growth outlook for the coming quarters with the machining mix envisage
to improve by around 50% from the present levels along with further improvement in topline contributio
from the non-automotive segment from the present 33% levels.
3. The management has also guided on the order visibility for its JV with Alstom from Q3FY10 onwards. The
facility being developed would have a high degree of indigenisation providing additional leverage to
handle competitors.
4. The company is also in talks with various OEMs domestically and internationally to promote the REVOLO
product developed in a JV with KPIT Cummins towards better emission controls and high fuel efficiency a
a cost effective price
00% = Rs 1,940 Cr
Bharat Forge Sales Break-up, by Value, FY 2010 Bharat Forge Sales Value Break-up, by Geography, FY 2010
Hero Honda Motors Limited is engaged in manufacturing of two wheelers – motorcycles and scooters. Hero Hon
bikes are manufactured across three manufacturing facilities. Two of these are based at Gurgaon and Dharuhera
The third manufacturing plant is based at Haridwar, in the state of Uttrakhand. The Company is a joint venture
between India's Hero Group and Japan's Honda Motor Co. The Company offers a range of bikes starting from CD
Dawn, CD Deluxe, Splendor Plus, Splendor NXG, Passion and Passion Pro. The 125 cubic centimeter segment offe
Glamour, Super Splendor and Glamour F1. It also has an offering called Achiever in 135 cubic centimeter segmen
In the 150 cubic centimeter and above the Company offers brands like Hunk, CBZ X-treme, Karizma and the
Karizma ZMR. It also offers a 100 cubic centimeter scooter, Pleasure.
Quarterly Outlook
1. Concerns exist over the fate of Hero Honda, especially with regard to Honda possibly selling its 26 % stake to
the promoters and exiting the company. The implications of Honda pulling out of the company are still being
worked out and a possible re-rating is expected
a. The good news for Hero is that it would save on royalty payments of 2.5-3 % of sales — estimated at
around Rs 5,500 crore for the financial year 2011. But it would lose out on the Honda expertise and
brand, even though it is expected that Honda would provide technical support for a few more years
b. Due to its dependence on Honda for research and development, Hero would have to start building
new facilities on its own. There are concerns about the ability of Hero to build product development
facilities – like Bajaj Auto and TVS – in a short span of time
2. Higher production from Uttaranchal plant is expected to drive 390bps decrease in effective tax rate
3. With price hike being implemented from June 2010 and commodity prices receding over the past couple of months OPM likely to improve in the next quarter
Hero Honda Sales Break-up, by Volume, FY 2010 Hero Honda Sales Volume Break-up, by Geography, FY 2010
National sales company in the region. The company has also seen revival in demand from Russia in the la
two months.
• Dependency for Supply of engines from Ford motors could impact the production of the vehicles
• Tata would integrate the networks at JLR to help achieve economies of scale and hence reduce operati
costs. Also Integration of design processes would help reduce the developmental costs for TATA besid
more initiative to source from low cost countries
• New and improved version of popular platforms to be launched and The company would also look
smaller entry-level cars under the Jaguar and Land Rover brand for higher volumes
Tata motors (Indian Operations)
Sources of Revenues
As seen around 85% of revenues come from the sale of vehicles both in domestic and export marketTata motors operates in the following segments in Indian auto sector
DuraTread (retreading material) and Acelere Wheelz (alloy wheels for passenger cars).
Apollo’s largest unit is in Limda, in the western Indian state of Gujarat. Two other units are located in the southern Indirubber-producing state of Kerala. These three together have a combined production of around 850 tonnes a day.
In South Africa, the Ladysmith and Durban plants account for a combined capacity of around 180 tonnes, and the Ensche
plant in the Netherlands adds another 150 tonnes a day.
Business Model
Apollo currently has three brands
1. Apollo
2. Vredestein
3. Dunlop
Revenue Segmentation
1. Apollo
The brand Apollo ie the main brand under the company caters to the Indian Market specifically