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Submitted By “THE INDIAN AUTOMOBILE INDUSTRY - RECENT TRENDS & ROAD AHEAD” IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR MASTERS OF FINANCIAL MANAGEMENT 2008-2011 Submitted by: ROLL NO. 64 Submitted to: JAMNALAL BAJAJ INSTITUTE OF MANAGEMENT STUDIES UNIVERSITY OF MUMBAI TABLE OF CONTENTS Acknowledgement 03 1. Welcome 04 2. Background of the Industry 06 3. Key players & segment market share 10 4. Recent Trends & Industry Features 26 5. What triggered this Auto Boom 49 6. The Road Ahead 55 7. Conclusion 70 8. Bibliography 73 Jamnalal Bajaj Institute of Management Studies, Mumbai 2 Acknowledgement At the onset of trying to make a career in the field of Finance, a Final Project is an experience which is extremely necessary. In carrying out my final project entitled "The Indian Automobile Industry – Recent Trends and The Road Ahead", I have received help, assistance and guidance from many sources. I take this opportunity to thank all those who took a keen interest in it and enabled the completion of these projects successfully. I would like to thank my Project Guide for providing me with the valuable inputs. Without his help, guidance and support this project wouldn’t have reached its logical conclusion. He was closely associated with my project work and gave me valuable support, without which I would not have been able to make this a success. I would like to thank the office staff and other people in the institute for their valuable support and co-operation. Last but not the least I would like to thank our Course co-coordinator and the Course Co- ordination staff for their support in every aspect. Jamnalal Bajaj Institute of Management Studies, Mumbai 3 Welcome The automobile sector is a key player in the global and Indian economy. The global motor vehicle industry (four-wheelers) contributes 5 per cent directly to the total manufacturing employment, 12.9 per cent to the total manufacturing production value and 8.3 per cent to the total industrial investment. In addition, the auto industry is linked with several other sectors in the economy and hence its indirect contribution is much higher than this. All over the world it has been treated as a leading economic sector because of its extensive economic linkages. India’s manufacture of 14 million vehicles includes 2.3 passenger vehicles, 1.1 million commercial vehicles and 10.6 million 2 wheelers. The Indian auto Industry has grown at a 12% CAGR over the last 8 years. Passenger vehicles have grown the fastest at 17%, followed by CVs at 16%, 3W at 12% and 2W at 11%. The auto-components manufacturing sector is another key player in the Indian automotive industry. In India, the automobile industry provides direct employment to about 5 lakh persons. It contributes 4.7 per cent to India’s GDP and 19 per cent to India’s indirect tax revenue. Till early 1980s, there were very few players in the Indian auto sector, which was suffering from low volumes of production, obsolete and substandard technologies. With de-licensing in the 1980s and opening up of this sector to FDI in 1993, the sector has grown rapidly due to the entry of global players. Jamnalal Bajaj Institute of Management Studies, Mumbai 4 A rapidly growing middle class, rising per capita incomes and relatively easier availability of finance have been driving the vehicle demand in India, which in turn, has prompted the government to invest at unprecedented levels in roads infrastructure. The Reserve Bank of India’s (RBI) Annual Policy Statement documents an annual growth of 35 per cent in credit flow to vehicles industry in 2010. Given that passenger car penetration rate is just about 13 vehicles per thousand, which is among the lowest in the world, there is a huge potential demand for automobiles in the country. There are two distinct sets of players in the Indian auto industry: Automobile component manufacturers and the vehicle manufacturers, which are also referred to as Original Equipment Manufacturers (OEMs). While the former set is engaged in manufacturing parts, components, bodies and chassis involved in automobile manufacturing, the latter is engaged in assembling of all these components into an automobile. The Indian automotive component manufacturing sector consists of 500 firms in the organised sector and around 31,000 enterprises in the unorganised sector. In the domestic market, the firms in this sector supply components to vehicle manufacturers, other component suppliers, state transport undertakings, defence establishments, railways and even replacement market. A variety of components are exported to OEMs abroad and after-markets worldwide. Jamnalal Bajaj Institute of Management Studies, Mumbai 5 Background of the Industry Auto Industry - Volumes (FY11e) Auto Industry - Revenues (FY11e) 4% 37% 4% Passenger Vehicles Passenger Vehicles Commercial Vehicles Commercial Vehicles 36% Three Wheelers Three Wheelers 17% 75% Two Wheelers Two Wheelers 4% 22% The automobile manufacturing sector, which involves assembling the automobile components, comprises two-wheelers, three-wheelers, four-wheelers, passenger cars, light commercial vehicles (LCVs), heavy trucks and buses/coaches. In India, mopeds, scooters and motorcycles constitute the two-wheeler industry, in the increasing order of market share. Driven by extremely deep forward and backward linkages with several key segments of the economy, the automobile industry provides direct and indirect employment to approximately 15 million people and contributing 17% to the country’s indirect tax kitty. More importantly, an uptick in the automobile sector has a very strong multiplier effect. It is estimated that every car, CV, 2-wheeler and 3-wheeler produced, generates direct and indirect employment of 5.3, 13.3, 0.5 and 3.9 units respectively, which translates into an additional employment of 25 million by 2016 Jamnalal Bajaj Institute of Management Studies, Mumbai 6 This makes the automobile sector one of the key drivers for economic growth and leads us to believe that no government will deter the industry growth rate by way of an unfavorable tax regime as it has a direct bearing on the economy. In 2009-10, the Indian auto sector had produced over 10.6 million two wheelers and 2.4 million passenger cars and utility vehicles. India is a global major in the two-wheeler industry producing motorcycles, scooters and mopeds principally of engine capacities below 200 cc. It is the second largest producer of two-wheelers and 13th largest producer of passenger cars in the world. Tata figures among the ten largest global manufacturers of LCVs, heavy trucks, buses and coaches, while it is among the top 25 in passenger car manufacturing. Commercial Vehicle Growth 50.0% 16.0% 40.0% 14.0% 30.0% 12.0% 20.0% 10.0% 10.0% 8.0% 0.0% 6.0% FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11e -10.0% 4.0% -20.0% 2.0% -30.0% 0.0% Commercial Vehicles Growth (LHS) IIP Growth (RHS) Jamnalal Bajaj Institute of Management Studies, Mumbai 7 Three-wheeler Growth 30.0% 16.0% 25.0% 14.0% 20.0% 12.0% 15.0% 10.0% 10.0% 8.0% 5.0% 6.0% 0.0% -5.0% FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11e 4.0% -10.0% 2.0% -15.0% 0.0% Three-wheeler Growth (LHS) IIP Growth (RHS) The two-wheeler industry in India has grown at a compounded annual growth rate of more than 10 per cent (in number) during the last five years and has also witnessed a shift in the demand mix, with sales of motorcycles showing an increasing trend. Indian two-wheelers comply with some of the most stringent emission and fuel efficiency standards worldwide. 12,000 Two-wheelers 30.0% 10,000 24.0% Thousands 8,000 18.0% 6,000 12.0% 4,000 6.0% 2,000 0.0% 0 -6.0% FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11e Two-wheelers volumes (LHS) Per C apita Income Growth (RHS) Jamnalal Bajaj Institute of Management Studies, Mumbai 8 The passenger vehicle segment has been growing at a rapid pace -- from over 6,50,000 vehicles sold during 2001 to 2.4 million vehicles in 2009-10. Visible in the chart below, passenger vehicle growth has a strong linkage to per capita income growth. Between FY03 – FY10, domestic passenger vehicle volume has grown by 16%, whereas, export volumes of passenger vehicles have grown by 30%. This is on account of India gaining acceptance as a credible and preferred outsourcing hub for several global auto makers. Passenger Vehicle Growth 30.0% 30.0% 25.0% 25.0% 20.0% 20.0% 15.0% 15.0% 10.0% 10.0% 5.0% 5.0% 0.0% 0.0% FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11e -5.0% -5.0% Passenger Vehicles Growth (LHS) Per C apita Income Growth (RHS) Passengar car sales Volumes (Finance vs cash) 29% 31% 40% Top 10 cities Others 45% 55% 71% 69% 60% November 2008 Peak Low Current Finance Cash Jamnalal Bajaj Institute of Management Studies, Mumbai 9 Key players & segment market share Domestic Sales Exports Category For the month of Cumulative For the month of Cumulative Segment/Subsegment March April-March March April-March Manufacturer 2010 YoY Growth 09-10 YoY Growth 2010 YoY Growth 09-10 YoY Growth Passenger Vehicles(PVs) BMW India Pvt Ltd 605 26.57 3,941 29.72 0 0.00 0 0.00 Fiat India Automobiles Pvt Ltd 2,161 21.34 24,806 208.03 200 - 1,114 85.36 Force Motors Ltd 718 27.53 5,917 16.87 0 - 19 -73.61 Ford India Pvt Ltd 9,478 203.10 36,887 31.85 154 196.15 1,537 132.88 General Motors India Pvt Ltd 11,297 127.17 87,093 41.55 33 17.86 493 314.29 Hindustan Motors Ltd 1,340 49.89 10,714 16.68 0 0.00 1 - Honda Siel Cars India Ltd 5,928 -19.54 61,803 17.90 18 50.00 105 45.83 Hyundai Motor India Ltd 31,501 27.26 314,981 29.05 23,534 9.94 285,658 12.75 International Cars & Motors Ltd 70 -50.00 1,011 -70.98
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