The India Opportunity Automotive Perspective 2012 and Beyond

India, the worlds largest democracy and a high-growth emerging economy, is increasingly being seen as an important market for global automotive companies.
With Indias economy continuing its robust growth, the automotive sector is well-poised to reap the benefits. Favorable demographics, expanding population, low vehicle penetration, abundant availability of skilled talent, and a maturing automotive components segment have propelled India-based automotive companies to play an important role at global levels. While international companies are eyeing India for top line growth, the country also remains a favored outsourcing hub for many automotive multinationals, not just for lower-cost manufacturing, but increasingly as a source of higher value innovation. A history and future of sustainable growth The Indian automotive sector is expected to witness strong growth through 2020. Achievement of these volumes will position India as one of the top five vehicle-producing countries in the world, versus seventh largest as it stands today. Vehicle production in India (000 Units)
3,500 3,000 30,00033,500 22,100 10,230 8,7009700 2,500 5,100 2,200 Key Segments Two & Three Wheelers Passenger Vehicles SCVs M&HCVs LCVs 1,1001,220 670 150 Two & Three Wheelers Passenger Vehicles 2009 SCVs 2015 (E) 200 540600 390 470530 360 LCVs CAGR 2009-15 13.7% 15.0% 28.3% 11.8% 20.1% CAGR 2015-20 7 .5% 12.5% 11.6% 7 .9% 6.8%

Opportunities abound in the Indian market OEM (Original Equipment Manufacturer) Spotlight While India has historically been recognized as a predominantly small car market, new high-growth areas across segments are emerging, presenting opportunities for multinational automotive companies. Indian passenger vehicle sales market
Segment Sales Growth Executive A5: Premium A2: Compact Mid-size Utility Vehicles 15,000 640 21% 10% 2 Luxury

Mini

A1:

A3:

Median Approx Price (USD/unit) Sales FY11 (000 units) Share of market (FY11) CAGR FY 08-11(%) Segment Rank

5,300 120 4% 2*% 4

7 ,800 1,740 58% 19% 1

13,000 450 15% 18% 3

15,000 60 2% 8% 5

31,000 17 1% 37% 6

63,000 1.6 0.1% 26% 7

000 Units

2,000 1,500 1,000 500 0

Note: Mini and Compact are called small car segment; the figures are for period ending AprilMarch, * CAGR for FY06-11 Source: Crisil Research; KPMG Analysis

The OEM landscape is witnessing strong competition with the entry of international OEMs.
120

M&HCVs 2020 (E)

Domestically established OEMs: The home-grown OEMs have developed suitable products with affordable features (higher localized content), supported by well functioning dealer/service networks. Globally established OEMs: These OEMs (international OEMs that have been present in India for >15 years) are aiming for higher localization while maintaining the perception of high-quality products. New global OEMs: These OEMs (international OEMs that have entered the Indian market quite recently, i.e., over the last 3 to 4 years) are enhancing their market reach beyond tier 1 cities and have devised ambitious long-term growth plans. While most of the OEMs are focused on the domestic Indian market opportunity, some also aim to make India a global hub for their small/compact car production.
2012 KPMG LLP a Delaware limited liability partnership and the U.S. member firm of the KPMG , network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in the U.S.A. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International. 25965NSS

Source: Publically available data (from Automotive Components Manufacturers Association, ACMA); KPMG Analysis

The growth in the region is expected to continue due in part to strong underlying economic fundamentals: Favorable demographics: 1.2 billion people; ~60% below 30 years of age Rising incomes: Middle class to reach ~25% of overall population by FY2015 Low vehicle penetration (15 per thousand population) Increasing availability of auto finance at competitive rates

The India Opportunity

A6:

A4:

Supplier Spotlight The Indian automotive component supplier market is showing robust growth and has developed capabilities across a broad spectrum of categories and parts. While the mainstay of the automotive component supplier industry remains the domestic automotive OEM market, exports are expected to experience significant growth over the next few years. Automotive component market in India
120 CAGR (2009-15): 15% CAGR (2015-20): 11% 100 27.5 80 $ USD Bn 58.4 60 9.4 40 25.8 20 3.8 22 0 2009 Domestic 2015 (E) Export 2020 (E) 49 80 107.5

However, a few challenges such as transparency and bureaucracy red tape still remain which may hinder the automotive sectors growth. The government is committed to bring in policy reform measures to help address these issues. In addition, recognizing that global competitiveness requires good roads and an improved infrastructure, the Indian government planned to spend USD 500 billion (over 20072012) to improve the countrys transportation and logistics infrastructure. Given the scope of work required, the investment levels are likely to be sustained well beyond 2012 as well. Capturing strategic opportunities The India automotive sector offers multiple opportunities to an automotive industry participant: Leveraging India as a global manufacturing hub for small cars and components. Utilizing India as an innovation hub for new/emerging vehicle categories given specific Indian market requirements has led to the introduction of Small Commercial Vehicles (sub 1 ton), alternate fuel vehicles (CNG/LPG), and alternate mobility options such as fleet taxis, etc. Tapping the huge auto component demand-supply equation to their advantage (given that automotive OEMs have already committed huge investments in the Indian market) While multiple routes are available for international players to enter India, historically, joint ventures or partnerships have been more attractive as both the international and Indian partners are able to leverage each others strengths to joint ventures advantage. How KPMG can help This KPMG Automotive Perspective provides only a brief outline of the potential opportunities that exist to help global automotive companies optimize their strategy with emerging markets such as India. With offices across the globe, KPMG brings deep local knowledge to help companies in various stages of planning, from market assessment and entry strategy, to location assessment, joint venture and business combinations, including postacquisition business performance improvement.

Source: Publically available data (from Automotive Components Manufacturers Association, ACMA); KPMG Analysis

Enabling business environment yet challenges remain The government of India has identified the automotive industry as a focus industry for Foreign Direct Investment (FDI) given its importance from an employment generation perspective. Automotive sector employment (direct and indirect) is expected to almost double from the current 13 million (2011) to 25 million by 2016. Consequently, the barriers for FDI in the automotive industry are quite relaxed. FDI up to 100 percent is allowed under automatic route. In addition, the government is consciously pursuing efforts to refine the tax environment to be more investor friendly with the likely introduction of Direct Tax Code (DTC) and Goods and Service Tax (GST) in the near future.

For more information, contact your local KPMG representative or visit kpmg.com. Authors KPMG India Contacts: Neeraj Jain Partner, Strategy Services Group KPMG in India +91 95602 24446 neerajjain@kpmg.com Umesh Arora Strategy Services Group KPMG in India +91 95604 45666 umesh@kpmg.com KPMG U.S. Contacts: Gary Silberg Head of Automotive KPMG in the U.S. 312-665-1916 gsilberg@kpmg.com Chris Brower Strategic Services Group KPMG in the U.S. 313-230-3096 cdbrower@kpmg.com

2012 KPMG LLP a Delaware limited liability partnership and the U.S. member firm of the KPMG , network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in the U.S.A. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International. 25965NSS