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Over a period of more than two decades the Indian Automobile industry has been driving
its own growth through phases. With comparatively higher rate of economic growth rate
index against that of great global powers, India has become a hub of domestic and
exports business. The automobile sector has been contributing its share to the shining
economic performance of India in the recent years.
2).Technical Analysis
1) FUNDAMENTAL ANALYSIS
a). ECONOMY
Economic analysis is the analysis of forces operating the overall economy a country.
Economic analysis is a process whereby strengths and weaknesses of an economy are
analyzed. Economic analysis is important in order to understand exact condition of an
economy. GDP and Automobile Industry In absolute terms, India is 16th in the world in
terms of nominal factory output. The service sector is growing rapidly in the past few
years. This is the pie- chart showing contributions of different sectors in Indian economy.
The per capita Income is near about Rs38,000 reflecting improvement in the living
standards of an average Indian. Today, automobile sector in India is one of the key
sectors of the economy in terms of the employment. Directly and indirectly it employs
more than 10 million people and if we add the number of people employed in the auto-
component and auto ancillary industry then the number goes even higher.
As the world economy slips into recession hitting the demand hard and the banking sector
takes conservative approach towards lending to corporate sector, the GDP growth has
downgraded it to 7.1 percent for 2008-09 and predicted it to be 6.5 per cent for FY 2009-
10 Mr. Montek Singh (Planning Commission of India). Following is the graph showing a
trend of Indian GDP trend in past 3 years.
The market value of Automobile Industry is more than US$8 bl. and Contribution in
Indian GDP is near about 5% and will be double by 2016. The automotive industry in
India grew at a computed annual growth rate (CAGR) of 11.5 percent over the past five
years, but growth rate in last FY2008-09 was only 0.7% with passenger car sales shows
1.31% growth while Commercial Vehicles segment slumped 21.7%.
Recession All the major auto companies enjoyed the high growth ride till the mid 2008.
But at the end of the year, industry had to face the hard truth and witnessed the fall in
sales compared to last year. In December 2008, overall production fell by 22 % over the
same month last year. Global recession has hit the Indian auto industry, India is strong
and growing industry but the impact of recession is evident now on industry as sales &
growth of automobile companies have declined. Passenger Vehicles segment registered
negative growth.
One of its supporting facts is that the sales in December 2008 for passenger vehicles fell
by 13.86% over December 2007 Two Wheelers registered minor growth of 1.85 %
during April – December 2008. However, Two Wheelers sales recorded 15.43 percent
fall in December 2008 over the same month last year. Although the sector was hit by
economic slowdown, overall production (passenger vehicles, commercial vehicles, two
wheelers and three wheelers) increased from 10.85 million vehicles in 2007-08 to 11.17
million vehicles in 2008-09. Passenger vehicles increased marginally from 1.77 million
to 1.83 million while two-wheelers increased from 8.02 million to 8.41 million. Total
number of vehicles sold including passenger vehicles, commercial vehicles, two-wheelers
and three-wheelers in 2008-09 was 9.72 million as compared to 9.65 million in 2007-08.
Inflation Despite of negative inflation these days (-.21% on 22-Aug-09) we saw an
increasing trend of sales in auto sector. A moderate amount of inflation is important for
the proper growth of an economy like India because it attracts more private investment.
The fall in wholesale prices from a year earlier is mainly due to a statistical base effect
and doesn’t suggest contraction in demand, the Reserve Bank of India said few week
back, while revising its inflation forecast for the FY through March to around 5% from
4%.
In last FY despite of skyrocketing oil prices (crude oil price has already up to $130
compared to $20 per barrel five years back), Indian automobile Industry was not as much
affected and experts think that Indian automobile industry will continue to grow this year
despite all obstacles- oil price hike, higher interest rates. However, the effect of inflation
has affected every sector which is related to car manufacturing and production. The
increase in the price of fuel and the steel due to inflation has led to a slower growth rate
of the car industry in India. The effect of inflation has taken the rise in the price rate
of the cars by 3-4% which in turn suffices the need to meet the rise in price of the raw
materials to build a car. The car market and the car industry witnessed a fall of 8-9%.
Indian Automobile Industry at Global level:
Volkswagen, Toyota, Nissan & Ford plan new cars to cash in on fastest-growing compact
car section of car market in India. Source: Economic Times Sales of different Auto
Companies speed up even before festive season Maruti by 29%, TATA by 11%,Skoda
Auto 33%, Hero Honda 33%, Mahindra 42%, Yamaha 63% etc.
The current trends of the global automobile industry reveal that in the developed
countries the automobile industries are stagnating as a result of drooping markets,
whereas the automobile industry in the developing nations, have been consistently
registering higher growth rates every passing year for their domestic flourishing domestic
automobile markets.
Being one of the fastest growing sectors in the world its dynamic growth phases are
explained by the nature of competition, Product Life Cycle and consumer demand. The
industry is at the crossroads with global mergers and relocation of production centers to
emerging developing countries.
In 2009, estimated rate of growth of India Auto industry is going to be 9% .The Indian
automobile sector is far from being saturated, leaving ample opportunity for volume
growth.
Segmentation of Automobile Industry
The automobile industry comprises of Heavy vehicles (trucks, buses, tempos, tractors);
passenger cars; Two-wheelers; Commercial Vehicles; and Three- wheelers. Following is
the segmentation that how much each sector comprises of whole Indian Automobile
Industry.
Industrial Analysis of any industry can be done based on the following headings:
1. Five Forces Model
2. BCG Matrix
3. Industrial Life Cycle
4. SWOT Analysis
5. Industry Specific Index
Degree of Rivalry
Despite the high concentration ratio seen in the automotive sector, rivalry in the Indian
auto sector is intense due to the entry of foreign companies in the market. The industry
rivalry is extremely high with any being product being matched in a few months by the
competitors. This instinct of the industry is primarily driven by technical capabilities
acquired over years of gestation under the technical collaboration with international
players.
Threat of Substitutes
The threat of substitutes to the automotive industry is fairly mild. Numerous other forms
of transportation are available, but none offer the utility, convenience, independence and
value offered by automobiles. The switching cost associated with using a different mode
of transportation, may be high in terms of personal time, convenience and utility.
Barriers to entry
The barriers to enter automotive industry are substantial. For a new company, the startup
capital required to establish manufacturing capacity to achieve minimum efficient scale is
prohibitive. Although the barriers to new companies are substantial, establishing
companies are entering the new markets through strategic partnerships or through buying
out or merging with other companies. However, a domestic company, with local
knowledge and expertise, has the potential to compete its home market against the global
firms who are not well established there.
Supplier’s power
In the relationship between the industry and its suppliers, the power axis is tipped in
industry’s favor. The industry is comprised of powerful buyers who are generally able to
dictate their terms to the suppliers.
Buyers’ Power
In the relationship between the automotive industry and its ultimate consumers, the
power axis is tipped in the consumers’ favor. This is due to the fairly standardized nature
and the low switching costs associated with selecting from among competing brands.
Strengths
Weaknesses
• Low labor productivity
• High interest costs and high overheads make the production uncompetitive
• Various forms of taxes push up the cost of production
• Low investment in Research and Development
• Infrastructure bottleneck
Opportunities
• Commercial vehicles: SC ban on overloading
• Heavy thrust on mining and construction activity
• Increase in the income level
• Cut in excise duties
• Rising rural demand
Threats
• Rising input costs
• Rising interest rates
• Cut throat competition
Government Policies Towards Indian Automobile Industry
• FIIs including overseas corporate bodies (OCBs) and NRIs are permitted to invest
up to 49 per cent of the paid-up equity capital of the investee company, subject to
approval of the board of directors and of the members by way of a special
resolution.
• Specific component of excise duty applicable to large cars and utility vehicles will
be reduced to 15,000 rupees per vehicle from 20,000 rupees earlier.
• The Proposal by the Govt. to set up an expert group to advise on a viable and
sustainable system of pricing petroleum products, as this will surely had an
impact on the Automobile Industry.
• The announced reduction on the basic customs on bio-diesel is great news for all
companies working on environmental saving technologies.
2.) TECHNICAL ANALYSIS
Technical analysts track price movements and trading volumes in various securities to
identify patterns in the price behavior of particular stocks, mutual funds, commodities, or
options in specific market sectors or in the overall financial markets.The goal is to predict
probable, often short-term, price changes in the investments that they study, which allows
them to choose an appropriate trading strategy. Following is the Technical Analysis of
TATA Motors & Maruti Suzuki to understand their pattern and behavior of share prices
in the market.