Automotive Industry Report Ibef

A U TO M OT I V E I N D U S T RY
October 2007
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AU TO M OT I V E I N D U S T RY
October 2007
Contents
Profile of Indian Automotive Industry Growth Potential of Indian Automotive Industry India as a Manufacturing Hub
PROFILE OF INDIAN AUTOMOTIVE INDUSTRY
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PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY

AUTOMOTIVE INDUSTRY October 2007
Evolution of the Indian automobile industry

Pre 1983 Closed market Growth of market limited by supply Outdated models - Players Hindustan Motors Premier Telco Ashok Leyland Mahindra & Mahindra 1983-1993 1993-2007 Japanisation - GoI- Delicensing of sector in Suzuki joint venture 1993 to form Maruti Udyog Global major OEMs start Joint ventures assembly in India (GM, with companies in Ford, Honda, Hyundai) commercial vehicles and components Imports allowed from April 2001 alignment of duty on components and - Players Maruti Udyog parts to ASEAN levels Hindustan Implementation of VAT Motors Premier Telco Ashok Leyland Mahindra & Mahindra

Indian automobile industry crossed a historic landmark of 10 million vehicles in 2006-07

I ndiaspositioninworldproduction 2nd in two wheelers 11th in passenger cars 13th in commercial vehicles Indian auto industry sales grew to 11.12 billion units in 2006-07, exhibiting an impressive CAGR of 15.5% during the past 5 years Two wheelers have the maximum share in the industry by volume, followed by passenger vehicles, three wheelers and commercial vehicles Maximum growth has been witnessed in the commercial vehicles segment, followed by three-wheelers
Automotive sales (domestic and exports )
2002 2003 2004 2005 2006 2007 million units Source: SIAM, IMaCS analysis 11.12 5.41 6.25 7.29 8.53 CAGR 15.5%
Segment Two wheelers Passenger vehicles Three wheelers Commercial vehicles
Share in total CAGR 76.2% 14.2% 4.9% 4.7% 14.5% 16.7% 20.5% 26.7%

The OEM as well as the component industry is highly competitive

GM Toyota Ford Hyundai Maruti Suzuki Honda Skoda Volvo Mercedes Delphi Visteon Bosch Denso Valeo Thyssen Krupp Tata Motors Mahindra & Mahindra Bajaj Auto TVS Motors Hero Honda Bajaj Tempo Ashok Leyland Bharat Gorge Sundram Fasteners Rane Group Shriram Pistons RICO Auto Sona Koyo Steering
Global OEM
Indian OEM
Global Suppliers
Indian Suppliers

The OEM as well as the component industry is highly competitive

The Indian auto industry is highly competitive with a number of global and Indian auto companies present The supplier industry is equally competitive with a mix of global and Indian players

Most automotive players are present in more than one segment

Manufacturer Ashok Leyland Asian Motor Works Atul Auto Bajaj Auto BMW India Daimler Chrysler India Eicher Motors Electrotherm India Fiat India Force Motors Ford India General Motors India Hero Honda Motors Hindustan Motors Honda Hyundai Motors Kinetic Motor Segments LCVs, M&HCVs, buses M&HCVs Three wheelers Two and three wheelers Cars and MUVs Cars LCVs, M&HCVs, buses Electric two wheelers Cars Three wheelers, MUVs and LCVs Cars and MUVs Cars & MUVs Two Wheelers Cars, MUVs and LCVs Two wheelers, cars and MUVS Cars and MUVs Two wheelers Manufacturer Mahindra & Mahindra Majestic Auto Maruti Suzuki Piaggio Reva Electric Car Co. Royal Enfield Motors Scooters India SkodaAuto India Suzuki Motorcycles Swaraj Mazda Ltd Tata Motors Tatra Vectra Motors Toyota Kirloskar TVS Motor Co Volvo India Yamaha Motor India Segments Three wheelers, cars, MUVs, LCVs Three wheelers Cars, MUVs, MPVs Three wheelers, LCVS Electric cars Two wheelers Three wheelers Cars Two wheelers LCVs, M&HCVSs, buses Cars, MUVs, LCVs,M&HCVs, buses M&HCVs Cars, MUVs Two wheelers M&HCVs, buses Two wheelers
MUVs: Multi utility vehicles; MPVs: Multi purpose vehicles; LCV: Light commercial vehicles; M&HCVs: Medium and heavy commercial vehicles

Two wheelers industry is dominated by motorcycles

Domestic two wheeler industry
Million units 2002 2003 2004 2005 2006 2007 0 1 2 3 4 5 6 7 4.2 4.81 5.36 CAGR 13% 6.21 7.05 7.86 83% 8 12% 5%
Break up of the industry by segment

Scooter/Scooterette : Wheel size less than or equal to 12 inches Motorcycle: Wheel size more than 12 inches Mopeds: Engine capacity less than 75 cc with fixed transmission, wheel size more than 12 inches Electric Two Wheelers: Electrically Driven
Source: SIAM, IMaCS Analysis
n Motorcycles n Mopeds
n Scooters

Two wheelers industry is dominated by motorcycles

Domestic two wheeler industry has steadily grown at a CAGR of 13% to reach 7.85 million units in 2006-07 Motorcycle segment has attained highest growth and dominates the market Entry level bikes (engine power below 125 cc and price US$ 850-1,100) account for around 80% sales Cost of ownership and economics of operation are key purchase criteria Premium bike segment (engine power above 125 cc and price US$ 1,200-2,000) growing at a faster pace as compared to the entry level vehicles, an indication of increasing affluence of users

While the motorcycles segment is growing, the scooter segment is shrinking

Scooter segment as a whole has been shrinking, except for the A2 segment Bikes having engine capacity 75-125 cc corner the major share of the two wheeler market Cost of ownership and economics of operation are most important criteria determining purchase
Segment-wise analysis of two wheeler market
Segment A1 A2 A3 B2 B3 B4 C1 Description Scooter with engine capacity less than 75 cc Scooter with engine capacity between 75-125 cc Scooter with engine capacity between 125-250 cc Motorcyclewithengine capacitybetween75-125cc Share in 2001-02 5% 5% 12% 62% Share in 2006-07 0% 10% 1% 66% 17% 1% 5% CAGR -33.9% 32.9% -27.7% 14.9% 44.8% 5.7% -2.7%
Motorcyclewithengine 5% capacitybetween125-250cc Motorcycle with engine capacity above 250 cc Mopeds 1% 10%

The domestic two wheeler market is dominated by Indian as well as foreign players
Hero Honda: Largest Two-wheeler manufacturer in the world Bajaj Auto: Second largest Two-wheeler manufacturer in India and the largest 3 wheeler manufacturer TVS Motor Co: Third largest Two-wheeler manufacturer in India. Established a manufacturing facility in Indonesia Honda Motors: Has recently entered the Indian market through its direct subsidiary (in addition to its joint venture Hero Honda) Suzuki: Has recently entered the Indian market through its direct subsidiary
n Hero Honda Motors n TVS Motor Co, n Others
Market share of key players in 2006-07

3% 9%
42% 19%
27%
n Bajaj Auto Ltd n HMSIL
Source: SIAM, IMaCS analysis

The domestic two wheeler market is dominated by Indian as well as foreign players
In the Two-wheeler market in India, competition is intense with around 10 players competing for the share of the industry The players include global giants like Honda, Suzuki, Yamaha as well as Indian players like Bajaj and TVS The market leader is Hero Honda Motors, closely followed by Bajaj Auto Industry is characterised by frequent new product launches, with over 20 models launched in 2006-07

Two wheelers exports have grown at an impressive CAGR of 42%

Two wheeler exports from India Thousand units
2002 2003 2004 2005 2006 2007 0 100 200 300 400 500 600 104.2 179.7 265.1 366.4 513.2 619.2 700 15% CAGR 42.8% 16% 10%
Market share of key players in exports 2006-07

13%
46%
Source :SIAM, IMaCS Analysis
(in 000 units)
n Bajaj Auto n TVS Motor Company n Others
n Hero Honda Motors Ltd n Yamaha India

Two wheelers exports have grown at an impressive CAGR of 42%

Exports of two wheelers have grown at over 42% CAGR in last 5 years Majority of exports are to Bangladesh, Sri Lanka, Bhutan and Nepal Highest growth (CAGR of 57.2%) witnessed in motorcycles segment, which constituted 88% of Two-wheeler market Most of the bikes exported were those with engine capacity below 125 cc, indicating preference for Indian made economy bikes Bajaj Auto is the market leader in exports with 46% share

Passenger vehicles segment in India is dominated by cars

Domestic passenger vehicles industry thousand units
2002 2003 2004 2005 2006 2007 200 400 600 800 1000 1200 675.1 707.2 902.1 1061.6 1143.1 1379.7 1400 CAGR 15.4% 78% 22%
Domestic passenger vehicles industry
n Passenger cars
n SUVs/MVs

Passenger vehicles segment in India is dominated by cars

The domestic Indian passenger vehicles market has grown at a CAGR of 15.4% over the last 5 years to reach 1.38 million units in 2006-07 Passenger cars, contributing to 78% of volumes, grew at a CAGR of 16% The remaining share is with utility vehicles and sports vehicles

All major global players in passenger vehicles segment have a presence in India
Maruti Udyog: Largest passenger car manufacturer in the country, India considered as strategic market by Suzuki Tata Motors: Largest automotive player in the Indian industry; launching the Rs. 1 lakh (US$ 2,500) car Hyundai Motors: Third largest passenger car manufacturer in India, has established India as one of its manufacturing bases in the world
Market shares of key players in 2006-07
13%
4%
7% 46% 14%
16%
n Maruti Udyog Ltd. n Mahindra & Mahindra
n Tata Motors Ltd . n Toyota
n Hyundai Motor India Ltd. n Others

Mahindra & Mahindra: Amongst the largest players in the multi utility vehicles segment, has tied up with Renault for manufacturing and marketing of Logan brand of cars in India Toyota: Has vision of capturing 10% share of the Indian passenger car market by 2010 Honda Motors: One of the leading players in the Indian premium cars segment Ford: Leading player in the premium cars segment General Motors: Leading player in the premium segment; entered the compact car segment recently

There are more than a dozen manufacturers in the industry Most of the leading global players have a presence in India in the form of joint ventures or subsidiaries The industry leader is Maruti Udyog with 46% market share, closely followed by Tata Motors and Hyundai Motors at 16% and 14% respectively

India is increasingly becoming a manufacturing hub for passenger cars

Cars Exports from India Thousand units
2002 2003 2004 2005 2006 2007 0 25 50 Source: SIAM, IMaCS Analysis 75 100 125 150 53.17 72.01 129.29 CAGR 30% 166.40 175.57 198.48 175 200 20% 58% 12%
Market share of key players in Exports 2006-07

1% 9%
n Hyundai Motor India Ltd. n Ford India Pvt Ltd. n Others
n Maruti Udyog n Tata Motors

India is increasingly becoming a manufacturing hub for passenger cars

Exports of cars from India have grown at a CAGR of 30% CAGR in the last 5 years to reach 198 thousand units in 2006-07 Hyundai Motors is the market leader in exports of cars with 68% share; the company uses India as a manufacturing base for compact cars across the globe Exports are made to South America, Africa, Europe, Latin America and the Middle East

Commercial vehicles segment has witnessed the highest growth rate in the automotive industry
Domestic CV Industry
2002 2003 2004 2005 2006 2007 0 100 200 300 400 146.67 190.68 260.11 318.43 351.04 467.88 500 36% 53% CAGR 26% 6% 5%
Breakup of the Industry by segment
n M & HCV Goods n M & HCV Passenger
n LCV Goods n LCV Passenger

Commercial vehicles segment has witnessed the highest growth rate in the automotive industry
Domestic CV industry sales reached 467.88 thousand vehicles in 2006-07, registering a CAGR of 26% over last 5 yrs Share of LCVs is gradually increasing, indicating the emergence of hub and spoke model of transportation While the passenger bus industry has seen only a moderate growth, goods industry grew 37% in FY 2006-07 Goods industry is dominated by multi axle vehicles, which account for nearly 50% of the market

CV industry is dominated by Indian players

Tata Motors Ltd: Largest commercial vehicle manufacturer in the country, has acquired the Korean manufacturer Daewoo Gap Motors Ashok Leyland Ltd: Second largest player with considerable market share in M&HCV segment; has formed a JV to manufacture LCVs with Nissan Mahindra & Mahindra Ltd: Relatively new player in the segment; has formed JV with International Trucks to manufacture M&HCV trucks in India Eicher Motors Ltd: Leading player in the LCV trucks segment; has entered the M&HCV trucks segment recently Swaraj Mazda Ltd: One of the leading players in the LCV segment Volvo India: One of the leading players in luxury passenger buses and heavy duty tippers
n Tata Motors Ltd n Ashok Leyland Ltd n M&M Ltd n Eicher Motors Ltd n Others
Market Shares of Key Players in 2006-07

4%
6% 10%
16%
64%

CV industry is dominated by Indian players

Tata Motors is the market leader in both goods and passenger segments, closely followed by Ashok Leyland LCV market is dominated by Tata Motors, followed by Mahindra & Mahindra Introduction of Tata Ace has contributed significant growth in the sub 1 tonne segment All the players in the segment are in the process of enhancing the capacities and launching new products

Indian CV exports have witnessed a more impressive growth

CV Exports from India Thousand units
2002 2003 2004 2005 2006 2007 0 10 20 30 40 11.87 12.26 17.43 29.94 40.60 49.77 50 CAGR 33.2% 11%
Market Share of Key Players in Exports

6%
12% 71%
n Tata Motors n M&M Ltd
n Ashok Leyland n Others

Indian CV exports have witnessed a more impressive growth

Exports have grown at a fast pace of over 33% over the last 5 years Tata Motors accounts for more than 70% of the CV exports, with Ashok Leyland and Mahindra & Mahindra making up for a large portion of the balance LCV goods carriers accounted for 52% of the overall exports Major portion of the exports are to Sri Lanka, Gulf countries and Africa

Growth in three wheelers has been driven by the need for low cost last mile transportation system
Domestic three wheeler Industry (units)
2002 2003 2004 2005 2006 2007 0 100 Source: SIAM, IMaCS Analysis 200 300 400 200.28 231.53 284.08 307.86 359.92 403.91 500 CAGR 15% 41% 59%
Break-up of Industry by segment
n Passenger
n Goods

Growth in three wheelers has been driven by the need for low cost last mile transportation system
Three Wheeler sales in India touched a new record of 0.4 Million registering a growth of 15% CAGR over the last 5 years The proportion of Goods carriers in the proportion of overall sales has doubled indicating towards the increased need for low cost last mile transportation systems Sub 1 tonne segment in Goods accounted for 73% of the sales and Sub Four seater segment in passenger versions accounted for 97% of the sales

The three wheeler market is dominated by Bajaj Auto

Bajaj utoLtd. : Market leader in the A Three wheeler segment, in the process of revamping its product portfolio Piaggio Vehicles : The Italian manufacturer is one of the leading players with fast growing market share, in the process of making India as their global hub : M&MLtd One of the leading players in the segment tulAutoLtd: Have introduced new products A in the rear engine segment, and also is a manufacturer of Chakda a Three wheeler reengineered from Two wheeler, popular in the western parts of the country orceMotorsLtd: A JV between Bajaj Tempo F and MAN AG of Germany; leading player in the goods segment
n Bajaj Auto n M&M n Piaggio Vehicles n Others
Market Share of Key players 2006-07

11% 8%
45%
36%

The Three wheeler market is dominated by Bajaj Auto

Bajaj Auto emerged the leader in Three Wheeler industry with 45% share, closely followed by Piaggio with 36% share Bajaj Auto lead the passenger carrier segment with 58% share, while Piaggio lead the goods segment with 40% market share

Exports of Three wheelers have been growing rapidly, with Bajaj Auto the clear market leader
Exports of three wheelers touched a new high of 143.9 thousand units, registering a robust growth of 56% CAGR over the last 5 years This has been contributed almost entirely by Bajaj Auto, which accounted for around 98% of exports in 2006-07 Bajaj Auto exports to Sri Lanka, Egypt, Nepal, Bangladesh among other countries
Three wheeler exports and growth Thousand Units
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 0 25 50 Source: SIAM, IMaCS Analysis 75 100 125 15.46 43.37 68.14 66.80 76.88 143.90 150 175 CAGR 56.2%

Indian firms are increasingly partnering with foreign firms

Indian OEM Maruti Suzuki Mahindra Logan Tata motors KINETIC Group Foreign Partner Type of Partnership Suzuki Motor Corporation- Japan Equity partner Renault Fiat Sanyang Industry Co Ltd (SYMTaiwan Italjet -Italy Hero Hero Cycles Bajaj Auto Honda- Japan Ultra Motor Company, U.K Kawasaki Heavy Industries Ltd, Japan Engine Technology Kubota Corp, Japan L&T Ltd Ashok Leyland Scania-Spain Hino-Japan Irizar-Spain ZF-Germany Tata Motors Marco Polo-Brazil Cummins-USA Joint Venture Tie-up for manufacturing and marketing in India Technology Tie-up for manufacturing and distribution Technology Technology Engine Technology Technology Technology Tie-up for marketing in India Engine Technology Bus body Technology Gearbox Technology Bus/Coach Technology Engine Technology

Three major automotive clusters exist in India

Major automotive clusters - Mumbai-Pune-NasikAurangabad (West), Chennai-Bangalore-Hosur (South) and Delhi-Gurgaon-Faridabad (North) Export oriented companies have formed base in the West/South regions, due to proximity to ports


North/Central Ashok Leyland Force Motors Hindustan Motors Honda SIEL Kinetic Majestic Piaggio Swaraj Mazda East Hindustan Motors Tata Motors
Chennai Bangalore Hosur
Eicher Hero Honda Honda ICML LML Maruti Suzuki Yamaha Tata Motors
Ludhian a
Delhi-Gurgaon-NoidaGhaziabad Haridwar
Jamshedpur Pitampur Kolkata


West Ashok Leyland Bajaj Auto FIAT GM Kinetic Piaggio Skoda Atul Auto Daimler Chrysler Force Motors Greaves M&M Premier Tata Motors
Jamshedpur Pitampur Kolkata Ludhian a Delhi-Gurgaon-NoidaGhaziabad Haridwar


South Ashok Leyland Ford Hindustan Motors Mahindra & Mahindra Tatra Toyota Kirloskar Volvo TVS Motors
Jamshedpur Pitampur Kolkata
Enfield Greaves Hyundai

Ludhian a
Delhi-Gurgaon-NoidaGhaziabad Haridwar

Indian Auto Policy is designed for supporting the growth of the industry
In 2002, the Indian Government formulated an Auto Policy aimed at promoting an integrated, phased enduring and self-sustained growth of the industry
Automatic Approval for Foreign equity investment up to 100% No Minimum Investment Criteria
LOW ENTRY BARRIER
Investment Incentives by the Local State Governments: Most States Customise incentives for Large Investments
INVESTMENT INCENTIVES
Indian Auto Policy 2002
CONCERN FOR EMISSIONS
Governments intention on harmonizing the regulatory standards with the rest of world
EMPHASIS ON R&D
Weighted Tax Deduction up to 150% for in-house research and R&D activities Source: ARAI, IMaCS Analysis

Indian automotive regulations are in the process of being aligned with European regulations
Indian automotive regulations are closely aligned to the ECE regulations. The diagram below depicts the level of alignment of the Indian regulations with the ECE regulations The key regulations that are likely to impact the auto industry and create the need for world class products in the future are crash related regulations and introduction of Bharat Stage IV norms
81 21 20
2007 0 50 100 122
n Fully/ Partially Allign n In Process of Being Aligned n Items/ Regulations to be covered
Source: ARAI, IMaCS Analysis

Safety and emission related regulations in India - Achievements and Plans

Achievements Till Date Plan NCR and 10 Major Cities NCR and 10 Major Cities NCR and 3 Major Metros Entire Country NCR and 10 Major Cities Entire Country Entire Country Emission Regulations
EURO - IV EURO - III EURO - II EURO - I
2000
2001
2003
2005
2010
BrakesSteering effortGradeabilityInstallation of mirror, Horn & Lighting devicesRear Under run Protective Devices (RUPD) Lateral Protective Devices (LPD)Safety beltElectro Magnetic Interference (EMI)Wiping systemRear View Mirror etc
Anti Brake Skid 2007 Truck cab occupant protection -Crash Super structure of bus. Airbags Electro Magnetic Compatibility (EMC) Front Under run protective Devices (FUPD)
Safety Regulations
Source: ARAI, IMaCS Analysis

The Government of India has taken a strong initiative to strengthen automotive related R&D infrastructure
Facilities of National Automotive Testing and R&D Infrastructure Project (NATRIP)
Rae Bareilly Centre Complete homologation services to Agri Tractors, Off road Vehicles , Gensets as per Indian or Global standards & Driver Training centre Center of Excellence For Accident Data Analysis Commissioning Schedule Phase-I : July 2010; Phase-II :Aug 2010 Ahmednagar-VRDE Up-Gradation Research, Design, Development and Testing of Vehicles Centre of Excellence For Photometry, EMC, EMI,Test Tracks Commissioning Schedule Phase-I : July 2010; Phase-II :Aug 2010

Pune- ARAI Up-Gradation Complete homologation services to all vehicle categories as per Indian or Global Standards Centre of Excellence For Power Training Development, Materials, Fatigue Commissioning Schedule Phase-I : 2008; Phase-II : 2009
Manesar- iCAT Complete homologation services to all vehicle categories as per Indian or Global Standards Center of Excellence For Component Development, NVH Commissioning Schedule Phase-I : 2008; Phase-II : 2010

Silchar Centre Hill area Driver Training Centre and Inspection & Maintainence Facilities Centre of Excellence For Driver Training Commissioning Schedule Phase-I : 2008; Phase-II : 2010 Indore -Proving Grounds Complete Testing Facilities to all vehicle categories as per Indian or Global Standards Centre of Excellence For Vehicle Dynamics, Tyre Development Commissioning Schedule Phase-I : 2009; Phase-II : 2010

Chennai Centre Complete homologation services to all vehicle categories as per Indian or Global Standards Center of Excellence For Infotronics,EMC,Passive Safety Commissioning Schedule Phase-I : 2008; Phase-II : 2011
GROWTH POTENTIAL OF INDIAN AUTOMOTIVE INDUSTRY
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GROW T H P OT E N T I A L O F I NDIAN AUTOMOTIVE INDUSTRY

Growth drivers for the Indian automotive industry

- Overall economic growth - Lower duties and taxes Government Policies
- Contemporary products - Shorter life cycle
New products launches
Indian Automotive Industry
Increasing consumer demand
- Growth in income levels - Easier financing
Cost Competiveness - Export competitiveness - Reduced cost to consumer - India emerging as a manufacturing hub
GROW T H P OT E N T I A L O F I NDIAN AUTOMOTIVE INDUSTRY

Indian Automotive Mission Plan Vehicle sales expected to grow to 32 million by 2015-16
The size of the Indian automotive industry is expected to grow at 13% p.a over the next decade to reach around US$ 120-159 billion by 2016 The total investments required to support the growth are estimated at around US$ 35-40 billion The Two wheelers industry is expected to lead the growth, with an estimated sales of 27.8 million units by 2016 Total export in the automotive sector would be around US$ 30-5 billion, of which component exports would account for US$ 20-25 billion and vehicle exports for the rest
Potential vehicle sales in India (2015-16) million units
Cars
0.64
CVs
Two wheelers Three Wheelers
Total Source: SIAM, ACMA, AMP Vision & IMaCS Analysis
INDIA AS A MANUFACTURING HUB
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IN D I A A S A M A N U FAC T U R I NG HUB
Automotive exports have grown at an impressive CAGR of 40% in the last 5 years
Indian automotive exports have grown at a high CAGR of 40.5% over the last 5 years, with fastest growth in Three wheeler segment, followed by Two wheelers India is increasingly becoming a manufacturing hub of small cars for global majors
Automotive Exports (thousand units)
2002 2003 2004 2005 2006 2007 0 200 400 600 800 184.68 307.31 479.92 629.54 806.22 1011.28 1000 1200 CAGR 40.5%
Global auto companies are taking advantage of Indias manufacturing base

Hyundai Motors - 36% of its production is exported to 67 countries. Hyundai has shifted its entire production of the Atos Prime, its compact model, to its Chennai Plant. Similar plan is on the cards for Getz. Hyundai is planning to double the production capacity to 0.6 million cars, primarily to meet export demand Suzuki Motor Corp: It is investing US$ 2 billion in India, and plans to export 200,000 cars from India by 2010 Ford Motor Co: It exports 58% of the total production from India
Global auto companies are taking advantage of Indias manufacturing base

Tata Motors: The company plans to make its US$ 2,500 car available in other markets. It is setting up showrooms across Africa and has tied up with Italys Fiat to use its South American sales network Nissan Motor: Has recently announced plans to make cars in India and export them to Europe Honda Motor: Has begun building a new plant for premium hatchbacks in western India Toyota: Has set us a transmission plant in India to meet its regional demand
Source: Industry News
Several factors make India a favourite investment destination

Proven product developmental capabilities - More than 125 Fortune 500 (including large auto companies) have R&D centres in India - Companies can leverage Indias acknowledged leadership in the IT industry Proximity to Markets - Proximity to other Asian economies - Proximity to the emerging markets like Africa - Shipments to Europe are cheaper than those from Brazil and Thailand High quality standards - 9 Indian component manufacturers have won the Deming Award for quality - Most leading component manufacturers are QS and ISO certified
Stable economic policies - Continuity in economic reforms and policies related to investments India as an Auto Hub
Large and growing domestic demand - Demand growth of 14% CAGR makes India one of the fastest growing markets
Competitive manufacturing cost - Skilled labour costs amongst the lowest in India
Availability of Manpower - 0.4 million Engineering graduates pass out every year - 7 million enter workforce every year
Export Potential - Total value of exports by 2015 expected to reach US$ 810 billion for vehicles and US$ 2025 billion for components
Competitiveness of Indian automotive manufacturing

In order to emerge as a manufacturing hub, India would face competition from other low cost countries such as China Thailand Brazil IMaCS has compared the cost competitiveness of automotive (car and CV compared separately) manufacturing in India with respect to these countries in terms of factors like Taxes and duties Cost of manufacturing (for example, power and fuel costs, labour costs, including productivity interest rates) Economies of scale
Competitiveness of Indian automotive manufacturing

Competitiveness of manufacturing in India can be improved by reducing the level of taxes and the cascading impact of taxes and by improving the business infrastructure
Tax structure in India vis--vis other countries

The burden of direct and indirect taxes is higher in India than in other countries
India Thailand VAT Other Taxes Corporate Tax Exemptions 16.36% 12.5% 34% Specific packages provided by states for large investments 13% 8% Brazil 15% 18%* 28% Tax incentives for companies in export processing zones China 17% 33% Preferential corporate tax policies for Foreign Investment Enterprises 8% 2% Thailand 10% 30% Tax incentives for investments outside central zone
Import duty on rubber Import duty on steel *Refers to local taxes
16% 4%
Free 10%
Labour & Labour Productivity in India vis-a-vis other countries

India compares favourably with other low cost countries in productivity adjusted labour cost Indian labour productivity in the manufacturing sector is on an increase with the application of production management techniques and many companies have doubled their productivity in last 5 years
India Labour cost (US$/hour) Labour cost (US$/day)* Productivity index** Productivity adjusted labour cost (US$/day) 0.7 5.6 1.0 5.6 Brazil 4.1 32.8 2.0 16.4 China 0.7 5.6 1.0 5.6 Thailand 0.72 5.76 1.2 4.8
*Assuming 8 hour shift per day ** Gross value added per person employed when compared to India
Power Cost in India vis--vis other countries

Power cost in India is the highest amongst the competing countries However, power cost accounts for around 3% of the overall cost structure, hence not a significant disadvantage Power costs in India varies by state and is as low as US$ 0.1 in states like Maharashtra With privatisation and competition in the emerging Indian power sector, cost of power is expected to come under control Interest rates in India are high as compared to competing countries, but expected to soften in the future
Interest costs
Country India Brazil China Thailand Annual lending interest rate 10-11% 14-16% 5-6% 7-8%
Power costs
Country India Brazil China Thailand Cost per kwh (US$) 0.14 0.05 0.03 0.11
Cost competitiveness - India versus China

Indian manufacturers suffer from a cost disadvantage vis--vis Chinese manufacturers mainly because of higher level of taxes and their cascading impact, higher cost of labour (arising out of inflexible labour laws) and higher interest costs and power and fuel costs
Cost breakup Cost of vehicle of an Indian Company Less Taxes and Duties Net state level levies and cascading impact of taxes Import duty on raw materials Corporate taxes Total Industry costs Power & fuel Labour cost Cost of funds Total Cost disadvantage for India Economies of scale -4.8% -5.4% Cars 100 CV 100
-1.8% -6.6% -3.4% -0.8% -4.2% -10.8% no diff
-1.6% -7.0% -3.6% -0.8% -4.4% -11.4% no diff -11.4%
-10.8% Totalcost disadvantagefor India
Source: Government websites, discussions with leading automotive players, IMaCS analysis
Cost competitiveness - India versus Thailand

Indian vehicle manufacturers have a cost disadvantage vis--vis Thai vehicle manufacturers, primarily due to higher level of taxes in India However, the large market potential of the Indian market more than makes up for this disadvantage
Cost Break-up Cost of vehicle of an Indian Company Less Taxes and Duties Net state level levies and cascading impact of taxes Import duty on raw materials Corporate taxes Total Industry costs Power & fuel Labour cost Cost of funds Total Cost disadvantage for India Economies of scale -5.61% -5.86% Cars 100 CV 100
-0.60% -0.20% -6.41% -1.03% -1.28% -0.36% -2.67% -9.08% no diff
-0.20% -0.20% -6.26% -1.11% -1.56% -0.36% -3.03% -9.29% no diff -9.29%
-9.08% Totalcost disadvantagefor India
Source: Government websites, discussions with leading automotive players, IMaCS Analysis
Cost Competitiveness - India versus Brazil

India is competitively positioned vis--vis Brazil in cars as well as CV India enjoys greater scale advantage as compared to Brazil in the case of cars as capacity utilisation in India is better, despite Brazil having larger installed capacities
Cost Break-up Cost of vehicle of an Indian Company Less Taxes and Duties Net state level levies and cascading impact of taxes Import duty on raw materials Corporate taxes Total Industry costs Power & Fuel Labour cost Cost of funds Total Cost advantage for India Economies of scale -3.1% -3.9% Cars 100 CV 100
- 0.1% -3.2% - 2.0% 7.6% 0.9% 6.5% 3.3% 8.3%
- 0.1% -4.0% - 2.8% 16.2% 1.6% 15.0% 11.0% no diff 11.0%
11.6% Totalcost advantageforIndia

Source: Government websites, discussions with leading automotive players, IMaCS Analysis
Conclusions
India has a cost advantage when compared to Brazil However, India suffers from a cost disadvantage vis--vis China and Thailand, primarily due to high level of taxes and their cascading impact India, in the near future is expected to go ahead with the abolition of interstate Central Sales Tax (CST), which will reduce the cascading impact of taxes to some extent
October 2007
Conclusions
Implementation of Goods & Services tax (along the lines of VAT) and abolition of all other taxes by 2010 is under consideration, which will reduce the taxation loading on the automotive sector considerably. This step is expected to strengthen Indias future position as a leading automobile manufacturing hub Various steps being taken by the Indian government in improving infrastructure would reduce the disadvantage that India suffers from because of poor infrastructure that causes project delays, delays in deliveries and so on. This would increase the demand for road transportation in the country
October 2007
DISCLAIMER
This presentation has been prepared jointly by the India Brand Equity Foundation (IBEF) and ICRA Management Consulting Services Limited, IMaCS (Authors). All rights reserved. All copyright in this presentation and related works is owned by IBEF and the Authors. The same may not be reproduced, wholly or in part in any material form (including photocopying or storing it in any medium by electronic means and whether or not transiently or incidentally to some other use of this presentation), modified or in any manner communicated to any third party except with the written approval of IBEF. This presentation is for information purposes only. While due care has been taken during the compilation of this presentation to ensure that the information is accurate to the best of the Authors and IBEFs knowledge and belief, the content is not to be construed in any manner whatsoever as a substitute for professional advice. The Author and IBEF neither recommend or endorse any specific products or services that may have been mentioned in this presentation and nor do they assume any liability or responsibility for the outcome of decisions taken as a result of any reliance placed in this presentation. Neither the Author nor IBEF shall be liable for any direct or indirect damages that may arise due to any act or omission on the part of the user due to any reliance placed or guidance taken from any portion of this presentation.
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Automotive Industry Report Ibef

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Automotive Industry Report Ibef

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A U TO M OT I V E I N D U S T RY

PROFILE OF INDIAN AUTOMOTIVE INDUSTRY

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY

Evolution of the Indian automobile industry

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY

Indian automobile industry crossed a historic landmark of 10 million vehicles in 2006-07

Segment Two wheelers Passenger vehicles Three wheelers Commercial vehicles

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY

The OEM as well as the component industry is highly competitive

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY

The OEM as well as the component industry is highly competitive

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY

Most automotive players are present in more than one segment

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY

Two wheelers industry is dominated by motorcycles

Break up of the industry by segment

Source: SIAM, IMaCS Analysis

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY

Two wheelers industry is dominated by motorcycles

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY

While the motorcycles segment is growing, the scooter segment is shrinking

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY

Market share of key players in 2006-07

n Bajaj Auto Ltd n HMSIL

Source: SIAM, IMaCS analysis

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY

Two wheelers exports have grown at an impressive CAGR of 42%

Market share of key players in exports 2006-07

Source :SIAM, IMaCS Analysis

(in 000 units)

n Bajaj Auto n TVS Motor Company n Others

n Hero Honda Motors Ltd n Yamaha India

Source: SIAM, IMaCS Analysis

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY

Two wheelers exports have grown at an impressive CAGR of 42%

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY

Passenger vehicles segment in India is dominated by cars

Domestic passenger vehicles industry

Source: SIAM, IMaCS Analysis

Source: SIAM, IMaCS Analysis

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY

Passenger vehicles segment in India is dominated by cars

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY

n Maruti Udyog Ltd. n Mahindra & Mahindra

n Tata Motors Ltd . n Toyota

n Hyundai Motor India Ltd. n Others

Source: SIAM, IMaCS Analysis

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY

India is increasingly becoming a manufacturing hub for passenger cars

Market share of key players in Exports 2006-07

n Hyundai Motor India Ltd. n Ford India Pvt Ltd. n Others

n Maruti Udyog n Tata Motors

Source: SIAM, IMaCS Analysis

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY

India is increasingly becoming a manufacturing hub for passenger cars

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY

Breakup of the Industry by segment

n M & HCV Goods n M & HCV Passenger

n LCV Goods n LCV Passenger

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY