You are on page 1of 23

INDUSTRY OVERVIEW

The information in this section has been extracted from various government publications and industry sources. Neither we, the Selling Shareholders, the BRLMs nor any other person connected with the Issue have verified this information. Industry sources and publications generally state that the information contained therein has been obtained from sources generally believed to be reliable, but that their accuracy, completeness and underlying assumptions are not guaranteed and their reliability cannot be assured and, accordingly, investment decisions should not be based on such information.

CRISIL has used due care and caution in preparing this report. Information has been obtained by CRISIL from sources which it considers reliable. However, CRISIL does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. No part of this report may be published/reproduced in any form without CRISIL's prior written approval. CRISIL is not liable for investment decisions which may be based on the views expressed in this report. CRISIL Research operates independently of, and does not have access to information obtained by CRISIL's Rating Division, which may, in its regular operations, obtain information of a confidential nature that is not available to CRISIL Research.

THE INDIAN ECONOMY


The Indian economy has demonstrated a sustained growth rate of more than 6.0% per annum since 1997, which has made it one of the worlds fastest growing economies. According to the CIA World Factbook, Indias economy grew by 9.0%, 7.4% and 6.5% in 2007, 2008 and 2009, respectively. Indias population is approximately 1.16 billion, second only to China. India had an estimated GDP of approximately US$ 3.57 trillion in 2009, which makes it the fourth largest national economy in the world after the United States of America, China and Japan, in purchasing power parity terms (Source: CIA World Factbook). The GDP growth rates for certain developed and developing economies are set out below:

The Government of Indias Eleventh Five Year Plan, which covers the period from 2007 to 2012, aims to achieve a sustainable growth rate of 9.0% with an emphasis on a broad-based and inclusive approach that would improve the quality of life of the residents of India and reduce disparities across regions and communities.

THE AUTOMOTIVE INDUSTRY


Global Automotive Industry
The global economic downturn led to a severe slump in the automotive industry worldwide in the second half of 2008 and the first half of 2009. The industry witnessed unprecedented and simultaneous slowdown across segments and geographies. During the last quarter of 2008, most of the worlds markets, regardless of region, experienced a 40.0% to 60.0% decline in volume, as compared to the same period in the previous year. The overall decline in volume resulted in significant overcapacity among many manufacturers, causing OEMs to implement a series of cost-cutting measures such as plant closures, renewed pricing pressure on automotive components and raw materials suppliers, and maintenance of lower inventory levels to lower operating expenses. However, the global automotive markets showed signs of revival during the second half of 2009. (Source: Association of German Auto Industry/Verband der Automobilindustrie.

Global automotive production showed a decline of 12.8%, from 70.78 Million vehicles in 2008 to 61.73 Million vehicles in 2009. (Source: Association of German Auto Industry/Verband der Automobilindustrie. Almost all countries

(with the exception of Italy and China) that were considered by the Association of German Auto Industry, showed a decline of approximately 10.0% to 30.0% in passenger vehicle production.

In 2008 and 2009 (2009 figures are estimates or partially interim), Europe produced 18.36 and 15.11 Million passenger vehicles, respectively. The United

States produced 8.45 and 5.58 Million passenger vehicles, respectively. China, on the other hand, showed a 47.6% jump in production, from 5.68 Million passenger vehicles in 2008 to 8.38 Million passenger vehicles in 2009. (Source: Association of German Auto Industry/Verband der Automobilindustrie)

Similarly, almost all countries considered, with the exception of China, showed a drop of approximately 30.0% to 50.0% in commercial vehicle production. In 2008 and 2009 (2009 figures are estimates, or partially interim), Europe produced 3.43 and 1.82 Million commercial vehicles and the United States produced 224,648 and 132,283 commercial vehicles, respectively. (Source: Association of German Auto Industry. In this segment, China demonstrated an increase of 49.4%, from 3.62 Million commercial vehicles in 2008 to 5.41 Million commercial vehicles in 2009 which was against the global trend. (Source: Association of German Auto Industry/Verband der Automobilindustrie.

INDIAN AUTOMOTIVE COMPONENT INDUSTRY


The automotive components industry in India has been growing steadily, with turnover increasing at a rate of 298.8% between the fiscal years 2004 and 2009. Export sales have also gradually become more important over the past six years. As a percentage of turnover, exports increased to 19.9% in the fiscal year 2009 from 18.9% in the fiscal year 2004. (Source: Auto Component Industry in India, Automotive Component Manufacturers Association of India)

The chart below sets forth the turnover and export figures for the automotive components industry in India for the periods stated:

Automotive Components Industry by Segments

Aluminium Die-Casting and Machining

Aluminium die-casting is the process of producing engineered metal parts by forcing molten aluminium into reusable steel moulds. These moulds, which are also referred to as dies, can be used to produce complex shapes with a high degree of accuracy and repeatability.

Die-casting methods vary as a result of the various methods employed in injecting the molten aluminium into the mould. The oldest form of die-casting is gravity diecasting. In gravity die-casting, molten aluminium is inserted under normal atmospheric pressure. This method is utilised less frequently than low pressure and high pressure diecasting. Typically, for most products, high pressure die-casting is more desirable. Under this process, the aluminium is injected at high speed and

high pressure, so the entire cavity may be filled before any portion of the casting solidifies, resulting in fewer discontinuities in the casting. (Source: North American Die Casting Association; website: http://diecasting.org/faq) However, high pressure die-casting moulds and machines are very expensive and are only economical when utilised on a large scale to produce a large number of products. (Source: European Aluminium Association; website: http://www.eaa.net/en/aboutaluminium/production-process/castings/) Low pressure die-casting is an alternative to high pressure die-casting. In this process, the die is placed over the furnace and the cavity is filled by forcing the molten metal upwards, through the use of pressurised gas. Once the cavity is filled, the pressure is released and the metal flows back towards the furnace. The various filled dies are removed and the castings are extracted. Low pressure die-casting is particularly suited for use in the production of automotive wheels or other components that are symmetrical across an axis of rotation.

BRAKES
The brakes segment is relatively less concentrated as compared to other segments of the automotive components industry, with a large number of producers. Producers may produce a number of products of varying complexity, from smaller products for the replacement market to fully functional brakes systems. CRISIL estimates the size of the brakes industry to be Rs. 9,400.00 Million during the fiscal year 2010, and expects a CAGR of 12.0% until the fiscal year 2015, when CRISIL expects that the total market size to be Rs. 16,100.00 Million. For the fiscal year 2010, OEMs contributed 69.0% of the overall demand of the brakes segment, the replacement market accounted for 20.0% and exports accounted for the balance of 11.0%. (Source: CRISIL Research) Other characteristics of the

market include barriers to entry in respect of the relatively large distribution networks that are required of producers that wish to enter the replacement market. Relationships with OEMs are the other viable alternative to the replacement market, however OEMs typically wish to deal with only a small number of suppliers, to reduce their own costs. Although raw materials are relatively expensive for the brakes industry, such costs are lessened by the lower wage costs of India and the fact that most costs are passed on to consumers. (Source:CRISIL Research)

SUSPENSIONS
Shock absorbers play an important role in the suspensions segment of the automotive components industry due to their pervasiveness as a suspension solution. Globally, shock absorber manufacturing is dominated by Japanese companies, although most shock absorbers are generally sold on a regional basis. Increasingly, international shock absorber manufacturers are developing

manufacturing capabilities in developing countries such as India and China.Shock absorber manufacturing in India mostly takes place in the unorganised sector. (Source: Cygnus business Consulting & Research, Industry Monitor Automotive Components, September 2008)

TRANSMISSIONS
Clutches are a major component of any transmission system. Globally, Europe is the largest producer of clutches, followed by the United States and Asia, excluding Japan. Asia is the fastest growing regional market. In India, the easing of the excise

duty regime to help promote the steel industry has also had a knock-on effect in benefiting clutch manufacturers and the automobile industry as a whole. (Source: Cygnus Business Consulting & Research, Industry Monitor Automotive Components, June 2010)

OUR BUSINESS
Overview
we are a leading automotive component manufacturing company in India. We manufacture and supply a diverse range of components for two-wheelers, threewheelers, passenger vehicles, light commercial vehicles (LCVs) and heavy commercial vehicles (HCVs).

Our products include:


aluminium die-casting products, such as high-pressure, low-pressure and gravity die-castings and twowheeler aluminium alloy wheels; suspension products, such as shock absorbers for two-wheelers and threewheelers, front forks for motorcycles and hydraulic and gas-charged dampers, struts and gas springs for passenger vehicles, LCVs and HCVs; transmission products, such as clutches, friction plates and continuous variable transmissions; and

brake products, such as hydraulic disc brakes for two-wheelers, rotary brake discs for two-wheelers and hydraulic drum brakes and tandem master cylinders for three-wheelers.

We have 16 manufacturing plants in India, all of which are located in the major automotive manufacturing belts of the country, comprising seven in Aurangabad, Maharashtra, five in Pune, Maharashtra, two in Pantnagar, Uttarakhand, and one each in Manesar, Haryana and Chennai, Tamil Nadu. We also have two manufacturing plants in Massenbachhausen, Germany, which are owned by our subsidiary Amann Druckguss GmbH (Amann Druckguss), and one in Torino, Italy, which is owned by our indirect subsidiary Endurance Fondalmec SpA, (Endurance Fondalmec). The following table sets forth the production capacities and volumes for the fiscal year 2010 at our various manufacturing locations:hydraulic drum brakes and tandem master cylinders for three-wheelers.

We are promoted by Mr. Anurang Jain, who commenced aluminium die-casting operations in 1985 through Anurang Engineering Company Private Limited, which subsequently merged with and into our Company. Since then, several brake, suspension and transmission businesses promoted by Mr. Anurang Jain in India were consolidated with our Company. Our Company also owns an 85.0% equity interest in High Technology Transmission Systems (India) Private Limited (HTTS India), our subsidiary, and the balance equity interest is held by Adler SpA (Adler). HTTS India manufactures and sells clutches, friction plates and CVTs for two-wheelers and three-wheelers. We also have a joint venture in India with Magneti Marelli SpA (Magneti Marelli), Endurance Magneti Marelli Shock Absorbers (India) Private Limited (EMM JV), a company in which we own a 50.0% equity interest. EMM JV manufactures struts, shock absorbers and gas springs for passenger vehicles and LCVs.

Our customers include global OEMs such as various subsidiaries of Fiat Group Automobiles SpA and associated brands including Lancia and Alfa Romeo, Daimler AG, Audi AG, Porsche AG, Magyar Suzuki ZRT and two leading French automobile manufacturers, as well as leading Indian OEMs such as Bajaj Auto Limited, the two leading HCV manufacturers in India, a leading Indian MUV and SUV manufacturer, India Yamaha Motor Private Limited, Royal Enfield Motors Limited, a Korean automobile manufacturer that currently operates in India, Maruti Suzuki India Limited and Honda Motorcycle & Scooter India Private Limited. We have a long-standing relationship with Bajaj Auto Limited, which is our largest customer. We have been supplying components to Bajaj Auto Limited since our inception. We have won several industry awards including the Component Manufacturer of the Year - 2008 at the NDTV Profit, Car India and Bike India Awards in 2008 and Auto Component Manufacturer of Year at the Auto Monitor Awards in 2008. We have also received several awards and recognitions for quality, cost, delivery and vendor performance from our customers such as Bajaj Auto Limited, Fiat India Automobiles Private Limited, Honda Motorcycle & Scooter India Private Limited and a leading Indian HCV manufacturer.

HISTORY
Our casting and machining division is the oldest business line at our Company. Anurang Engineering Company Private Limited, which merged with and into our Company in August 2006, established a high-pressure die-casting facility in Aurangabad in 1985. In 1996, we opened our second high-pressure die-casting plant in Takve, Pune. We have since opened several more plants at various locations in India, specialising in high and low-pressure diecasting, as well as the production of alloy wheels. We opened our alloy wheel die-casting plant in Chakan, Pune in 2006.

Key Products

The five major product lines of our aluminium alloy casting and machining division are: high-pressure die-casting products; low-pressure die-casting products; gravity die-casting products; alloy wheels; and machined products.

High-pressure die-casting products

We commenced high-pressure die-casting in 1985 in Aurangabad. We manufacture a number of high-pressure diecasting products for a variety of vehicles. Our major

high-pressure die-casting products include crank cases for Bajaj motorcycles and Honda scooters and front and rear transmission housings for a leading Indian HCV manufacturers passenger vehicles.

Alloy wheels
We commenced the production of alloy wheels in 2006 at our manufacturing facility in Chakan. We produce aluminium alloy wheels for Yamaha motorcycles such as the Fazer, FZ16, FZS, Libero, Alba, YBR and Gladiator, and for Bajaj motorcycles such as the Pulsar, Platina and Discover.

Two-wheeler hydraulic disc brake assemblies


We manufacture two-wheeler hydraulic disc brake assemblies, including front and rear discs, for front or rear-only applications for motorcycles ranging from 125 cc motorcycles, such as the Bajaj Discover, to 500 cc motorcycles, such as the Royal Enfield Electra. Our major hydraulic disc brake products include brake discs, master cylinders and callipers.

Three-wheeler drum brake assemblies


We produce drum brakes for use in three-wheelers such as the Bajaj RE, RE Max and RE Diesel. Our major drum brake products include brake panel assemblies, disc brake calliper assemblies and wheel cylinder assemblies.

Suspensions
The major products of our suspension division include: two-wheeler and three-wheeler shock absorbers passenger vehicle, LCV and HCV struts and gas springs, which are manufactured by EMM JV.

Transmissions
Key Products

The major products of our transmissions division include: clutch assemblies; continuous variable transmissions (CVTs); and friction plates.

Raw Materials
The principal raw materials we use in our production are aluminium alloys, steel sheets, steel tubes and customized mechanical components, produced according to our specifications, such as springs, pistons, canisters, under-brackets and gears. For the fiscal year 2010, our total raw materials costs accounted for 55.1% of our total income.

Aluminium
In our domestic operations, we primarily purchase most of our aluminium at prices that are directly negotiated with our customers on a regular basis. Thus, we believe that our purchases of aluminium alloy are relatively unexposed to the risk of market price fluctuations as such price fluctuations are often directly passed through to our customers at the negotiated price. The prices that we agree with our raw materials suppliers are fixed on a quarterly basis, which is the same timeframe for which we enter into price agreements with our customers. Our alloy suppliers for our domestic operators are typically based in India and Southeast Asia. For our German and Italian operations, we purchase our aluminium at spot market prices.

Utilities
Electricity

To power our operations, we need a substantial amount of electricity. For the fiscal year 2010, our total electricity costs comprised 4.9% of our total income. Our operations in India, Germany and Italy purchase utilities from their respective local utility companies. In India, we have also set up three wind power plants aggregating 7.1 MW in Rajasthan and Maharashtra.

Transportation
Our domestic operations use a number of different modes of transportation including road, air and rail to supply our customers with adequate amounts of finished goods and within their required deadlines. The mode of transportation for

a particular shipment is dependent on the urgency, size and value of the order. Typically, we ship finished goods to our OEM clients by road. In a few cases, our customers may directly pick up the goods at our own facilities, and these arrangements are handled by our customers.

RESEARCH AND DEVELOPMENT


We believe that continued research and development activities are critical to maintaining our leadership position in the industry and will provide us with a competitive advantage as we seek additional business with new and existing customers. We own four dedicated research and development centres, three in Aurangabad (one each for twowheeler and three-wheeler suspensions,

transmissions and brake systems) and one in Pune (for casting). We also own an additional research and development centre in Pune through EMM JV, for research in passenger vehicle suspension systems. All of these centres are approved by DSIR. Consequently, all of our product divisions are supported by DSIR-approved R&D centres that allow the divisions to design, develop and produce new products. As of July 31, 2010, we employed 95 research and development engineers, designers, technicians and support staff.

Our research and development activities and initiatives include: materials engineering and metallurgical research, including defect and failure analysis of die-casting components; process and tool engineering;

product design and reverse engineering, such as the design of a new disc brake system for a newlylaunched 150 cc motorcycle; product simulation using sophisticated computer aided design and computerbased simulations such as nonlinear simulation of alloy wheel designs; a comprehensive prototyping program including mock-ups and real-world testing; and quality assurance and testing, such as radial fatigue and cornering fatigue tests in respect of our alloy wheel designs.

Technical Collaborations
We have entered into joint ventures and technical collaborations with a number of partners across vehicle segments that are typically valid for three to seven years.

Joint Venture with Magneti Marelli

Our Company entered into a joint venture agreement with Magneti Marelli on June 11, 2008, pursuant to which a joint venture company, Endurance Magneti Marelli Shock Absorbers (India) Private Limited (EMM JV), was formed for the design, manufacture, assembly and marketing of struts and shock absorbers for use in passenger vehicles, LCVs and HCVs.

Agreement with WP Suspension Austria GmbH

Our Company entered into an agreement with WP Suspension Austria GmbH on July 6, 2008. Under the terms of the agreement, WP Suspension has agreed to provide technical assistance with regard to developing, manufacturing and distributing high performance suspension components for use in motorcycles. The agreement requires that our Company will not sell similar products made under the agreement outside of the designated manufacturing and sales territory of India. Further, sales by our Company are to be made only to Bajaj Auto Limited or an Austrian motorcycle company, on an OEM basis, and exclusively within India. The agreement provides that should Bajaj Auto Limited or the Austrian motorcycle company require these products outside of India, our Company and WP Suspension will meet with the objective of acceding to such request.

License and Technical Assistance Agreement with Akebono Brake Industry Company Limited

Our Company entered into an agreement with Akebono Brake Industry Company Limited on March 30, 2007. Under the terms of the agreement, Akebono has agreed to provide technical assistance and licensing arrangements to our Company to develop and produce drum brake shoes and linings for use in two-wheelers and three-wheelers in India, through the use of non-asbestos adhesive and grinding technology. Akebono has also agreed to provide training for our engineers at our Company sites or at Akebonos site. The terms of the agreement prevent the sale of licensed products made under the agreement outside of India unless a royalty has been paid on such products, and the license itself is non-exclusive and nontransferable. Exports are permitted in the form of original equipment installed on

vehicles made in India, replacements for such original equipment or as replacement parts in 15 Asian countries, Turkey and Italy.

Technical Assistance Agreement with Teksid


Our Company entered into an agreement with Teksid Aluminium Srl on July 4, 2008. Under the terms of the agreement, Teksid will provide technical assistance and licensing arrangement to allow our Company to develop and produce aluminium cylinder heads for use in passenger vehicles. The terms of the agreement prevent the manufacture of licensed products outside India. The license is non-transferable. We are yet to initiate any transfer of technology under this agreement.

Competition

The automotive component industry is extremely competitive. We face both domestic and international competition. Typically, large suppliers work with only a limited number of OEMs. Consequently, we do not have a single competitor across all our product ranges. The leading competitive players within the various product ranges in which we operate include:

Aluminium Die-casting: Sunbeam, Rico Auto (Gurgaon, Haryana, India), Sundaram Clayton (Chennai, Tamil Nadu, India), Jay Hind Industries (Pune, Maharashtra, India)

Aluminium Alloy Wheels (Two-Wheelers): Enkei (Pune, Maharashtra, India) as well as international competitors from China

Brakes (Two-Wheelers and Three-Wheelers): Brembo (Pune, Maharashtra, India), Bosch Chassis Systems (Jalgaon, Maharashtra, India and Pune, Maharashtra, India)

Struts/Shock

Absorbers/Gas

Springs

(Passenger

Vehicles,

LCVs

and

HCVs):Gabriel, Tennaco, Munjal Showa (Gurgaon, Haryana, India)

Clutch Assemblies (Two-Wheelers and Three-wheelers): FCC Rico (Gurgaon, Haryana, India), Makino (Delhi, India)

CVTs (Two-Wheelers): FCC Rico (Gurgaon, Haryana, India)

Awards
The following lists some of the awards that we have received in recognition of our achievements, products or services for the last three calendar years:

Overall
Greentech Foundation, HR Excellence for Best Innovative Retention Strategies, Silver Award, 2010 NIPM, Best HR Practices Award, 2009 Auto Monitor Awards, Auto Component Manufacturer of the Year, 2008 NDTV Profit, Car India and Bike India, 2008

REGULATIONS AND POLICIESREGULATIONS AND POLICIES Regulation of the automotive components manufacturing industry The National Auto Policy
The National Auto Policy, 2002, as amended (National Auto Policy) was introduced by the Department of Heavy Industries, Ministry of Heavy Industries and Public Enterprises, GoI in March 2002, with the aim, among others, to promote a globally competitive automotive industry and emerge as a global source for auto components, ensure a balanced transition to open trade at a minimal risk to the Indian economy and local industry, to encourage modernisation of the industry and facilitate indigenous design, research and development and to develop domestic safety and environmental standards at par with international standards.

The Automotive Mission Plan, 2006-2016


The Automotive Mission Plan, 2006-2016 (Automotive Mission Plan) was released by the Ministry of Heavy Industries and Public Enterprises, GoI in December 2006, containing recommendations of the Task Force of the Development Council on Automobile and Allied Industries constituted by the Government of India, in relation to the preparation of the Tenth Five Year Mission Plan for the Indian Automotive Industry. For the promotion of exports in the auto component sector, among other things, it recommends the creation of Special Automotive Component Parks and virtual Special Economic Zones, which would

enjoy certain exemptions on sales tax, excise and customs duty, as well as certain tax exemptions and concessions in relation to promotion of research and development (R&D) in the automotive sector

OTHER INFORMATION
MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION A. Material Contracts for the Issue 1. Engagement Letter dated September 15, 2010 between our Company, the Selling Shareholder and the BRLMs.

2. Issue Agreement dated September 27, 2010 between our Company, the Selling Shareholder and the BRLMs.

3. Memorandum of Understanding dated September 20, 2010 between our Company, the Selling Shareholder and the Registrar to the Issue. 4. Escrow Agreement dated [] between our Company, the Selling Shareholder, the BRLMs, Escrow Collection Bank and the Registrar to the Issue. 5. Syndicate Agreement dated [] between our Company, the Selling Shareholder, BRLMs and the Syndicate Members. 6. Underwriting Agreement dated [] between our Company, the Selling Shareholder, the BRLMs and the Syndicate Members.

DECLARATION
We, hereby declare and certify that all relevant provisions of the Companies Act and the guidelines and regulations issued by the Government or the regulations or guidelines issued by SEBI established under Section 3 of the SEBI Act as the case may be, have been complied with and no statement made in this Draft Red Herring Prospectus is contrary to the provisions of the Companies Act or the SEBI Act or rules or regulations or guidelines, as the case may be. We further certify that all statements in this Draft Red Herring Prospectus are true and correct.