THE INDIAN AUTO

COMPONENTS INDUSTRY
“Is it geared enough for emerging as
a global manufacturing hub”

ICICI Bank Ltd.

Faculty guide: Prof. Rajiv Shah
Industry guide: Mrs. Arati Ramakrishnan

Submitted by: VIJAY BUDHDEO

PGDM 2007-09
TAPMI
PROJECT SCOPE
OUTLINE
• Transaction and commercial
banking
– Trade: LC,BG,Documents etc.
– Treasury: Forex, Derivatives etc.
– Working Capital: Line of credits, cash credit etc.

• Investment Banking
– Advisory
– M&A funding

• Corporate Banking
– Capex: Project evaluation
OUTLINE
Average growth rate = 20.78%
 INDUSTRY FRAMEWORK
Depends on-
2.Replacement cycles
3.Age and population

Depends on- Depends on-

1.Expansion plans 2.Demand for exports
2.Competition 3.Cost advantage
3.Cost constraints 4.Productivity
4.Outsourcing needs 5.Technology
 PRODUCTION DISTRIBUTION
• END USER SEGMENTS • COMPONENT SEGMENTS
 RISING INVESTMENT

Investments in Growth
Rs billion
FY2005 168 16%
FY2006 195 16%
FY2007 240 23%
OUTLINE
SEGMENTWISE VEHICLE POPULATION
PASSENGER VEHICLE PRODUTION (‘000 Nos)
• 2/3 WHEELER MARKET

• Commercial Vehicles Market

 DEMAND PROJECTIONS
• Projections (2007-08 till 2011-12)

Status March 06
No. of Projects Project Cost (Rs No. of Projects Project Cost (Rs
billion) billion)
Announcement 40 24 98 106

Proposed 25 24 23 25
Under 29 13 37 13
implementation
OUTLINE
GLOBAL AUTO COMPONENTS MARKET
2015
OVER 40% OF TOTAL AUTO COMPONENTS
MARKET CAN BE ADDRESSED BY LCCs
INDIA’S MARKET SHARE
TARGET MARKET SEGMENT
Market Sophistication
HIGH

LOW Propensity to offshore

HIGH

LOW
 INDIA Vs CHINA
• Size of the economy
• Exports
• Labor efficiency
• Cost of capital
• Cost of raw materials
• Power and Infrastructure
• General management
• SEZ Policy
OUTSOURCING-EMERGING
ADVANTAGE
OUTLINE
IMPACT ON THE AUTO COMPONENTS
INDUSTRY
• Increased regulations to boost replacement
market demand

• Excise duty on auto components reduced

• VAT eliminated cascading impact of prices

• Export benefits to intermediate suppliers

TYPICAL SUPPLY CHAIN
OEM Manufacturer

Tier I Supplier

Tier 2/3
Suppliers

Subcontractors from various industries

 RAW MATERIAL COSTS
• Largest contributor to the total cost structure
RAW MATERIAL PRICES
EXPANSION IN STEEL PRODUCTION
ALUMINIUM PRICES
 CURRENCY APPRECIATION
• Gradual appreciation will lead to better
absorption.
• Input costs serve as a hedging tool.
• Shift in the composition of exports.
• Change in type of liabilities.
BHARAT FORGE-DE RISKING
MODEL
 ENDURANCE TECHNOLOGIES LTD.
• Products – Suspensions, brake systems,
transmissions, die alloys, alloy wheels

• Aluminium casting – No.1 in India

• Turnover – 2600 Cr

• Recent acquisitions – Fondalmec, Amman

Druck Guss, Pioli Spa
 PRODUCTION STRATEGY
• Procuring components from Tier II suppliers
• Strong Vendor Base – Global Sourcing dept
• Vendor upgradation – Collaboration
• Suppliers given 1 yr contracts
• Price rise: Domestic Absorbing
Exports  Not absorbing
• Diversification – Mfg. of Antenna towers
Cell phone casting
 RISK MITIGATING STRATEGIES
• Borrowings in foreign currency
• Converting liabilities into $
• Interest rate swaps
• Imports  Forward contracts
• If imports are in $  Buyer’s credit
• Opening of Letter of Credit
– Helps suppliers service orders
RECOMMENDATIONS FOR THE AUTO
COMPONENT INDUSTRY
AVAILABLE STRATEGIC POSTURES
RECOMMENDED INITIATIVES
CONCLUSION