BDB India Private Limited

28th
 BDB India Private Limited

FY 2019 : Economic and Automotive Performance

Macro-economic overview

India continues to remain the fastest growing major economy in the world in 2018-19, despite a
moderation in its GDP growth from 7.2% in 2017-18 to 6.8% in 2018-19. On the other hand, the
world output growth declined from 3.8% in 2017 to 3.6% in 2018. The slowdown in the world
economy and Emerging Market and Developing Economies (EMDEs) in 2018 followed the
escalation of US China trade tensions, tighter credit policies in China, and financial tightening
alongside the normalization of monetary policy in the larger advanced economies.

India’s growth of real GDP has been high with average growth of 7.5% in the last 5 years (2014-15
onwards). The Indian economy grew at 6.8% in 2018-19, thereby experiencing moderation in
growth when compared to the previous year. Acreage in 2018-19 for the rabi crop was marginally
lower than last year, which affected agricultural performance. The contraction in food prices may
have contributed to inducing farmers to produce less. On the demand side, lower growth of GDP in
2018-19 was accounted for, by a decline in growth of government final consumption, change in
stocks and contraction in valuables.

Indian banking sector has been dealing with twin balance sheet problem, which refers to stressed,
corporate and bank balance sheets. The increase in Non-Performing Assets (NPA) of banks led to
stress on balance sheets of banks, with the Public Sector Banks (PSBs) taking in more stress.

Recently, the government announced a raft of measures, including rollback of enhanced super-rich
tax on foreign and domestic equity investors, exemption of start-ups from 'angel tax', a package to
address distress in the automobile sector and upfront infusion of Rs 70,000 crore to public sector
banks, in efforts to boost economic growth from a five-year low.

To bolster consumption, the government also said that banks have decided to cut interest rates, a
move that would lead to lower equated-monthly instalments for home, automobile and other loans.

GDP has slowed over the last 4 quarters of FY 2019 and reached a low of 5.0% for Q1 FY2020

8.1 8
7.7

6.8 7
6.6
6 5.8
5

Q1 FY 2018 Q2 FY 2018 Q3 FY 2018 Q4 FY 2018 Q1 FY 2019 Q2 FY 2019 Q3 FY 2019 Q4 FY 2019 Q1 FY2020

BDB India Private Limited

Indian manufacturing sector

The growth in the manufacturing in Q1 2020 almost came to a standstill at 0.6%. The growth in
manufacturing sector picked up in 2018-19, although the momentum slowed down towards the end
of the financial year with a growth of 3.1% in fourth quarter of the year, as compared to 12.1%, 6.9%
and 6.4% in first, second and third quarter respectively. The growth rate in Q1 of 2019-20
moderated considerably, on account of lower NBFC lending, which in part led to sales in the auto
sector.

Construction sector growth is estimated using growth of production of cement and consumption of
finished steel. Production of cement and consumption of finished steel grew at 13.3% and 7.5%
respectively in 2018-19, higher than their growth rates in 2017-18 and this reflects in higher growth
of construction sector in 2018-19.

Growth in the industry accelerated during 2018-19 on the strength of improving manufacturing and
construction activity, which have more than offset the declaration in the other two sub sectors,
‘Mining & quarrying’ and ‘Electricity, gas, water supply & other utility services’. Manufacturing
accounted for 16.4% in total GVA in 2018-19, marginally higher than that of ‘Agriculture & allied’
sector.

The trend of growth of exports and imports was different in 2018-19 in rupee and US$ terms. While
growth of both export and import declined in US$ terms, it increased in rupee terms (at current
prices) in 2018-19. This happened due to the depreciation of rupee vis-a vis US$ in 2018-19.

Mobilizing and deploying a large pool of capital will be a key aspect of the manufacturing growth
model. This will require a rapid expansion of the financial and banking system.

If these issues are addressed by producing solutions that actually work for the manufacturing sector,
India being the dream manufacturer in every way is no distant dream.

Manufacturing sector has gradually slowed to a low of 0.6 % in Q1 2020

12.1

9.5
8.6

7.1 6.9
6.4

3.1

0.6

Q2 FY 2018 Q3 FY 2018 Q4 FY 2018 Q1 FY 2019 Q2 FY 2019 Q3 FY 2019 Q4 FY 2019 Q1 FY2020

 BDB India Private Limited

Performance of the Index of Industrial Production (Base 2011-12)

The growth of IIP was 3.1% in May 2019, as compared to 3.8% recorded in May 2018
IIP registered a growth of 3.7% in April-May 2019, as compared to 4.1% during the April-May 2018.

IIP of manufacturing sector grew by 2.5% in May 2019, as compared to a growth of 3.6% in May
2018. The manufacturing sector’s growth during April-May 2019 was 3.2%, lower as compared to
4.2% during the corresponding period of previous year

IIP of mining sector grew by 3.2% in May 2019, as compared to a growth of 5.8% in May 2018.
During April May 2019, production of mining sector grew by 4.1%, as compared to a growth of 4.8%
during the corresponding period of previous year

The growth of Gross Value Added (GVA) at constant basic prices for the year 2018-19 is estimated
at 6.6%, as compared to 6.9% in 2017-18 (Figure 2). The growth rate of agriculture, industry and
services sectors is estimated at 2.9%, 6.9% and 7.5% respectively in 2018-19.

Percentage Change in Index of Industrial Production (Base 2011-12)

2018-19 2019-20
May-18 May-19
April-May April-May
General 4.1 3.7 3.8 3.1
Sectoral
Mining 4.8 4.1 5.8 3.2
Manufacturing 4.2 3.2 3.6 2.5
Electricity 3.1 6.7 4.2 7.4
Use-based
Primary goods 4.3 3.7 5.7 2.5
Capital goods 8.1 1.0 6.4 0.8
Infrastructure/
8.1 6.4 7.6 5.5
construction goods
Consumer durables 5.4 1.0 6.7 -0.1

Production growth (%) in Core Infrastructure-Supportive Industries

2018-19 2019-20
May-18 May-19
April-May April-May
Coal 13.6 2.5 12.0 1.8

Crude oil -1.9 -6.8 -2.9 -6.9

Refinery Products 3.9 1.3 4.9 -1.5
Fertilizers 6.6 -2.6 8.4 -1.0
Steel 1.4 19.4 -0.1 19.9
Cement 17.3 2.5 13.0 2.8
Overall growth 3.1 6.6 4.1 7.2

In May 2019, the production of eight core industries grew by 5.1%, as compared to a growth of 4.1%
recorded in May 2018. Production of eight core infrastructure industries grew by 5.7% in April May
2019 as compared to 4.4% in the corresponding period of previous year.
BDB India Private Limited

Automotive sector in India: Key highlights

Overview

The Indian auto industry became the 4th largest in the world with sales increasing at a CAGR of
7.4% over last six years to reach to 26.26 million units in FY 2019. The Indian auto industry is one
of the largest in the world. The industry accounts for 7.1% of the country's Gross Domestic Product
(GDP). The Indian auto manufacturing is characterised by presence of domestic and global original
equipment manufacturers. The Two Wheelers segment is the leader of the Indian Automobile
market owing to a growing middle class and a young population. The growing interest of the
companies in exploring the rural markets further aided the growth of the sector.

Automobile production trends in India (In Million units)

24.5
23.2
18.8 19.9
18.5

3.80 4.02 1.02 4.03 1.27

3.22 0.95 3.47 0.93 0.78
0.70 0.79 0.81 0.90 1.11

FY 2015 FY 2016 FY 2017 FY 2018 FY 2019

Passenger Vehicles Commercial Vehicles Three Wheelers Two Wheelers

PV CV 3W 2W
Production CAGR
5.8% 12.2% 7.5% 7.3%

Automobile export trends in India (In Million units)

3.28
2.82
2.46 2.48 2.34

0.62 0.65 0.76 0.75 0.68

0.41 0.40 0.57
0.38
0.09 0.10 0.11 0.27 0.10 0.10

FY 2015 FY 2016 FY 2017 FY 2018 FY 2019

Passenger Vehicles Commercial Vehicles Three Wheelers Two Wheelers

PV CV 3W 2W
Export
CAGR
2.3% 2.7% 8.6% 7.5%
 BDB India Private Limited

In order to boost the growth of sector, “Automotive Mission Plan” which is a combined vision of
Government of India and the Indian Automotive Industry is established. The mission plan states
about where the industry should reach in terms of terms of size, contribution to India’s
development, global footprint, technological maturity, competitiveness, and institutional structure
and capabilities.

It also advocates the systematic implementations and improvements in various areas such as
Emission Norms, Safety Regulations, End of Life Policy, Trade Policy, Fiscal and Taxation measures
etc. The first Automotive Mission Plan (AMP 2006 to 2016) concluded with achievements of key
targets set on different fronts like employment creation, investment in local manufacturing,
domestic sales volume & export to name a few.

Automotive Mission Plan 2026 targets 3.5 to 4 times growth in industry output value from industry
output value in FY 2015. It also aims at to become among the top 3 in engineering, manufacturing
and export of automobiles and auto components.

18,89,500

16,16,000 200000 Component after Market

178700 Component
462500
Export

436700
295000 OEM Exports

223300
200000 OEM Value Addition
183800
4,64,000 183000 Component Imports
OEM
148500
39900 Domestic
69000 7,77,30 Systems/ 9,32,000
62500
83200 0 549000 Components
445000
84300 2,92,600 In-house/ Domestic
125100
FY 15 FY 26 Base Case FY 26 Optimistic case

The last few years witnessed major investment announcements by global OEMs coupled with exit
decisions by select OEMs. General Motors decided to pull out from India after trying to gain
foothold in Indian market for 22 years.

The Halol facility of GM motors is targeted by MG Motor. With this takeover, the Chinese auto
major, SAIC Motor, ventured Indian market under the MG Motor brand. SAIC Motor is also
considering an additional investment of $350 million in setting up a second manufacturing unit.

Another Chinese auto OEM Great Wall Motors has announced the investment of over $ 1 billion in
India as a part of its India strategy. The recent entrant in Indian market, Kia Motors, commenced
its operation at its Anantpur facility. This facility of Kia Motors will also be used by Hyundai India
for production of its select models.

The recent slowdown in Indian Auto industry:

Passenger Vehicle sales dropped by 31% in July 2019, compared to off take over similar period of
previous year. July 2019 was the ninth straight month witnessing the decline in auto sales. The
glimpses of slowdown in auto industry started actually a year back from now (from Q2-FY19) and
started worsening from Q1-FY20 till last month.
BDB India Private Limited

July,2019 % decline in July 2019

Vehicle Type
(in Units) over July 2018
Passenger Vehicles 2,00,790 30.98%
Commercial Vehicles 56,866 25.71%
Two Wheelers 15,11,692 16.82%
Three Wheelers 55,719 7.66%
Two Wheelers 15,11,692 16.8%

Though the slowdown in Indian auto industry is more of cyclic nature, the July 2019 saw the steepest
decline of last two decades. Previous slowdowns were recorded in 2009 and 2014.
The so called “cyclic” natured slowdown was intensified by a combination of things as listed below
coming in a shorter span of time. The key points are
1) Regulations by central government
2) Sharp rise in insurance cost due to judicial intervention
3) Liquidity issues from Banks and NBFCs
a. Drastic fall (near to the 1/3rd) in auto financing capabilities
b. Increase in collateral demand by financial institutions from dealers; impacting
negatively on inventory holding ability of dealers
c. Higher interest rates

4) Multifold increase in road tax by number of state governments

5) Mandatory safety regulations such as Airbag, ABS etc.

All these factors, coming almost at a same duration, led to sharp increase in vehicle prices. When
looked carefully, it appears that there is a marginal increase in showroom price but around 7% to
8% increase in customer buying price which is primarily due to government regulations and other
initiatives. The “Deferred” implementation of such governmental initiatives would have had
reduced the severity of slowdown.

The Indian Auto industry is demanding a rate cut in GST, a similar action which was done in
slowdown of 2009 and 2014. Another key areas that may revive the situation is reducing the finance
cost. The OEMs, on their front, are currently offering the all-time high discounts to customers.
Industry experts opine that the situation revival is likely to be in place from Q4-FY20.

In a bid to address slowdown in the auto sector, the government has announced a slew of measures
The key measures announced include the promise that there will be efforts to reduce interest rates
for auto and home loans. There is also a clear assurance that BS4 vehicles that can be purchased by
consumer’s right up till the deadline - will have the complete run of their registration period. This
means that all BS4 cars and bikes can be used and operated right up to the end of the tenure of their
respective registration.

The standard passenger vehicles registration has a 15 year duration (for diesel vehicles that stands
at 10 years, but only in the National Capital Region or NCR). This also means that vehicles
purchased on March 31 2020 - would be allowed to complete their registration, even though the BS6
deadline would have set in from the following day. Typically registration can take anywhere from
24 to 48 hours depending on what part of the country the vehicle has been bought in.

A big worry for auto industry players was a proposal the government was considering for a hike in
the registration charges themselves. Any decision on a revision on registration fees has put off till
June 2020. There is another incentive which sees an additional 15% depreciation to be allowed on
all vehicles acquired until March 31 2020, raising it to 30%. And finally the government has also
lifted the ban on its own departments to be able to replace their old vehicles. This could lead to large
orders which will provide a significant sales boost to the sector.
 BDB India Private Limited

About BDB

BDB India Private Limited is a business consulting and market research company headquartered
in Pune, India. We have been working with customer driven and market oriented organizations
over the last 30 years. Our consulting and research experience includes every major vertical in the
B2B Industrial sector; Healthcare and the Agricultural sector.

BDB has time and again displayed exceptional ability to map patterns and trends through our
customized studies and developed winning strategies for entering and succeeding in markets such
as South Asia, South East Asia, the Middle East & Far East (Japan, South Korea, Taiwan) and
Africa Regions. BDB recommends specific products (and systems) to promote, geographical
regions to start within, point of sale models, pricing, recommends specifications if customization is
necessary and aftermarket support.

The marketplace is the interface between product and consumer. All market and customer driven
business enterprises therefore tailor their strategy, based on the marketplace. As commercial
enterprises have to be market and customer driven, BDB's cutting edge inputs to our clients have
always resulted in their meeting or exceeding their growth targets and market-leadership aims.

Business research and Strategy is an intricate, involved and specialised subject and specialization
cannot be mass produced. Every specialization needs expertise, dedication, commitment and
enthusiasm. And at BDB, we pursue our specialization with a passion. We have constituted a fine
team, whose talent and honesty of purpose is beyond compare.

Researching the market thoroughly, profiling existing customers and potential customers, analysis
of product differentiation, technology evaluation, re-evaluating customer needs and creating new
markets are important steps towards success. Conversion of these needs into demand and
creating an appropriate market interface can lead to sales growth and larger market share.

The best result oriented strategy specifically tailored for our clients and for specific product range,
requires intricate market research and intimate knowledge about the working of the market place.

Our methodology of studying the markets in-depth involves primary research of the stakeholders
– buyers, end users, OEMs, consultants, channel partners, competitors, and EPC contractors – the
entire value chain. The findings are then analysed leveraging our years of experience.

Thanks to the faith entrusted in us by many globally leading multinational companies as well as
Indian business groups over quarter of a century; today BDB can carry out in-depth market
analysis to map potential opportunities. BDB, an ISO certified company is uniquely qualified,
experienced and equipped to design a failsafe growth plan that will achieve business growth.

BDB's unique strategy developing expertise, based on in house market research, includes
sectors such as electrical industry, process industry, automotive industry, machine tool
industry, metallurgical industry, plastics and composites industry, HVAC industry,
construction machinery industry, farm equipment industry, industrial chemical sector,
agrochemical industry, pharmaceutical & healthcare sector, domestic appliances market,
international markets as well as qualitative studies involving customer satisfaction
measurement and monitoring in the industrial eco-system.
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