AUTOMOBILE INDUSTRY ANALYSIS BY INDUSTRY KA CHASHMA

Automobile Industry Analysis:

Decoding Fundamentals and Outlook

Sample Report
Prepared by Industry Ka Chashma
(2023-2024)

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Disclaimer

This report analyses the Automobile Industry in India ('the Report'). The analysts have prepared this report based on
publicly available information from web databases, assuming its accuracy and completeness without independent
verification. The information has been reviewed by the analysts for inclusion in the Report. However, unauthorized
circulation of this report without consent is strictly prohibited and punishable under Section 43(b) of the Indian Information
Technology Act, 2000.

The information contained in this report, including any derived data, has not been audited by the analysts, and Industry Ka
Chashma makes no representation or warranty (expressed or implied) regarding its accuracy. Industry Ka Chashma accepts
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Table of Contents

1) Key Stats
2) Supply Chain
3) How Industry is segmented in this report
4) Automotive Castings: About Segment, Key Drivers, Outlook FY24
5) Automotive Components: About Segment, Key Drivers, Outlook FY24
6) Passenger Vehicles and Utility Vehicles: About Segment, Key Drivers, Outlook FY24
7) Commercial Vehicle: About Segment, Key Drivers, Outlook FY24
8) Two- Wheelers: About Segment, Key Drivers, Outlook FY24
9) Important Ratios to look at while analyzing the Automobile Industry
10) Marketing Strategies used in Automobile Industry
11) Comparing Big Players
12) Government Policies related to Automobile Industry

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1. Key Stats

7.1%
4.7%
•Share in India's
•Share in India's GDP.
exports

40% 37 Mn
•Share in global •Employment
R&D generated

Key Statistics of the Automobile Industry for Interviews, Research Reports, GDs, Case Presentations, or Professional Pitches:

1. Market Size: The automobile industry is valued at $222 billion and is expected to reach $300 billion by 2026.
2. Foreign Direct Investment (FDI): From April 2000 to March 2023, the automobile sector accounted for around 5.4% ($34.77 billion) of the
total equity FDI inflows to India.
3. Market Share: In the Indian automobile market, two-wheelers hold a 76% market share, while passenger cars account for 17.4% market share
in FY22. Small and midsized cars dominate the passenger car sales segment.
4. Industry Growth: India aims to double the size of its auto industry to INR 15 lakh crore by the end of 2024.
5. Electric Vehicle (EV) Market: The EV market is projected to grow at a CAGR of 49% between 2022 and 2030, with an expected annual sales
target of 10 million units by 2030. The EV industry is anticipated to create 50 million direct and indirect jobs by 2030.
6. Contribution to GDP: The Indian automobile industry contributes approximately 7.1% to India's GDP and 35% to the manufacturing GDP.
7. Global Positioning: India's automotive industry is set to become the third-largest in the world by 2030, and it currently accounts for ~5% of the
country's total exports.
8. Employment: The automobile industry serves as a significant source of employment recruiting 37 million people.
9. Foreign Investment: 100% FDI is allowed in the automobile sector under the automatic route, further attracting foreign investment.

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These key statistics provide valuable insights and data to support discussions, analysis, and presentations related to the automobile industry in
various professional contexts.

India is third largest

heavy truck manufacturer
and fourth largest car
India is the largest manufacturer
manufacturer of 3-
Wheelers, passenger
India is the 2nd largest vehicles & Tractors
manufacturer of 2-
Wheelers after China.

Growth Drivers:

• The average household income in 2020 increased threefold from $6,393 in 2010 to $18,448.
• By 2025, India is projected to have the youngest population with an average age of 25.
• The vehicle penetration rate is expected to reach 72 vehicles per 1000 people by 2025.
• India serves as a significant R&D hub, contributing 40% of the global engineering and R&D spend of $31 billion, with 8% allocated to
the automotive sector.
• The Atmanirbhar Bharat Abhiyaan aims to promote manufacturing in India through a comprehensive economic package of INR 20 lakh
crore.

Source: IBEF, PBI India, Invest India

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2. Supply Chain

The automobile industry in India operates within a complex supply chain involving various entities that contribute to the manufacturing and
distribution of vehicles. This report provides a comprehensive overview of the supply chain, highlighting key players and their roles at different
stages. It includes examples of companies operating within each segment of the supply chain.

Auto
Raw Ancillaries
Tier 1 Aftermarket
Material and Tier 2/ OEMs
Suppliers Provider
Suppliers Tier 3
Suppliers

1. Raw Material Suppliers:

Raw material suppliers play a crucial role in providing the necessary inputs for component manufacturing. Here are examples of key raw
material suppliers in the Indian automobile industry:

A. Steel:

• Tata Steel: Tata Steel is one of the leading steel suppliers in India, providing high-quality steel sheets and coils used in vehicle bodies and
structural components.
• JSW Steel: JSW Steel is another major player in the steel industry, supplying automotive-grade steel for various automobile applications.

B. Aluminum:

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• Hindalco Industries: Hindalco is a prominent aluminum supplier, offering aluminum sheets, extrusions, and castings used in lightweight
vehicle structures and parts.
• NALCO: The National Aluminium Company Limited (NALCO) is a key player in the aluminum sector, providing aluminum products
for automotive applications.

C. Rubber:

• Apollo Tyres: Apollo Tyres is a leading tire manufacturer in India, supplying a wide range of tires for different vehicle types.
• MRF Limited: MRF Limited is a major player in the tire industry, manufacturing tires for passenger vehicles, commercial vehicles, and
two-wheelers.

D. Plastics:

• Reliance Industries: Reliance Industries is a diversified conglomerate involved in the production of various plastics used in automotive
applications.
• Supreme Industries: Supreme Industries specializes in manufacturing plastic components for automotive interiors, exteriors, and under-
the-hood applications.

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2. Component Manufacturers (Tier 1 Suppliers):

Tier 1 suppliers are responsible for manufacturing and supplying major components and subsystems directly to OEMs. They play a
crucial role in the supply chain. Examples of tier 1 suppliers in the Indian automobile industry include:

Source: Studentlesson.com

• Bosch Limited: Bosch is a global leader in providing automotive technologies and solutions, including fuel injection systems, braking
systems, and electronic components.
• Magneti Marelli (part of MARELLI): Magneti Marelli is a renowned tier 1 supplier offering a wide range of automotive systems and
components, including lighting, powertrain, and electronics.
• ZF India: ZF India is a leading supplier of driveline and chassis technology, producing components such as transmissions, steering
systems, and axles.

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3. Auto Ancillaries and Tier 2/Tier 3 Suppliers:

Ancillaries are companies that specialize in manufacturing and supplying specific components required for the production of vehicles. Tier 2
suppliers provide specialized components and subsystems directly to tier 1 suppliers, while tier 3 suppliers supply raw materials and basic
components to tier 2 suppliers. Here are examples of Auto Ancillaries, tier 2 and tier 3 suppliers in the Indian automobile industry:

Source: Encyclopaedia Britannica

• Motherson Sumi Systems Limited: Motherson Sumi is a leading manufacturer of electrical distribution systems, rearview mirrors, and
other automotive components.
• Bharat Forge: Bharat Forge is a prominent auto ancillary company, manufacturing a range of components including engine parts, chassis,
and drivetrain components.
• Rane Holdings Limited: Rane Holdings is involved in the production of steering and suspension systems, among other critical
automotive components.

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4. OEMs (Original Equipment Manufacturers):

OEMs are the companies responsible for designing, developing, and assembling complete vehicles. They integrate various components
and subsystems provided by tier 1 suppliers into finished products. Examples of Indian OEMs operating in the automobile industry are:

• Maruti Suzuki India Limited: Maruti Suzuki is India's largest automobile manufacturer, assembling popular models like Swift,
Baleno, and Vitara Brezza.
• Tata Motors: Tata Motors is a prominent Indian automaker known for its passenger cars, commercial vehicles, and electric vehicles,
including the Tata Nexon and Tata Harrier.
• Mahindra & Mahindra (M&M): M&M specializes in manufacturing SUVs, electric vehicles, and agricultural machinery, with models
like the Mahindra Scorpio and Mahindra XUV300.

5. Aftermarket Providers:

Aftermarket providers play a crucial role in the post-sales phase of the automotive industry, offering a range of products and services for
vehicle maintenance, repair, and customization. They ensure the longevity and optimal performance of vehicles even after they have been
sold. Examples of aftermarket providers in India include:
A. Parts and Components: TVS Automobile Solutions Limited: TVS Automobile Solutions operates under the brand name "MyTVS" and
provides a network of authorized service centres across India. They offer a wide range of genuine spare parts and accessories, ensuring
quality service for various vehicle brands.
B. Multi-brand Service Centres: Carnation Auto: Carnation Auto operates multi-brand service centers across India, offering maintenance
and repair services for vehicles from different manufacturers. They provide comprehensive services, including scheduled maintenance,
mechanical repairs, and bodywork.
C. Diagnostic Tools and Equipment: Bosch Limited: In addition to being a tier 1 supplier, Bosch also plays a significant role in the
aftermarket segment. They offer diagnostics tools, equipment, and repair solutions for vehicles of various brands, ensuring accurate
troubleshooting and efficient repairs.

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3. How Industry is segmented in this report: About Segment, Key Drivers, Outlook FY24

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8. Two - Wheelers

A. What is 2-wheeler segment?

Two-wheelers, also known as motorcycles or scooters, are a popular mode of transportation in India, offering convenience and efficiency for
personal commuting. In India, several companies specialize in the manufacturing of two-wheelers, offering a wide range of models to cater to
different customer preferences and needs. Here are some examples of Indian companies involved in two-wheeler manufacturing:

1. Hero MotoCorp Limited: Hero MotoCorp Limited is the largest two-wheeler manufacturer in India and a global leader in the industry. They
offer a diverse range of motorcycles and scooters suitable for various segments and purposes. Hero MotoCorp produces popular models such as
the Hero Splendor, Hero Passion, Hero HF Deluxe, Hero Maestro, and Hero Pleasure. Their two-wheelers are known for their fuel efficiency,
reliability, and widespread service network.

2. Honda Motorcycle & Scooter India Pvt. Ltd.: Honda Motorcycle & Scooter India Pvt. Ltd. (HMSI) is a subsidiary of Honda Motor Company,
Japan. They are one of the major players in the Indian two-wheeler market, offering a range of motorcycles and scooters. HMSI produces
popular models such as the Honda Activa, Honda CB Shine, Honda Dio, Honda Hornet, and Honda CRF. Their two-wheelers are known for
their reliability, refinement, and fuel efficiency.

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3. TVS Motor Company Limited: TVS Motor Company Limited is a prominent Indian two-wheeler manufacturer known for its wide range of
motorcycles and scooters. They offer models suitable for urban commuting, sport riding, and daily commuting. TVS Motor Company produces
popular models such as the TVS Apache, TVS Jupiter, TVS Ntorq, TVS Radeon, and TVS Scooty. Their two-wheelers are known for their
performance, style, and features.

4. Bajaj Auto Limited: Bajaj Auto Limited is a renowned Indian two-wheeler manufacturer with a strong presence in the domestic and international
markets. They produce motorcycles and scooters catering to different customer preferences and segments. Bajaj Auto offers models like the
Bajaj Pulsar, Bajaj Dominar, Bajaj Platina, Bajaj CT, and Bajaj Chetak. Their two-wheelers are known for their performance, styling, and
technological innovations.

These Indian companies, among others, play a significant role in the production of two-wheelers, meeting the demands of the Indian market and
catering to diverse customer preferences. By focusing on design, performance, fuel efficiency, and affordability, these companies ensure that
their two-wheelers provide reliable and economical transportation options for consumers.

B. Key Drivers:

• Affordability and Fuel Efficiency: Two-wheelers are popular in countries like India due to their affordability and fuel efficiency. The demand
for two-wheelers is driven by factors such as rising urbanization, increasing middle-class population, and the need for cost-effective
transportation options.

• Rural Demand: Two-wheelers also cater to the rural market, where they serve as a primary mode of transportation for commuting, agriculture,
and small-scale businesses. Factors such as improving rural infrastructure, increasing income levels, and access to financing options impact the
demand for two-wheelers in rural areas.

C. Outlook FY24:

The two-wheeler industry is expected to continue its recovery in FY24, building upon the strong performance in FY23. With improving demand
sentiments and increased mobility, two-wheeler volumes are projected to grow by approximately 10-12% in FY24, following a robust growth of
~20% in the FY23.

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The recovery in scooter sales is expected to be a significant driver of volume growth. As educational institutions and offices reopen, more
people are commuting to work, leading to increased demand for scooters. Additionally, the improvement in urban income sentiment and a
positive monsoon prediction are anticipated to support the demand for motorcycles.

However, despite the overall recovery, volumes in FY24 are expected to be lower than the peak levels recorded in FY19. This is primarily
due to significant price hikes in the two-wheeler segment over the past few years, which have dampened consumer sentiments. The acquisition
price for entry-level two-wheelers has increased by approximately ~45% since FY19, driven by factors such as safety norms, BS-VI
implementation, and higher input costs.

In terms of exports, the two-wheeler industry experienced a decline FY23 due to demand pressure in key export destinations caused by global
tightening and high inflation. The impact of global tightening on economic growth and customer sentiments is expected to continue affecting
export growth in fiscal 2024. Improved demand sentiments and better utilization levels are anticipated to drive margin improvement in FY24.
Softening input costs, coupled with higher capacity utilization, are expected to positively impact the industry's profitability.

However, the growth of electric vehicle (EV) players may face headwinds due to the potential reduction in subsidy amounts. The
government's consideration of lowering the subsidy on each electric two-wheeler and the absence of an extension for the FAME-II scheme
beyond March 2024 may affect the growth of EVs in the market.

In conclusion, the two-wheeler industry is poised for continued recovery in fiscal 2024, driven by improving demand sentiments and increased
mobility. While challenges in exports and the EV segment persist, the industry's long-term outlook remains positive, with a focus on expanding
the domestic market, introducing new models, and improving profitability through cost optimization.

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9. Important Ratios to look while analyzing Automobile Industry

• Debt-to-Equity Ratio: The debt-to-equity ratio (D/E) is a crucial metric for assessing auto companies' financial health and their ability to
meet financing obligations. It measures the proportion of a company's funding from creditors compared to its own equity. A lower D/E ratio
is preferred by investors and lenders as it indicates a company's reliance on its own resources rather than external financing. However, D/E
ratios should be compared within the same industry due to varying debt requirements.

• Inventory Turnover Ratio: The inventory turnover ratio is particularly significant for evaluating auto dealerships within the auto industry.
Carrying excessive inventory for more than about 60 days is often viewed as a warning sign for auto sales. This ratio calculates how many
times a company's inventory is sold or turned over in a year, indicating how efficiently they manage ordering and inventory.

• Return on Equity Ratio: The return on equity (ROE) is a vital financial ratio for analyzing companies across various industries, including
the auto industry. It measures a company's net profit in relation to shareholder equity, representing its profitability for investors. Higher ROE
is typically preferred by investors.

• Capacity Utilization Rate: The utilization rate assesses a company's effective use of production capacity, while the downtime rate indicates
the frequency of facility shutdowns for maintenance.

• Yield Rate: The yield rate reflects the percentage of cars meeting company specifications, and the recall rate indicates unsatisfactory
vehicles.

• Capital-Intensiveness of the Automobile Industry: The auto industry is known for being highly capital-intensive, with substantial capital
costs associated with property, plants, and machinery. These costs outweigh labour or raw material expenses.

Conclusion While the discussed financial ratios provide valuable insights into the performance of companies in the auto industry, it is essential
to consider other metrics and industry dynamics to gain a comprehensive understanding of a company's financial health.

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12. Government Policies related to Automobile Industry

The Indian automobile industry has witnessed significant growth and development, thanks to various policies and initiatives implemented by the
government. Let's explore some of these key initiatives:

1. NATRIP (National Automotive Testing and R&D Infrastructure Project):

NATRIP is a pivotal project that focuses on establishing advanced testing and R&D facilities to support the design, development, and validation
of vehicles in India. By providing automobile manufacturers and component suppliers with rigorous testing and evaluation capabilities, NATRIP
ensures compliance with safety and emission standards. This project not only fosters innovation but also enhances product quality, enabling the
Indian automobile industry to compete globally. Since 2015, four testing and research centers have been established under NATRIP.

2. PLI (Production Linked Incentive):

The Production Linked Incentive scheme has made a significant impact on the Indian automobile industry. It encourages domestic
manufacturing and incentivizes companies to increase their production capacity and sales. Through this scheme, automobile manufacturers
receive financial incentives based on their incremental production, leading to investments in manufacturing facilities, technology upgrades, and
research and development. The PLI scheme aims to propel the growth of the automobile industry, enhance competitiveness, and establish India
as a manufacturing hub for automobiles and components. Notably, the Union Government, in November 2021, expanded the PLI scheme to
include over 100 advanced technologies and products such as alternate fuel systems, advanced driver-assist systems, and e-quadricycles.

3. AMP (Automotive Mission Plan):

The Automotive Mission Plan is a comprehensive long-term policy framework designed to foster sustainable growth and development in the
Indian automobile industry. It focuses on key areas such as research and development, technology advancement, infrastructure development,

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skill enhancement, and the promotion of environmentally friendly and fuel-efficient vehicles. The AMP aims to enhance the global
competitiveness of the Indian automobile industry, attract investments, and create employment opportunities.

4. FAME (Faster Adoption and Manufacturing of Electric Vehicles):

The FAME scheme is a crucial government initiative that promotes the adoption and manufacturing of electric vehicles (EVs) in India. It
provides financial incentives to EV buyers and encourages manufacturers to produce electric and hybrid vehicles. The scheme aims to reduce
dependence on fossil fuels, combat pollution, and promote sustainable transportation options. FAME supports the growth of the electric vehicle
ecosystem, including the development of charging infrastructure, technology advancements, and research and development. In February 2019,
the Government of India approved the FAME-II scheme with a fund requirement of Rs. 10,000 crore (US$ 1.2 billion) for the fiscal years 2020-
2022, extending the support to cover all vehicle segments and forms of hybrid and pure EVs.

5. Clean Tech Scheme:

The Indian government has introduced the Clean Tech Scheme to encourage the production and export of clean technology vehicles. Over a five-
year period until 2026, approximately US$ 3.5 billion worth of incentives has been planned. This scheme aims to promote clean and
environmentally sustainable technologies in the automobile industry, including the adoption of advanced emissions control systems, hybrid
powertrains, and alternative fuels. It provides financial support and incentives to companies for the development and implementation of clean
technologies, reducing the environmental impact of vehicles, and complying with stringent emission norms.

6. Flex Fuel Engines and Ethanol Blending:

The Indian government is actively promoting flex fuel engines and the blending of ethanol in gasoline. Flex fuel engines are designed to operate
on a blend of gasoline and alternative fuels like ethanol. The government plans to make it mandatory for car manufacturers to produce flex-fuel
engines, subject to required permissions from the Supreme Court of India. Ethanol blending helps reduce dependence on fossil fuels, promotes
renewable energy sources, and decreases carbon emissions. The government has set targets for mandatory ethanol blending in gasoline, with a
goal of achieving 20% blending of ethanol in petrol and 5% blending of biodiesel in diesel by 2025-26. These policies support the growth of the
ethanol industry and provide opportunities for biofuel manufacturers and suppliers.
These policies and initiatives play a vital role in driving growth, fostering innovation, enhancing sustainability, and promoting the adoption of
advanced technologies in the Indian automobile industry. They are instrumental in shaping the industry's future and aligning it with global trends
and environmental goals.

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