Auto Industry Sector Analysis

Description
This is a presentation explaining in depth analysis of indian auto industry.

AUTO INDUSTRY SECTOR ANALYSIS

Global Scenario
• • • • • Growth Rate of only 2 percent per annum. APAC contributes most to the growth. Saturation reached in the large car markets Globally automobile and challenges in the way of profitability Automakers to cut costs while focusing on improved product quality and design. • Need of building stronger relation with suppliers and dealers • Highly uncertain demand of customers for specific vehicles

How wheel started rolling in India
Pre 1983 1983 – 1993 1993 – 2007 Since then

Closed Economy
•Growth of market limited by supply •Outdated Models • Major Players
Hindustan Motors Telco Premier Ashok Leyland M&M

Japanization GOI Suzuki venture to form Maruti Udyog
•Joint venture with companies in commercial vehicle and components • Major Players
Hindustan Motors Telco Premier Ashok Leyland M&M

Delicensing of sector in 1993
• Era of • Global major Globalization & OEMs start evolution of India as assembly in India a global ( Toyota , GM, Ford, manufacturing hub Honda, Hyundai ) • Imports allowed from April 2001; allignment of duty on companies. • Implementation of VAT

Automobile Companies in India

Automobile Sector in India
• One of the key sectors of the Indian Economy. • With deep forward and backward linkages it provides a multiplier effect. • High potential of creating employment. • It has now attained a turn over of Rs. 1,65,000 crores. • An investment of Rs. 50,000 crores. Over of Rs. 35,000 crores of investment is in pipeline. • Direct and indirect employment to 1.31 crore people.

• Vehicle

? Grown at a rate of more than 16% over last few years ? Increase in exports ? Huge untapped Potential ? 500 companies in organized and 10000 companies in small unorganized sector. ? One of the fastest growing Sector ? Capacity of the development of almost all components ? Almost 60 % exports to US and Europe ? In 1990s 70 % export to the Aftermarkets. In 2005 70% to the Global OEMs and Tier 1 companies.

• Auto Component Industry

• Tyre Industry
? Self sufficient in tyre producing barring few special types of vehicle, aircraft and snow tyres. ? The Rs.20, 000 crore Indian Tyre Industry, is highly raw material intensive. ? Exports to 65 countries ? 11.35 lakh M.T. On an average, 55% of the production is for replacement market, followed by 29.8% sold to OEMs directly and the remaining is exported.

• A contribution of 17% to the kitty of indirect taxes • The export in automotive sector has grown on an average CAGR of 30% per year for the last five years and has reached a turnover of 8 billion USD • Estimate auto volumes to register a CAGR of 11–12% over FY2011–13E, aided by an improved business environment for the sector. • Over the long term, comparatively low penetration levels, a healthy economic environment, favourable demographics & higher per-capita income levels are likely to help auto players in sustaining their top-line growth.

Market Segmentation
13%

58%

Passenger Vehicles Commercial Vehicle 26% Three Wheelers Two Wheelers

3%

Source: SIAM (Society of Indian Automobile Manufacturers)

Market Structure I
Passenger Vehicle

Maruti Suzuki
Tata Motors Hundai Motors General Motors Ford India Toyota

41.2
11.8 20.3 4.9 4.8 4.1

VolksWagon
Others
Source: SIAM (Society of Indian Automobile Manufacturers)

4.3
8.6

Maruti Suzuki Tata Motors Ford India VolksWagon

Hundai Motors General Motors Toyota Others

Market Structure II
Commercial Vehicle Tata Motors Ashok Leyland Mahindra & Mahindra 63.94 16.47 10.07

Eicher Motors
Swaraj Motors Force Motors Volvo India

5.57
2.19 1.56 0.20

Hindustan Motors
Tetra Vectra

0.05
0.01

Source: SIAM (Society of Indian Automobile Manufacturers)

Tata Motors Mahindra & Mahindra Swaraj Motors Volvo India Tetra Vectra

Ashok Leyland Eicher Motors Force Motors Hindustan Motors

Market Structure III
Two Wheelers Hero Honda Motors Bajaj Auto 41.35 26.70

TVS Motor Company
Honda Motorcycle and Scooters Yamaha Motor India Suzuki Motorcycle India Kinetic Motor India Royal Enfield Kinetic Engineering Electrotherm
Source: SIAM (Society of Indian Automobile Manufacturers)

18.14
8.80 2.68 0.81 0.69 0.39 0.25 0.09

Hero Honda Motors
Bajaj Auto TVS Motor Company Honda Motorcycle and Scooters Yamaha Motor India

Market Structure IV
Three Wheelers
Bajaj Auto Piaggio Vehicles Scooter India Atul Auto Force Motors Mahindra and Mahindra 58.60 32.72 3.55 2.39 1.44 1.31 Bajaj Auto Piaggio Vehicles Scooter India Atul Auto Force Motors Mahindra and Mahindra

Source: SIAM (Society of Indian Automobile Manufacturers)

Latest Statistics
• Production
? The cumulative production data for April-August 2011 shows production growth of 15.92 percent over same period last year ? Production in August 2011 grew at 12.67 percent as compared to August 2010.

• Domestic Sales
? The growth rate recorded for April-August 2011 was 13.26 percent. ? However, lower growth rate of 11.85 percent as compared to August 2010.

• Exports
? During April-August 2011, overall automobile exports registered a growth rate of 30.93 percent ? As compared to August 2010, overall automobile exports registered a growth of 36.13 percent

Business Cycle
• Status : Growth • Reasons
? The market for manufacturing motor vehicles is consistently increasing. ? The products manufactured by this industry are profitable. ? Companies have been consistently opening new plats and employing over the past five years. ? Japanese and European manufacturers of motor vehicles have entered the market. ? Industry value added has been rising, along with the rise in GDP.

• Affected by the global crisis but recovered soon. • Thus, the automobile crisis is a downward business cycle, not a structural crisis of the industry.

• Trained manpower and good infrastructure is required for sustainable growth of the industry. • Indian Government’s National Automotive Testing and R&D Infrastructure Project (NATRIP) to provide specialised facilities for Testing, Certification and Homologation to the industry.

Cost efficiencies contributing to lower production costs

Rise in the Per capita income increases two/four wheeler sales

Favorable Government Policies for the auto sectorFavorable Government Policies for the auto sector

Exhaustive range of options in price and models of automotives

DRIVERS

Attractive Finance Schemes for purchase of automotives (12 to 15%)

Growth in the road infrastructure increases demand for vehicles

Rise in the industrial and agricultural output indirectly helps Indian Auto industry

Rising working class and middle class contribute to increased demand of automotives

AUTOMOTIVE REGULATIONS IN INDIA
• Ministry of Shipping, Road Transport and Highways (MoSRTH) • Ministry of Environment and forests • Ministry of Petroleum and Natural Gas • Motor Vehicles Act, 1988 • Central Motor Vehicles Rules, 1989 • Excise duty on large cars and SUVs increased from 20% to 22% • 10% on small cars • 100% customs duty on fully imported cars • 100% FDI • Bharath stage emission standards • Bharath stage III - Nation wide • Bharath stage IV - in 13 major cities

• NEW PROPOSAL ON CKD IMPORTS • Excise duty increase from 10% to almost 30%

AUTOMOTIVE SUPPLY CHAIN

Predicting Future
Total vehicles production (in crores)
2.50 2.00 1.50 1.00 0.50 0.00 2006 2007 2008 2009 2010 2011-E 1.41 1.11 1.08 1.11 0.500 0.000 2006 2007 2008 2009 2010 2011- E 1.79 2.12

Automobile Domestic Sales (in crores)
2.000 1.551 1.500 1.000 1.012 0.965 0.972 1.229 1.862

Total Revenue trends (in Rupees crores)
250000 200000 150000 100000 153537 137140 148359 172480 182100 215361 0.300 0.250 0.200 0.150 0.100 0.050 0.000

Automobile Exports sales (in crores)
0.234 0.124 0.153 0.180 0.257

0.101

50000
0 2006 2007 2008 2009 2010 2011- E

2006

2007

2008

2009

2010 2011- E

Source: SIAM (Society of Indian Automobile Manufacturers)

Predicting Future
? Dependence on exports – 13.4% of total production
? Increase in exports sales in FY11 is 22.9% ? Increase in domestic sales in FY11 is 26.1% for two consecutive years ? Assuming domestic sales increases by 20% for FY12 and exports increases by 10% (due to Europe debt crisis and other economies slow down) – still revenues increases by 18% for FY12

COST STRUCTURE
excise duty excise duty raw material 0.28 10.41 raw material

6.79
3.37 4.41 0.91 Employee Cost 67.31 5.36 2.66 3.48 7.89 Power & Fuel Cost 0.38 5.65 0.56

8.18
Power & Fuel Cost Employee Cost 64.94 Other Manufacturing Expenses Selling and Admin Expenses

Other Manufacturing Expenses Selling and Admin Expenses Interest expense

Interest expense
PAT

TATA MOTORS

PAT

MAHINDRA & MAHINDRA LTD

Source: SIAM (Society of Indian Automobile Manufacturers)

COST STRUCTURE
excise duty excise duty 4.77 2.82 0.06 5.60 10.53 raw material 5.25 Power & Fuel Cost Employee Cost 70.67 1.97 2.98 0.48 68.49 9.27 0.14 6.83 Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses raw material

1.72 0.51

Other Manufacturing Expenses
Selling and Admin Expenses Interest expense PAT

Interest expense
PAT

MARUTI SUZUKI

HERO MOTOCORP

Source: SIAM (Society of Indian Automobile Manufacturers)

Impact of Steel Price
On 18th March 2011, Tata motors announced an increase in price of Indica by 7000 to 9000 depending upon the model of Indica. Considering the impact of increasing the steel price in month of Jan 2011 following is its impact analysis.

Interpretation: In a month when steel prices increased by 9.0% it started eating around 1.3% profits for Tata motors cars.

EXTERNAL FACTORS IMPACTING AUTOMOBILE SECTOR Income increase ?As per NCAER findings – middle class --13.1% of India’s population (160 million individual population) ?NCAER criterion for middle class population is 3.4 -- 17 lakh (by 2009-10 prices) ?Would touch 267 million by 2015-16, 547 MILLION by 2025-26 ?No of millionaires surged from 1.26 lakh in 2009 to 1.53 lakh in 2010 (12th in world) Labour unrest ?Led to loss of revenues and profits for Maruti in September quarter

Technology change
?Jaguar launched --XF and XK range of luxury cars in India starting at a price tag of 6.3 million rupees ($130,977) and going up to 9 million rupees ?Nano car – a big technology change

CAR LOANS

SWOT ANALYSIS
STRENGHTS • Large domestic market • Low labor cost • Strong technical labor support • Government incentives for auto sector WEAKENESSES • Low labor productivity due to labor unrest • High interest costs on auto loans • Rising cost of production – difficult to transfer to customer (oligopoly market)

SWOT ANALYSIS
OPPORTUNITIES: • Increase in income levels • Cuts in excise duty • Rising rural demand

THREATS: • Rising interest rates • Many competitors so cut throat competition • Rising fuel prices – divert customer for cheaper way of transports • Secondhand car market is increasing

Share Price Analysis
Compa ny Name Maruti Hero MotoCorp Tata Motors M&M Bajaj Auto
Source: BSE

Market Turnover Face Cap (in Share (in EBITDA PAT (in value crores) Price crores) Margins Equity crores) 5 27700 960 37000 4260 144 2300

PE 12 22.3
25 15.7 55.3

EPS 80 96.5
6.9 45.2 115

2
2 5 10

43000 2150
46500 172.6 43600 710 46300 1600

19400
48000 23500 16600

2800
5047 4000 4400

40
635 294 290

1930
1811 2662 3340

WHERE TO INVEST ? POWER of IVIDEND Hero MotoCorp • Dividend – 110 Rs, EPS – 100 (FY11,10) (Current share price – 2150) • Dividend – 20 Rs, EPS – 50 (FY09,08) (Avg share price – 800) Bajaj Auto • Dividend – 40 Rs, EPS – 115 (FY11,10) (Current share price -- 1600) • Dividend – 20 Rs, EPS – 50 (FY09,08) (Avg share price -- 600)
Tata Motors • Dividend – 20 Rs, EPS – 30 (FY11,10,09,08) (Current share price -172*5) M&M • Dividend – 10 Rs, EPS – 40 (FY11,10,09,08) (Current share price -710) Maruti • Dividend – 4.5-7.5 Rs, EPS – 80 (FY11,10,09,08) (Current share price -- 970)

D

BU Y BU Y

FUTURE OF ELECTRIC VEHICLES

CARS TO DEBUT IN INDIA



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