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8/8/2019 02.Roland Berger R.bhinge
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Indian Automobile and ComponentIndustry TrendsPresentation for OESA
18 May 2010This is a confidential document solely for the use of client personnel. No part of i t may be circulated, quoted, orreproduced for distribution outside the client organization without prior written approval from Tata Strategic
Management Group.
STRATEGIC MANAGEMENT GROUP
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2
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53%
22%
25%
Cars & UV Two Wheelers
CVs & Tractors
34%
27%
39%
European Union NAFTA Others
In FY10, Indian auto component production was valued at ~USD 25.7 billion,including exports
INDIAN AUTO COMPONENT PRODUCTION : FY101)
DOMESTIC PRODUCTION (Total USD 25.7 bn)
EXPORTDESTINATIONS
OEMSEGMENTWISEOFFTAKE
Notes : 1) FY : Financial Year ending 31st March of the year mentioned, i.e. FY10 is year ending 31st
March 2010; 2) 1 USD = 45 INR
Source: UN Comtrade, Crisil, Automotive Mission Plan 2006-2016, Tata Strate ic Research
13%
67%
20%
Exports OEM Replacement
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19%
57%24%
MNC Indian Promoter Unorganised
Large Indian promoter groups form a major part of the Indian autocomponent industry
INDIAN AUTO COMPONENT INDUSTRY : STRUCTURE
PROMOTER SEGMENTATION
Kalyani Group...(11%)
TVS Iyengar Group.(10%)
Munjal Group (7%)
Amtek Group (7%)
Sona Group(3%)
Escorts Group(3%)
Rico Group.(2%)
Anand Group.(2%)
JBM Group.(2%)
Rane Group(2%)
Elgi Group..(2%)
Minda SL Group(2%)
Shriram Group...(2%)
Tata Group..(1.2%)
Amalgamation Group(1%)
Total: USD 25.7 billion
Total 57%
Prevalent business models:
Full Indian ownership
Indian owner and MNCs
in technical alliance
Indian owner and MNC JV
Complete MNC subsidiary
Notes : 1) All figures for FY10 2) 1 USD = 45 INR
COMMENTS
Source: Crisil, Tata Strate ic Research, Auto Component Manufacturers Association ACMA
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6%
2%
-2%
12%
4%
-3%-4%
-2%
0%
2%
4%
6%8%
10%
12%
14%
2007 2008 2009
EBIT ROCE
INDIAN AUTO COMPONENT INDUSTRY: PROFITABILITY COMPARISON
Indian suppliers have largely remained profitable during the slowdown
INDIAN COMPONENT SUPPLIERSPROFITABILITY (%)
GLOBAL COMPONENT SUPPLIERSPROFITABILITY (%)
Compared to their European and American peers, Indian auto component suppliers have been
profitable even during global recession
This can be attributed to their unique cost positioning in low volume flexible production systems
Note: Global supplier profitability reported by CY and Indian by FY (Financial Year) ending 31 st March
Source: FactSet/Reuter's; Roland Ber er/Rothschild lobal automotive supplier database 2009; CRISIL
12%
11%
5%
17%16%
11%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
FY07 FY08 FY09
EBIT ROCE
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STRATEGIC MANAGEMENT GROUP
1,950 2,1762,428
2,7103,024
3,375
531579
631688
750
818
FY10 FY11 FY12 FY13 FY14 FY15
Component suppliers will benefit from the continued strong growth of theIndian automotive market
INDIAN AUTOMOTIVE MARKET : FORECAST
Note: 1) FY : Financial Year ending 31st March of the year mentioned
INDIA DOMESTIC VEHICLE SALES (000 units)
PassengerVehicles
CommercialVehicles
CAGR
Total 2,481 2,755 3,398 3,775 4,193
9%
11.6%
3,060 11.1%
In addition, 490,000
vehicles were exported
in FY10, of which > 90 %
passenger cars
Exports likely to grow to
1,130,000 vehicles by
FY15 (~ 19 % CAGR)
EXPORTS
Source: SIAM, Crisil, Tata Strate ic Research
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STRATEGIC MANAGEMENT GROUP 6
6
STRATEGIC MANAGEMENT GROUP
17 2023
26 30
345
66
6
7
7
34
5
6
7
8
FY10 FY11E FY12E FY13E FY14E FY15E
Auto component production in India is hence expected to double in valueover the next 5 years
INDIAN AUTO COMPONENT PRODUCTION : FORECAST
AUTO COMPONENT PRODUCTION TREND (USD Bn)
OEM
Replacement
CAGR
Total 26 29 38 44 50
20%
7%
33 14%
Exports
15%
Note: 1) FY : Financial Year ending 31st March of the year mentioned
Strong growth driven by
sales to OEMs in India as
well as exports
COMMENTS
Source: SIAM, Crisil, Tata Strate ic Research
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7/19STRATEGIC MANAGEMENT GROUP 7
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STRATEGIC MANAGEMENT GROUP
Indian auto component industry is expected to remain cost competitive
INDIAN COST COMPETITIVENESS IN AUTO COMPONENTS
LOWLABOURCOSTS
Availability of low cost and highly skilled workers
Availability of qualified engineers / technical personnel
LOW FIXEDCOSTS
Appropriate level of automation with low levels of capex
Cost competitive even at smaller scale and lower utilization
LOW DESIGNCOSTS
Low cost innovation differentiates India from other emerging countries
Easy availability of competent product design personnel
Source: Tata Strate ic Research
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Many global players have established international purchase offices in India
INTERNATIONAL PURCHASING OFFICES (IPOs) IN INDIA INDICATIVE
OEM Value (USD m) Components
Volvo 90
Fiat 4
Ford 150Engine components,leaf springs
Gearbox & engine
components
Renault 65
Global OEMs Sourcing from India
Undisclosed
Castings, Forgings,Power-train components`
Toyota UndisclosedManual gearboxes,propeller shafts
Daimler 125 Undisclosed
Global sourcing offices in India
Pune
Bangalore
Gurgaon
Chennai
Delhi
Component Production Hubs
Jamshedpur
Magna Undisclosed Power-trains
Valeo Undisclosed Clutch plate, housing
Global auto suppliers sourcing from India
Brose Undisclosed Undisclosed
Source: Tata Strate ic Research, Roland Ber er
http://images.google.co.in/imgres?imgurl=http://www.ulsterpubs.com/download/1/ford_logo.gif&imgrefurl=http://www.ulsterpubs.com/opencontent/default.asp?itemid=106§ion=Associate+Members&usg=__WHI099xDOej8zVTqlRsyFzlk_tc=&h=422&w=838&sz=62&hl=en&start=5&itbs=1&tbnid=rTaNH3S-zJeZAM:&tbnh=73&tbnw=144&prev=/images?q=Ford+logo&hl=en&gbv=2&tbs=isch:1http://images.google.co.in/imgres?imgurl=http://me.stanford.edu/groups/design/automotive/images/LogoToyota.jpg&imgrefurl=http://me.stanford.edu/groups/design/automotive/about.html&usg=__wK7A06_8omb-S_QVSSIe9T2G5bA=&h=301&w=350&sz=14&hl=en&start=2&itbs=1&tbnid=Z7mfeoRPIPZdeM:&tbnh=103&tbnw=120&prev=/images?q=Toyota+logo&hl=en&gbv=2&tbs=isch:1 -
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They have also set up R&D centres of global scale
R&D CENTRES IN INDIA
Global companies R&D centres in India
Bangalore
Noida
Rohtak
Nasik
Pune
Automotive R&D forhatchbacks and low
cost cars
India - a centre for lowcost innovation
INDICATIVE
Hubs of R&D facilities
Jamshedpur
FOCUS AREAS
Source: Tata Strate ic Research, Roland Ber er
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CASE STUDY : BOSCH
Global component manufacturers who have entered India have benefitted inthe areas of sourcing, innovation, and cost
Power Tools
Security Systems
Automotive
Low cost innovation enhances Boschs leadership globally Being leveraged for other hatchbacks and two wheelers Bosch is the largest auto component exporter in India
Radical innovation in CRDi to meet target costs; several patents filed
Enhanced local sourcing for key components
Recognized need to foray in sub7,000 passenger cars (Revenuetarget1bn by 2010)
Partnered Tata Motors for Nano project for very low cost FI module
Established in 1953 in India, Presence in Automotive, Power Tools, Industrial Tech, Engg services
Dominant position in Indian market for fuel injection (FI) modules Extensive global sourcing from India
Source: Tata Strate ic Research, Roland Ber er
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CHANGING BUSINESS ENVIRONMENT FOR SUPPLIERS IN INDIA
Several new challenges are emerging for suppliers in India
INDICATIVE
More vehicle variants
Shorter product life
Growing OEM exports Changing regulations
(emissions and safety)
Rapid technology shifts
Increasing OEM expectations on
Quality
- Delivery performance
- Cost
Increasing complexity
Managing life cycle costs
Latest features and safety requirements Conformance to both Indian and export
requirements (e.g. ABS)
Access to technology and rising R&D cost
Increasing pressure to
- Upgrade skills and processes
- Overcome inferior logistics
infrastructure
- Further reduce costs
Emerging trends Challenges for suppliers
Source: Tata Strate ic Research
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12/19STRATEGIC MANAGEMENT GROUP 12
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STRATEGIC MANAGEMENT GROUP
CAPABILITIES OF INDIAN SUPPLIERS
Indian suppliers will not be able to cater to many evolvingrequirements, completely on their own
Partial Non Existent (Nascent)
Climate control ECE ABS
Front airbag Power steering
Head/side airbags Infotainment Protection Automatic transmission
Engine parts Transmission& steering Chassis parts Sheet metal Electrical/Electronics parts Body parts Rubber parts
Proven
Nature ofownership
0%
100%
0%
100%
Technologyrequi
rements
INDICATIVE
Current capabilities of Indian suppliers
IndianForeign
Source: VW, Business Meetin s, Tata Strate ic Research
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Safety systems New materials
Various modes for India entry exist to harness these growth avenues
Modes of India Entry
Enter through
acquisitions / JVs Enter on their own
Joint Venture with anIndian company
Acquire an existingcompany
Enter as a whollyowned subsidiary
Entry
Modes
Legal
entity
Possibleareas ofentry
MODES FOR ENTRY INTO INDIAN AUTOMOTIVE INDUSTRY
Advanced power train Automatic transmission
Electronics Interiors
INDICATIVE
Arvin Meritor Motherson Sumi Tata Johnson Controls
Examples
SKF
Denso Timken Delphi
Source: Tata Strate ic Research
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STRATEGIC MANAGEMENT GROUP
CRITICAL SUCCESS FACTORS (CSF) FOR COMPONENT BUSINESS IN INDIA (1/4)
Critical Success Factors
Understanding market, buying behavior
Differing OEM purchasing processes
- Cultural differences between Indian / global players
Rapidly evolving consumer demands- Anticipate technology changes
- Upgrade to requirements for export demand
More than 25% unorganized players
- Understand basis of competition
Spurious components in aftermarket
Source: Tata Strate ic Research
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STRATEGIC MANAGEMENT GROUP
CRITICAL SUCCESS FACTORS (CSF) FOR COMPONENT BUSINESS IN INDIA (2/4)
Critical Success Factors
Understanding regulations and taxation
Lengthy procedural approvals & statutes:
- Labor laws
- Local regulations and permits
Peak customs duty 7.5 %
- Regional FTAs e.g. Thailand
Many local levies at present
- National GST (goods & services tax) regime expected by 2011
Source: Tata Strate ic Research
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CRITICAL SUCCESS FACTORS (CSF) FOR COMPONENT BUSINESS IN INDIA (3/4)
Critical Success Factors
Managing logistics successfully
Vast geographical expanse
- The 3 main auto hubs are 800 1000 miles distant from each other
Long delivery lead times- National Highways constitute 2% of road length but carry 40% of traffic
- On average, a 9 ton truck takes 3 days to cover 1000 km
Insufficient road / rail infrastructure to penetrate the rural markets
- 40% of rural areas not connected by all-weather roads
A countrywide Goods & Services Tax (GST) yet to be rolled out
- Multiple stocking points
Source: Tata Strate ic Research
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STRATEGIC MANAGEMENT GROUP
CRITICAL SUCCESS FACTORS (CSF) FOR COMPONENT BUSINESS IN INDIA (4/4)
Critical Success Factors
Low cost structure
Control employee cost
- But ensure people quality
Control capex- Scalable manufacturing units
Harness global sourcing for raw material linkages e.g. rubber, specificgrades of steel /polymers
Maximize capacity utilization
- Some players were at 85% even during downturn
Source: Tata Strate ic Research
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STRATEGIC MANAGEMENT GROUP
Summary
Source: Tata Strate ic Research
India has a fast growing economy, with drivers being largely domestic
Attractive growth market for automotive sector
Opportunities in multiple dimensions exist for automotive component suppliers
Domestic demand
Exports
Frugal engineering / low-cost innovation
Changing OE requirements are creating gaps for new entrants. Modes:
100% subsidiary
Critical Success Factors
Market and buyer behavior
Regulation & Taxation
Logistics
Cost structure
Joint venture Alliances Acquisitions
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STRATEGIC MANAGEMENT GROUP 19STRATEGIC MANAGEMENT GROUP
Juergen Reers
Managing PartnerDetroit/Chicago/New York
Phone:+1 (248) 729-5000
Fax: +1 (248) 729-5118
juergen_reers@us.rolandberger.com
Raju Bhinge
Chief Executive
Phone:+91 22 6637 6655
Fax: +91 22 6637 6600
raju.bhinge@tsmg.com
We welcome your feedback or questions
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