automotive industry• the players include global giants like honda, suzuki, yamaha as well as...

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AU TO M OT I V E I N D U S T RYDecember 2008

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Contents

AUTOMOTIVE INDUSTRYDecember 2008

• Profile of Indian Automotive Industry

• Growth Potential of Indian Automotive Industry

• India as a Manufacturing Hub

�

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PROFILE OF INDIAN AUTOMOTIVE INDUSTRY

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Indian auto industry has entered the era of globalisation

PROFILE OF INDIAN AUTOMOTIVE INDUSTRYAUTOMOTIVE INDUSTRY • December 2008

Pre 1983 1983-1993 1993-2007

• Closed market• Growth of market limited by

supply• Outdated models

- Players • Hindustan Motors • Premier • Telco • Ashok Leyland • Mahindra & Mahindra

• Japanisation - GoI-Suzuki joint venture to form Maruti Udyog

• Joint ventures with companies in commercial vehicles and components

- Players • Maruti Udyog • Hindustan

Motors • Premier • Telco • Ashok Leyland • Mahindra &

Mahindra

• De-licensing of sector in 1993

• Global major OEMs start assembly in India (GM, Ford, Honda, Hyundai)

• Imports allowed from April 2001 alignment of duty on components and parts to ASEAN levels

• Implementation of VAT

Prerequisites for globalisation, high level of competence and productivity has become the forte of Indian automakers due to the favorable environment in the country.

Era of globalisation and evolution of India as a global manufacturing hub

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• The Indian auto industry has the potential to emerge as one of the largest in the world. Presently, India is

-Second largest two wheeler market in the world

-Fourth largest commercial vehicle market in the world

-11th largest passenger car in the world and is expected to be the seventh largest market by 2016.

Indian automobile industry crossed a historic landmark of 10 million vehicles in 2006-07

Segment Share in total

CAGR

Two wheelers 74.1% 9.6%

Passenger vehicles 16.3% 19.5%

Three wheelers 4.6% 12.6%

Commercial vehicles 5.0% 21.8%


0 2 4 6 8 10 12

Source: SIAM, IMaCS analysis

Automotive Production (Million units)

CAGR11.5%

10.832007-08

6.282002-03

7.242003-04

8.472004-05

9.742005-06

11.092006-07

million units

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• Tata Motors• Mahindra & Mahindra• Bajaj Auto• TVS Motors• Hero Honda• Bajaj Tempo• Ashok Leyland

• Bharat Gorge• Sundram Fasteners• Rane Group• Shriram Pistons• RICO Auto• Sona Koyo Steering

Global OEM Indian OEM

Global Suppliers

Indian Suppliers

• GM • Toyota • Ford • Hyundai • Maruti Suzuki • Honda • Skoda• Volvo• Mercedes

• Delphi• Visteon• Bosch• Denso• Valeo• Thyssen Krupp

The OEM as well as the component industry is highly competitive


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• The Indian auto industry is highly competitive with a number of global and Indian auto companies present

• The supplier industry is equally competitive with a mix of global and Indian players

The OEM as well as the component industry is highly competitive


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Most automotive players are present in more than one segment

Manufacturer Segments

Ashok Leyland LCVs, M&HCVs, buses

Asian Motor Works M&HCVs

Atul Auto Three wheelers

Bajaj Auto Two and three wheelers

BMW India Cars and MUVs

Daimler Chrysler India Cars

Eicher Motors LCVs, M&HCVs, buses

Electrotherm India Electric two wheelers

Fiat India Cars

Force Motors Three wheelers, MUVs and LCVs

Ford India Cars and MUVs

General Motors India Cars & MUVs

Hero Honda Motors Two Wheelers

Hindustan Motors Cars, MUVs and LCVs

Honda Two wheelers, cars and MUVS

Hyundai Motors Cars and MUVs

Kinetic Motor Two wheelers

Manufacturer Segments

Mahindra & Mahindra Three wheelers, cars, MUVs, LCVs

Majestic Auto Three wheelers

Maruti Suzuki Cars, MUVs, MPVs

Piaggio Three wheelers, LCVS

Reva Electric Car Co. Electric cars

Royal Enfield Motors Two wheelers

Scooters India Three wheelers

SkodaAuto India Cars

Suzuki Motorcycles Two wheelers

Swaraj Mazda Ltd LCVs, M&HCVSs, buses

Tata Motors Cars, MUVs, LCVs,M&HCVs, buses

Tatra Vectra Motors M&HCVs

Toyota Kirloskar Cars, MUVs

TVS Motor Co Two wheelers

Volvo India M&HCVs, buses

Yamaha Motor India Two wheelers

MUVs: Multi utility vehicles; MPVs: Multi purpose vehicles; LCV: Light commercial vehicles; M&HCVs: Medium and heavy commercial vehicles


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Two wheelers industry is dominated by motorcycles

6%

Break up of the industry by segment

n Motorcycles n Scooters n Mopeds

80%

14%

• Scooter/Scooterette : Wheel size less than or equal to 12 inches

• Motorcycle: Wheel size more than 12 inches

• Mopeds: Engine capacity less than 75 cc with fixed transmission, wheel size more than 12 inches

• Electric Two Wheelers: Electrically Driven


Domestic two-wheeler industry


Million units

CAGR 13%

2002

2003

2004 5.36

4.81

4.2

0

2006 7.05

1

2005 6.21

2 3 4 5 6 7 8

2007 7.86

2008 7.25

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• Domestic two-wheeler industry has steadily grown at a CAGR of 9.5 per cent to reach 7.25 million units in 2006-07

• Motorcycle segment has attained highest growth and dominates the market

• Entry level bikes (engine power below 125 cc and price US$ 850-1,100) account for around 80 per cent sales

• Cost of ownership and economics of operation are key purchase criteria

• Premium bike segment (engine power above 125 cc and price US$ 1,200-2,000) growing at a faster pace as compared to the entry level vehicles, an indication of increasing affluence of users

• Some manufacturers have opted out of 100CC segments and are positioning the 125cc as entry level

Two-wheelers industry is dominated by motorcycles


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• Scooter segment as a whole has been shrinking, except for the A2 segment

• Bikes having engine capacity 75-125 cc corner the major share of the two wheeler market

• B3 segment is the fastest growing segment in the Indian two wheeler market.

While the motorcycles segment is growing, the scooter segment is shrinking

Segment Description Share in 2001-02

Share in 2007-08

A1 Scooter with engine capacity less than 75 cc

5% 0.5%

A2 Scooter with engine capacity between 75-125 cc

5% 13%

A3 Scooter with engine capacity between 125-250 cc

12% 1%

B� Motorcycle with engine capacity between ��-1�� cc

��% ��%

B� Motorcycle with engine capacity between 1��-��0 cc

�% �1%

B4 Motorcycle with engine capacity above 250 cc

1% 0.5%

C1 Mopeds 10% 6%

Segment-wise analysis of two-wheeler market


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• Hero Honda: Largest Two-wheeler manufacturer in the world

• Bajaj Auto: Second largest Two-wheeler manufacturer in India and the largest 3 wheeler manufacturer

• TVS Motor Co: Third largest Two-wheeler manufacturer in India. Established a manufacturing facility in Indonesia

• Honda Motors: Has recently entered the Indian market through its direct subsidiary (in addition to its joint venture Hero Honda)

• Suzuki: Has recently entered the Indian market through its direct subsidiary

The domestic two wheeler market is dominated by Indian as well as foreign players

Market share of key players in 2006-07


n Hero Honda Motors n Bajaj Auto Ltd n TVS Motor Co, n HMSIL

n Others

42%

27%

19%

9%

3%


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• In the Two-wheeler market in India, competition is intense with around 10 players competing for the share of the industry

• The players include global giants like Honda, Suzuki, Yamaha as well as Indian players like Bajaj and TVS

• The market leader is Hero Honda Motors, closely followed by Bajaj Auto

• Industry is characterised by frequent new product launches, with over 22 models launched in 2007-08

The domestic two wheeler market is dominated by Indian as well as foreign players


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Two wheelers exports have grown at an impressive CAGR of 41%



Two wheeler exports from IndiaThousand units

0 900100 200 300 400 500 600 700 800

CAGR41%

265.12004

366.42005

513.22006

619.22007

104.22002

179.72003

819.82008

(in ‘000 units)

Market share of key players in exports 2007-08

n Bajaj Auto n TVS Motor Company n Hero Honda Motors Ltd n Others

n Hond(HMSIL

59%

17%

11%

9%

4%

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• Exports of two wheelers have grown at over 41 per cent CAGR in last six years

• Majority of exports are to Bangladesh, Sri Lanka, Bhutan and Nepal

• Highest growth (year on year growth of 79 per cent) witnessed in the above 125 CC motorcycles segment, which constituted 36 per cent of two wheeler export market up from previous year’s 26 per cent.

• 58 per cent of the bikes exported were those with engine capacity below 125 cc.

• Bajaj Auto is the market leader in exports with 59 per cent share.

Two wheelers exports have grown at an impressive CAGR of 42%


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Passenger vehicles segment in India is dominated by cars

Domestic passenger vehicles industry

n Passenger cars n SUVs/MVs

78%

22%


1600200 1400800600 1200400 1000

Domestic passenger vehicles industrythousand units

Source: SIAM, IMaCS Analysis

CAGR14.8%

2007

2006

2005

2004

2003

2002 675.1

707.2

902.1

1061.6

1143.1

1379.7

2008 1548.0

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• The domestic Indian passenger vehicles market has grown at a CAGR of 14.8 per cent over the last six years to reach 1.5 million units in 2007-08.

• Passenger cars, contributing to 78 per cent of volumes, grew at a CAGR of 15 per cent.

• The remaining share is with utility vehicles and sports vehicles

Passenger vehicles segment in India is dominated by cars


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• Maruti Udyog: Largest passenger car manufacturer in the country, India considered as strategic market by Suzuki

• Tata Motors: Largest automotive player in the Indian industry; launching the Rs. 1 lakh (US$ 2,500) car

• Hyundai Motors: Third largest passenger car manufacturer in India, has established India as one of its manufacturing bases in the world

All major global players in passenger vehicles segment have a presence in India

Market shares of key players in 2007-08


n Maruti Udyog Ltd. n Tata Motors Ltd . n Hyundai Motor India Ltd. n Mahindra & Mahindra n Toyota n Others

14%

15%

46%

8%

4%

13%


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• Mahindra & Mahindra: Amongst the largest players in the multi utility vehicles segment, has tied up with Renault for manufacturing and marketing of Logan brand of cars in India

• Toyota: Has vision of capturing 10 per cent share of the Indian passenger car market by 2010

• Honda Motors: One of the leading players in the Indian premium cars segment

• Ford: Leading player in the premium cars segment

• General Motors: Leading player in the premium segment; entered the compact car segment recently



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• There are more than a dozen manufacturers in the industry

• Most of the leading global players have a presence in India in the form of joint ventures or subsidiaries

• The industry leader is Maruti Udyog with 46 per cent market share, closely followed by Tata Motors and Hyundai Motors at 15 per cent and 14 per cent respectively



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India is increasingly becoming a manufacturing hub for passenger cars

Cars Exports from IndiaThousand units



217.05

CAGR 26%

53.172002

72.012003

129.292004

166.402005

175.572006

198.482007

0 50 100 150 200 250 300 350 400

2008

Market share of key players in exports 2007-08

n Hyundai Motor India Ltd. n Maruti Suzuki India Ltd n Tata Motors Ltd n Others

66%

24%

7%

3%

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• Exports of cars from India have grown at a CAGR of 26 per cent CAGR in the last six years to reach 217 thousand units in 2007-08.

• Hyundai Motors is the market leader in exports of cars with 66 per cent share up from previous year’s 58 per cent share; the company uses India as a manufacturing base for compact cars across the globe.

• Exports are made to South America, Africa, Europe, Latin America and the Middle East.

India is increasingly becoming a manufacturing hub for passenger cars


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0 100 200 300 400 500

Commercial vehicles segment has witnessed the highest growth rate in the automotive industry

Breakup of the Industry by segment

n M & HCV Goods n LCV Goods n M & HCV Passenger n LCV Passenger

48%38%

8%6%


Domestic CV Industry

CAGR22%

190.682003

260.112004

318.432005

351.042006

467.882007

486.822008


146.672002

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Commercial vehicles segment has witnessed the highest growth rate in the automotive industry

• Domestic CV industry sales reached 486.82 thousand vehicles in 2007-08, registering a CAGR of 22 per cent over last six years.

• Share of LCVs is gradually increasing, indicating the emergence of hub and spoke model of transportation

• In 2007-08, M&HCV passenger vehicles lead the growth at 34 per cent over the last year.

• Goods industry is dominated by multi axle vehicles, which account for nearly 50 per cent of the market


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CV industry is dominated by Indian players

• Tata Motors Ltd: Largest commercial vehicle manufacturer in the country, has acquired the Korean manufacturer Daewoo Gap Motors

• Ashok Leyland Ltd: Second largest player with considerable market share in M&HCV segment; has formed a JV to manufacture LCVs with Nissan

• Mahindra & Mahindra Ltd: Relatively new player in the segment; has formed JV with International Trucks to manufacture M&HCV trucks in India

• Eicher Motors Ltd: Leading player in the LCV trucks segment; has entered the M&HCV trucks segment recently

• Swaraj Mazda Ltd: One of the leading players in the LCV segment

• Volvo India: One of the leading players in luxury passenger buses and heavy duty tippers

Market Shares of Key Players in 2006-07


n Tata Motors Ltd n Ashok Leyland Ltd n M&M Ltd n Eicher Motors Ltd

n Others

62%

11%

15%

6%6%


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CV industry is dominated by Indian players

• Tata Motors is the market leader in both goods and passenger segments, closely followed by Ashok Leyland

• LCV market is dominated by Tata Motors, followed by Mahindra & Mahindra

• Introduction of Tata Ace has contributed significant growth in the sub one tonne segment

• Many players are in the process of strengthening their hold in the market through JVs .


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Indian CV exports have witnessed a more impressive growth

CV Exports from India (Thousand units Market Share of Key Players in Exports (2007-08)

n Tata Motors Ltd n Ashok Leyland Ltd n M&M Ltd n Eicher Motors Ltd n Others


0 10 20 30 40 50 60

59.002008


CAGR30.6%

11.872002

12.262003

17.432004

29.942005

40.602006

49.772007 15%

67%

12%

2%4%

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Indian CV exports have witnessed a more impressive growth

• Exports have grown at a fast pace of over 30 per cent over the last six years.

• Tata Motors accounts more than 70 per cent of the CV exports, with Ashok Leyland and Mahindra&Mahindra making up for a large portion of the balance.

• LCV goods carriers accounted for 52 per cent of the overall exports

• Major portion of the exports are to Sri Lanka, Gulf countries and Africa


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Growth in three wheelers has been driven by the need for low cost last mile transportation system

Break-up of Industry by segment (2008)

n Passenger Carrier n Goods Carrier


Domestic three wheeler Industry (Thousand units)


CAGR 10.5%

403.912007

359.922006

307.862005

284.082004

231.532003

200.282002

0 500100 200 300 400

364.702008

64%

36%

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Growth in three wheelers has been driven by the need for low cost last mile transportation system

• Three Wheeler sales in India touched a new record of 0.36 Million registering a growth of 10.5 per cent CAGR over the last six years

• The proportion of Goods carriers in the proportion of overall sales has doubled indicating towards the increased need for low cost last mile transportation systems

• Sub 3.5 tonne segment in goods accounted for 71 per cent of the sales and Sub Four seater segment in passenger versions accounted for 97 per cent of the sales


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The three wheeler market is dominated by Bajaj Auto

• Bajaj Auto Ltd. : Market leader in the Three wheeler segment, in the process of revamping its product portfolio

• Piaggio Vehicles : The Italian manufacturer is one of the leading players with fast growing market share, in the process of making India as their global hub

• M&M Ltd: One of the leading players in the segment

• Atul Auto Ltd: Have introduced new products in the rear engine segment, and also is a manufacturer of ‘Chakda’’ a Three wheeler reengineered from Two wheeler, popular in the western parts of the country

• Force Motors Ltd: A JV between Bajaj Tempo and MAN AG of Germany; leading player in the goods segment


Market Share of Key players 2007-08


n Bajaj Auto n Piaggio Vehicles n M&M n Others

42%

41%

9%

8%

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The Three wheeler market is dominated by Bajaj Auto

• Bajaj Auto emerged the leader in Three Wheeler industry with 42 per cent share, closely followed by Piaggio with 41 per cent share

• Bajaj Auto lead the passenger carrier segment with 54 per cent share, while Piaggio lead the goods segment with 44 per cent market share


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Exports of Three wheelers have been growing rapidly, with Bajaj Auto the clear market leader

• Exports of three wheelers touched a new high of 141.24 thousand units, registering a robust growth of 44.5 per cent CAGR over the last six years

• This has been contributed almost entirely by Bajaj Auto, which accounted for around 97 per cent of exports in 2006-07

• Bajaj Auto exports to Sri Lanka, Egypt, Nepal, Bangladesh among other countries


Three wheeler exports and growth(Thousand Units)

175


CAGR 44.5%

2007

76.882006

66.802005

68.14

141.242008

2004

43.372003

15.462002

0 150125100755025

143.90

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Indian OEM Foreign Partner Type of Partnership

Maruti Suzuki Suzuki Motor Corporation- Japan

Equity partner

Mahindra Logan Renault Joint Venture

Tata motors Fiat Tie-up for manufacturing and marketing in India

KINETIC Group Sanyang Industry Co Ltd (SYM- Taiwan

Technology

Italjet -Italy Tie-up for manufacturing and distribution

Hero Honda- Japan Technology

Hero Cycles Ultra Motor Company, U.K Technology

Bajaj Auto Kawasaki Heavy Industries Ltd, Japan

Engine Technology

Engine Technology Technology

Kubota Corp, Japan Technology

L&T Ltd Scania-Spain Tie-up for marketing in India

Ashok Leyland Hino-Japan Engine Technology

Irizar-Spain Bus body Technology

ZF-Germany Gearbox Technology

Tata Motors Marco Polo-Brazil Bus/Coach Technology

Cummins-USA Engine Technology

Indian firms are increasingly partnering with foreign firms


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Three major automotive clusters exist in India

• Major automotive clusters - Mumbai-Pune-Nasik-Aurangabad (West), Chennai-Bangalore-Hosur (South) and Delhi-Gurgaon-Faridabad (North)

• Export oriented companies have formed base in the West/South regions, due to proximity to ports


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North / Central

• Ashok Leyland • Eicher

• Force Motors • Hero Honda

• Hindustan Motors • Honda

• Honda SIEL • ICML

• Kinetic • LML

• Majestic • Maruti Suzuki

• Piaggio • Yamaha

• Swaraj Mazda • Tata Motors

East

• Hindustan Motors

• Tata Motors


Delhi-Gurgaon-Noida-Ghaziabad

Kolkata

Jamshedpur

Chennai Bangalore Hosur

Ludhiana

Haridwar

Pitampur

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West

• Ashok Leyland • Atul Auto

• Bajaj Auto • Daimler Chrysler

• FIAT • Force Motors

• GM • Greaves

• Kinetic • M & M

• Piaggio • Premier

• Skoda • Tata Motors


Kolkata

Jamshedpur


Ludhiana

Haridwar

Pitampur


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South

• Ashok Leyland • Enfield

• Ford • Greaves

• Hindustan Motors • Hyundai

• Mahindra & Mahindra

• Tatra • Volvo

• Toyota Kirloskar • TVS Motors


Kolkata

Jamshedpur


Ludhiana

Haridwar

Pitampur


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Indian Auto Policy is designed for supporting the growth of the industry

• Government’s intention on harmonizing the regulatory standards with the rest of world

• Investment Incentives by the Local State Governments: Most States Customise incentives for Large Investments

• Automatic Approval for Foreign equity investment up to 100%

• No Minimum Investment Criteria

• Weighted Tax Deduction up to 150 per cent for in-house research and R&D activities

Indian Auto Policy 2002 CONCERN FOR EMISSIONS

INVESTMENT INCENTIVES

LOWENTRYBARRIER

EMPHASIS ON R&D

Source: ARAI, IMaCS Analysis

In 2002, the Indian Government formulated an Auto Policy aimed at promoting an integrated, phased enduring and self-sustained growth of the industry


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Indian automotive regulations are in the process of being aligned with European regulations

• Indian automotive regulations are closely aligned to the ECE regulations. The diagram below depicts the level of alignment of the Indian regulations with the ECE regulations

• The key regulations that are likely to impact the auto industry and create the need for world class products in the future are crash related regulations and introduction of Bharat Stage IV norms


0

2007

50 100 122

81 21 20

n Fully/ Partially Allign n In Process of Being Alignedn Items/ Regulations to be covered


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Safety and emission related regulations in India - Achievements and Plans

NCR and 10 Major Cities


Entire Country

NCR and 3 Major Metros


Entire Country

Entire Country

Achievements Till Date Plan

Emission Regulations

2000 2001 2003 2005 2010

EURO - IV

EURO - III

EURO - II

EURO - I

Safety Regulations

• Brakes•Steering effort•Gradeability•Installation of mirror, Horn & Lighting devices•Rear Under run Protective Devices (RUPD) Lateral Protective Devices (LPD)•Safety belt•Electro Magnetic Interference (EMI)•Wiping system•Rear View Mirror etc

• Anti Brake Skid –2007 • Truck cab occupant protection -Crash

• Super structure of bus.•Airbags • Electro Magnetic Compa-

tibility (EMC) • Front Under run protecti-

ve Devices (FUPD)



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The Government of India has taken a strong initiative to strengthen automotive related R&D infrastructure

Rae Bareilly Centre

Complete homologation services to Agri Tractors, Off road Vehicles , Gensets as per Indian or Global standards & Driver Training centre

Center of Excellence For Accident Data Analysis

Commissioning Schedule Phase-I : July 2010; Phase-II :Aug 2010

Ahmednagar-VRDE Up-Gradation

Research, Design, Development and Testing of Vehicles

Centre of Excellence For Photometry, EMC, EMI,Test Tracks

Commissioning Schedule Phase-I : July 2010; Phase-II :Aug 2010


Facilities of National Automotive Testing and R&D Infrastructure Project (NATRIP)

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Pune- ARAI Up-Gradation

Complete homologation services to all vehicle categories as per Indian or Global Standards

Centre of Excellence For Power Training Development, Materials, Fatigue

Commissioning Schedule Phase-I : 2008; Phase-II : 2009

Manesar- iCAT


Center of Excellence For Component Development, NVH




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Silchar Centre

Hill area Driver Training Centre and Inspection & Maintainence Facilities

Centre of Excellence For Driver Training


Indore -Proving Grounds

Complete Testing Facilities to all vehicle categories as per Indian or Global Standards

Centre of Excellence For Vehicle Dynamics, Tyre Development




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Chennai Centre


Center of Excellence For Infotronics,EMC,Passive Safety




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GROWTH POTENTIAL OF INDIAN AUTOMOTIVE INDUSTRY

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Growth drivers for the Indian automotive industry

GROWTH POTENTIAL OF INDIAN AUTOMOTIVE INDUSTRYAUTOMOTIVE INDUSTRY • December 2008

Increasing consumer demand

New productslaunches

Indian Automotive Industry

Government Policies

- Contemporary products- Shorter life cycle

- Export competitiveness- Reduced cost to consumer - India emerging as a manufacturing hub

- Overall economic growth - Lower duties and taxes

- Growth in income levels- Easier financing

Cost Competiveness

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Indian Automotive Mission Plan – Vehicle sales expected to grow to 32 million by 2015-16

• The size of the Indian automotive industry is expected to grow at 13 per cent p.a over the next decade to reach around US$ 120-159 billion by 2016

• The total investments required to support the growth are estimated at around US$ 35-40 billion

• The Two wheelers industry is expected to lead the growth, with an estimated sales of 27.8 million units by 2016

• Total export in the automotive sector would be around US$ 30-35 billion, of which component exports would account for US$ 20-25 billion and vehicle exports for the rest

27.8

31.96

0.87

Potential vehicle sales in India (2015-16)million units

2.65

0.64

Total

Three

Wheelers

Two

wheelers

CVs

Cars

Source: SIAM, ACMA, AMP Vision & IMaCS Analysis

GROWTH POTENTIAL OF INDIAN AUTOMOTIVE INDUSTRYAUTOMOTIVE INDUSTRY • December 2008

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INDIA AS A MANUFACTURING HUB

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Global passenger car companies are taking advantage of India’s manufacturing base

INDIA AS A MANUFACTURING HUBAUTOMOTIVE INDUSTRY • December 2008

• Nissan Motor Co. has identified India as one of the five low-cost countries to manufacture its new generation compact cars, including the Micra.

• Volkswagen is investing in 110,000-unit passenger car assembly plant, expected to be operational by end of 2009. Volkswagen’s India plans include manufacture of small cars based on the ‘Polo’ platform.

• Toyota has announced plans for a second plant to begin operations in 2010, having an initial annual production capacity of around 100,000 vehicles apart from the transmission plant which it had already setup to meet the regional demand.

Source: Industry News

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Global passenger car companies are taking advantage of India’s manufacturing base


• Hyundai Motors - Hyundai has shifted its entire production of the Atos Prime, its compact model, to its Chennai Plant. It has also set up a US$ 40 million computer-aided design centre in Hyderabad. For the newly launched Model i10,India would be the sole manufacturing base. The company also plans to invest a further US$ 250 million in India by 2013, raising its cumulative investment in the country to around US$ one billion.

• General Motors, the US$ 60 million technical centre in Bangalore will be its powerhouse for developing future technologies and shaping new cars.

• Ford Motor Co: It exports 58 per cent of the total production from India.

Source: Industry News

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Indian Auto Industry is witnessing more JVs and acquisitions than ever.

• Mergers, acquisitions and joint ventures have continued to be the driving force in the Indian automobile industry in sync with the dynamics of an open market. Leading automobile companies have either set up their own manufacturing base in India or have tied up with Indian automotive firms to roll out new products from Indian market. The list includes International, MAN, Daimler, Toyota, Nissan, Renault, Fiat, Honda, Kawasaki, Cummins and many more. During the first half of 2008, Daimler AG bought 26 per cent stake in Sutlej Motors.

• Indian companies have also been bullish in acquiring foreign automobile companies to reinforce their presence in the global market. The landmark deal in the first half of 2008 has been Tata Motors’ acquisition of Jaguar-Land Rover from Ford for US$ 2.30 billion. During this period M&M acquired three Italian companies - GR Grafica Ricerca, Metalcastello and Engines Engineering.


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Proven product developmental capabilities- More than 125 Fortune 500 (including

large auto companies) have R&D cen-tres in India

- Companies can leverage India’s acknow-ledged leadership in the IT industry

Proximity to Markets- Proximity to other Asian economies - Proximity to the emerging markets like

Africa- Shipments to Europe are cheaper than

those from Brazil and Thailand

High quality standards- 11 Indian component manufacturers

have won the Deming Award for quality- Most leading component manufacturers

are QS and ISO certified

Competitive manufacturing cost- Skilled labour costs amongst the lowest

in India

Export Potential- Total value of exports by 2015 expected

to reach US$ 8–10 billion for vehicles and US$ 20–25 billion for components

Availability of Manpower- 0.4 million Engineering graduates pass

out every year- Seven million enter workforce every year

Large and growing domestic demand- Demand growth of 14% CAGR makes

India one of the fastest growing markets

Stable economic policies- Continuity in economic reforms

and policies related to investments

India as an Auto

Hub

Several factors make India a favourite investment destination


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Competitiveness of Indian automotive manufacturing

In order to emerge as a manufacturing hub, India would face competition from other low cost countries such as

• China

• Thailand

• Brazil

IMaCS has compared the cost competitiveness of automotive (car and CV compared separately) manufacturing in India with respect to these countries in terms of factors like

• Taxes and duties

• Cost of manufacturing (for example, power and fuel costs, labour costs, including productivity interest rates)

• Economies of scale


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Competitiveness of Indian automotive manufacturing

Competitiveness of manufacturing in India can be improved by reducing the level of taxes and the cascading impact of taxes and by improving the business infrastructure


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Tax structure in India vis-à-vis other countries

The burden of direct and indirect taxes is higher in India than in other countries

• Government of India announced an across the board excise duty reduction of four per cent across automobiles on December,7 2008. In case of Bus chassis, Excise duty is further less at 8.18 per cent.

#Refers to local taxes(WHT)

^Import duty on heavy plates have been reduced to twp per cent, but with a cap of 20,000 tonnes.

India Brazil China Thailand

Excise Small Cars*

CVs* - - -

8.18%+cess

12.27%+cess

VAT 12.5% 17% 17% 7%

Other Taxes - 15%# - -

Corporate Tax 34% 34% 25% 30%

Exemptions Specific packages provided by states for large investments

Tax incentives for companies in export processing zones

Preferential corporate tax policies for Foreign Investment Enterprises

Tax incentives for investments outside central zone

Import duty on rubber

13% 16% 8% Free

Import duty on steel

5% 12%^ 2% 10%


Source: GOI, Apectariff,

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Labour & Labour Productivity in India vis-a-vis other countries

• India compares favourably with other low cost countries in productivity adjusted labour cost

• Indian labour productivity in the manufacturing sector is on an increase with the application of production management techniques and many companies have doubled their productivity in last five years

• Government of India has earmarked nearly Rs 10 billion for human resource skill development initiatives across industry sectors.

India Brazil China Thailand

Labour cost (US$/hour) 0.75 4.2 0.75 0..8

Labour cost (US$/day)* 6 33.6 6 6.4

Productivity index** 1.0 2.0 1.0 1.2

Productivity adjusted labour cost (US$/day)

6 16.8 6 5.33

*Assuming 8 hour shift per day** Gross value added per person employed when compared to India


Source: GOI, Apectariff,

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Power Cost in India vis-à-vis other countries

• Recent downturn across the global economy has forced the central banks of major countries to slash lending rates.

• Power cost in India is the highest amongst the competing countries

• However, power cost accounts for around 3 per cent of the overall cost structure, hence not a significant disadvantage

• Power costs in India varies by state and is as low as US$ 0.1 in states like Maharashtra

• With privatisation and competition in the emerging Indian power sector, cost of power is expected to come under control

• Interest rates in India are high as compared to competing countries, but expected to soften in the future

Country Cost per kwh (US$)

India 0.14

Brazil 0.05

China 0.03

Thailand 0.11

Power costs

Country Annual lending interest rate

India 10-11%

Brazil 14-16%

China 5-6%

Thailand 7-8%

Interest costs


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Cost competitiveness - India versus China

• Indian manufacturers suffer from a cost disadvantage vis-à-vis Chinese manufacturers mainly because of higher level of taxes and their cascading impact, higher cost of labour (arising out of inflexible labour laws) and higher interest costs and power and fuel costs

• Power costs in India vary from state to state, and is much lower than the average considered for calculations in the power surplus, hydroelectricity generating states.

Cost breakup Cars CV

Cost of vehicle of an Indian Company

100 100

Less

Taxes and Duties Net state level levies and cascading impact of taxes

-1.2% -1.89%

Import duty on raw materials

-0.62% -0.34%

Corporate taxes -0.24% -0.24

Total -0�.0�% -�.��%

Industry costs Power & fuel -3.4% -3.6%

Labour cost - -

Cost of funds -0.8% -0.8%

Total -�.�% -�.�%

Cost disadvantage for India

-6.02% -11.4%

Economies of scale no diff no diff

Total cost disadvantage for India

-�.��% -�.��%

Source: Government websites, discussions with leading automotive players, IMaCS analysis


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Cost competitiveness - India versus Thailand

• Indian vehicle manufacturers have a small cost disadvantage vis-à-vis Thai vehicle manufacturers, primarily due to higher level of taxes in India. The cost disadvantage has reduced by 2.23 per cent over last year in the case of small cars due to two consecutive cuts in excise duty announced by GOI in FY 2008-2009.

• However the large market potential and steady growth of the Indian market more than makes up for this disadvantage.

Cost Break-up Cars CV


100 100

Less


-4.69% -5.36%


-0.1% -0.1%

Corporate taxes -0.2% -0.20%

Total -�.��% -�.��%

Industry costs Power & fuel -1.26% -1.11%

Labour cost -0.3% -0.5%

Cost of funds -0.5% -0.66%

Total -�.0�% -�.��%

Cost disadvantage for India

-6.85% -7.73%

Economies of scale no diff no diff

Total cost disadvantage for India

-�.��% -�.��%

Source: Government websites, discussions with leading automotive players, IMaCS Analysis


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Cost Competitiveness - India versus Brazil

• India is competitively positioned vis-à-vis Brazil in cars as well as CV

• India enjoys greater scale advantage as compared to Brazil in the case of cars as capacity utilisation in India is better, despite Brazil having larger installed capacities

Cost Break-up Cars CV


100 100

Less


-0.2% -1%


- -

Corporate taxes - 0% - 0%

Total -0.�% -1.0%

Industry costs Power & Fuel - 2.36% - 2.56%

Labour cost 8% 16.4%

Cost of funds 0.1% 0.16%

Total �.��% �.1%

Cost advantage for India

5.54% 13.0%

Economies of scale 7% no diff

Total cost advantage for India

1�.��% 1�.0%

Source: Government websites, discussions with leading automotive players, IMaCS Analysis


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Conclusions

• India has a cost advantage when compared to Brazil

• However, India suffers from a cost disadvantage vis-à-vis China and Thailand, primarily due to high level of taxes and their cascading impact

• India, in the near future is expected to go ahead with the abolition of interstate Central Sales Tax (CST), which will reduce the cascading impact of taxes to some extent


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Conclusions

• Implementation of Goods & Services tax (along the lines of VAT) and abolition of all other taxes by 2010 is under consideration, which will reduce the taxation loading on the automotive sector considerably. This step is expected to strengthen India’s future position as a leading automobile manufacturing hub

• Various steps being taken by the Indian government in improving infrastructure would reduce the disadvantage that India suffers from because of poor infrastructure that causes project delays, delays in deliveries and so on. This would increase the demand for road transportation in the country


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This presentation has been prepared jointly by the India Brand Equity Foundation (“IBEF”) and ICRA Management Consulting Services Limited, IMaCS (“Authors”).

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This presentation is for information purposes only. While due care has been taken during the compilation of this presentation to ensure that the information is accurate to the best of the

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AUTOMOTIVE INDUSTRYDecember 2008

automotive industry• the players include global giants like honda, suzuki, yamaha as well as...

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