AUTOMOBILE SECTOR INDIA

Introduction
The Indian automobile sector is one of its most vibrant industries. The industry accounts for 22 per cent
of the country's manufacturing gross domestic product (GDP). It comprises passenger cars, twowheelers, three-wheelers and commercial vehicles and is currently the seventh-largest in the world with
an average annual production of 17.5 million vehicles, of which 2.3 million are exported.
Export = 13.14%
The Indian auto market has the potential to dominate the global auto industry, provided a conducive
environment is created for potential innovators to come up with new pilot projects.
The next few years are projected to show solid but cautious growth due to improved affordability, rising
incomes and untapped markets. All these open up an opportunity for automobile manufactures in India. In
addition, with the government's backing and a special focus on exports of small cars, multi-utility vehicles
(MUVs), two and three-wheelers and auto components, the automotive sector's contribution to the GDP is
expected to double, reaching a turnover of US$ 145 billion in 2016, according to the Automotive Mission
Plan (AMP) 2006-2016.

Market size
The automobile industry produced a total of 1,861,849 vehicles including passenger vehicles, commercial
vehicles, three-wheelers and two-wheelers in April 2014 as against 1,687,243 in April 2013, registering a
growth of 10.35 percent over the corresponding month of 2013. The growth is mostly attributed to the rise
in two-wheeler production.
Two-wheeler sales registered growth of 11.67 percent in April 2014 over April 2013. Within this
segment,scooters, motorcycles and mopeds grew by 26.08 percent, 8.06 percent and 0.23 percent
respectively.
In April 2014, passenger car sales stood at 1,786,899 units while utility vehicles sales stood at 525,942
units, as per data from Society of Indian Mobile Manufacturers (SIAM). Export of utility vehicles showed
an improvement of 298 percent with 41,550 units.
Tractor sales in the country will grow at a compound annual growth rate (CAGR) of 8-9 per cent in the
next five years making India a high-potential market for international brands such as Kubota, Case New
Holland, AGCO, Same Deutz Fahr and John Deere, according to JD Power Asia Pacific's maiden pilot
study on the Indian tractor market.
The cumulative foreign direct investment (FDI) inflows into the Indian automobile industry during the
period April 2000 -May 2014 was recorded at US$ 9,885.21 million, according to data published by
Department of Industrial Policy and Promotion (DIPP).

Investments
Some of the recent major investments in the automobile industry in India are as follows:
BMW Group has launched the third generation of its sports utility vehicle (SUV), the X5 xDrive30d, which will be
Rs 1 million (US$ 16,635.94) cheaper than the previous version, as the model will now be assembled at the
company's Chennai plant rather than being imported fully assembled.

Japan's Isuzu Motors aims to sell 50,000 pickup vehicles in India in the next few years to gain market leadership.
The company, which has a fully owned subsidiary in Chennai, has earmarked Rs 3,000 crore (US$ 499.07 million)
for a 120,000 units per year manufacturing facility.

Mercedez-Benz India has inaugurated South India's first AMG Performance Centre at Sundaram Motors in
Bengaluru and has also launched the ML 63 AMG for the Indian market. Mercedes-AMG aims to offer a more
personalised service to its customers and further bolster its powerful luxury SUV product portfolio in India.

VE Commercial Vehicle, a joint venture (JV) between Eicher Ltd and Volvo, is exploring the possibility of entering
the small commercial vehicle segment with a range of mini trucks. With this move, they plan to enter the market
with bigger rivalssuch as Tata Motors, Mahindra and Mahindra and Ashok Leyland.

Fiat plans to launch 12 models based on three platforms, double its workforce to 5,000 and increase capacity by
80 per cent at its Ranjangaon plant by 2018.

Mahindra & Mahindra (M&M) has inaugurated a factory and a research centre for electric two-wheelers in Ann
Arbor, Michigan, US. With an initial capacity to produce 9,000 vehicles annually, the plant will assemble its first
electric two-wheeler later this year.

Government Initiatives
SIAM and the Automotive Component Manufacturers Association of India (ACMA) are two apex bodies
appointed by the Government of India to work for the development of the automobile industry in India.
India has a well-established Regulatory Framework under the Ministry of Shipping, Road Transport and
Highways in which SIAM plays an important role. Also, ACMA's active involvement in trade promotion,
upgrade in technology, quality enhancement and collection and dissemination of information has made
the body a vital catalyst for the industry's development.
The Indian government encourages foreign investment in the automobile sector and allows 100 per cent
FDI under the automatic route. It is a fully delicensed industry and free imports of automotive components
are allowed. Moreover, the government has not laid down any minimum investment criteria for the
automobile industry and has formulated the Automotive Mission Plan for the period 2006-2016 which
aims to accelerate and sustain growth in this sector. The plan also aims to double the contribution of the
automotive sector to the country's GDP by taking its turnover to US$ 145 billion and providing additional
employment to 25 million people by 2016.

Road Ahead
Faster economic growth coupled with the government's policies is likely to drive volumes and revive the
Indian automobile sector. A fall in interest rates and stable fuel prices are expected to create an
environment conducive for growth in this industry. Many foreign companies have also started to show
their presence in India leading to a very competitive automobile market in the country, which augurs well
for the sector's growth.
It has been predicted by IHS Automotive, a global market information provider that India will become the
third largest automotive market in the world by 2016 ahead of Japan, Germany and Brazil, riding on its
domestic automotive sales.
Exchange Rate Used: INR 1 = US$ 0.0166 as on July25, 2014
Predictions for 2014
"A fall in interest rates is expected to create a conducive environment"
Gaurav Dua, Headof Research, ShareKhan
After the slowdown of the last two years, the automobile sector is poised for a comeback. Faster
economic growth is likely to drive volumes. A fall in interest rates and stable fuel prices are expected to
create an environment conducive for growth.

Many foreign companies have been increasing their presence in India. Competition has increased across
the spectrum. To counter this, the companies are focusing on exports, which augurs well for their
profitability.

BSE INDEX
Bajaj Auto
Target price: Rs 2,342
Bajaj is working on six new launches to boost market share in the executive motorcycle segment. A
recovery in the premium motorcycle market, where Bajaj is the leader, will boost volumes. The company
also plans to tap new markets for exports.
Mahindra & Mahindra
Target price: Rs 1,122
We expect a rise in tractor sales due to higher crop output and an increase in minimum support prices.
Volumes will recover in 2014-15 due to revival in demand and launch of new products. The prospects of
M&M's subsidiaries (Ssangyong, Tech Mahindra and M&M Financial Services) have also improved over
the last few months.
Maruti Suzuki
Maruti plans to launch a number of utility and multi-passenger vehicles. Also, the parent, Japan's Suzuki,
has big plans to use the company's facilities to cater to the markets of Africa, Latin America and South
East Asia.