An Industry Analysis by PEC

1
 CONTENTS

I. Introduction …………………………………………………………………….3
II. Market Size…………………………………………………..………………….3
III. Market Scenario……………………………………………………………….4
IV. Investments……………………………………………………………………..5
V. Key Trends……………………………………………………………………….5
VI. Key Players and their current scenario…………………………….6
VII. Challenges and Opportunities………………………………………….8
VIII. Major M&A……………………………………………………………………..8
IX. Government Initiatives…………………………………………………….9
X. Road Ahead…………………………………………………………………….12
XI. References……………………………………………………………………..13

2
Introduction
➢ The Indian auto industry became the 4th largest in the world with sales
increasing 9.5 per cent year-on-year to 4.02 million units (excluding two
wheelers) in 2017. It was the 7th largest manufacturer of commercial vehicles
in 2017.
➢ The Two Wheelers segment dominates the market in terms of volume owing
to a growing middle class and a young population. Moreover, the growing
interest of the companies in exploring the rural markets further aided the
growth of the sector.
➢ India is also a prominent auto exporter and has strong export growth
expectations for the near future. Overall automobile exports from India grew at
6.86 per cent CAGR between FY13-18. In addition, several initiatives by the
Government of India and the major automobile players in the Indian market
are expected to make India a leader in the two-wheeler and four-wheeler
market in the world by 2020.

Market Size
➢ Overall domestic automobiles sales increased at 7.01 per cent CAGR
between FY13-18 with 24.97 million vehicles getting sold in FY18.
➢ Automobile exports from India increased 15.81 per cent year-on-year in April-
February 2017-18. During the same period, two and three-wheelers exports
increased 20.30 per cent and 37.02 per cent, respectively.

Key Takeaways

➢ The graph of market size of automobile industry has been growing constantly
by every passing year.
➢ Automotive industry enjoys largest pie of cake in terms of market share when
compared to others.

3
Market Scenario

➢ Indian market is clearly dominated by a single player, i.e., Maruti Suzuki and
others take up small proportions in the whole.

4
Investments

In order to keep up with the growing demand, several auto makers have started
investing heavily in various segments of the industry during the last few months. The
industry has attracted Foreign Direct Investment (FDI) worth US$ 18.413 billion
during the period April 2000 to December 2017, according to data released by
Department of Industrial Policy and Promotion (DIPP).
Some of the recent/planned investments and developments in the automobile sector
in India are as follows:

• Ashok Leyland has planned a capital expenditure of Rs 1,000 crore (US$

155.20 million) to launch 20-25 new models across various commercial
vehicle categories in 2018-19.
• Mahindra & Mahindra (M & M) is planning to make an additional investment of
Rs 500 crore (US$ 77.23 million) for expanding the capacity for electric
vehicles in its plant in Chakan.

Key Trends

Currently, the automotive sector contributes more than 7 percent to India’s

GDP. The Automotive Mission Plan 2016–26 sets an aspiration to increase
the contribution to 12 percent.

5
 A number of economic trends could help in meeting this target. Rapid
urbanization means the country will have over 500 million people living in
cities by 2030—1.5 times the current US population. Rising incomes will also
play a role, as roughly 60 million households could enter the consuming class
(defined as households with incomes greater than $8,000 per annum) by
2025. At the same time, more people will join the workforce. Participation
could reach 67 percent in 2020, as more women and youth enter the job
market, raising the demand for mobility.

Some of them would leap straight into four-wheeler segment, and others will
graduate from two- to four-wheelers. Over 44 percent of the consuming-class
households will be in 49 growth clusters—for example, Delhi is expected to
have the same GDP per capita at purchasing power parity as the entire
country of Russia in 2025. Cities like Delhi are a sweet spot for car
manufacturers to target.

In the future, these macroeconomic and demographic trends could shift

pockets of growth in passenger-vehicle market. Mini cars and hatchback cars
have been the mainstay for the automobile industry in India, with share
around 50 percent and growth of 6 to 7 percent between financial year 2014
and 2017. These segments will continue to maintain a dominant position, but
compact SUVs, sedans, and luxury vehicles.

Key Players and their current scenario

Domestic Sales for February 2018

Company Feb 2018 Feb 2017 % change

Passenger Vehicles

Maruti Suzuki 136,648 120,599 13.3

Hyundai Motor India 44505 42327 5.1

6
M&M 22389 20717 8

Tata Motors 17771 12,272 45

TKM 11864 11543 2.78

Honda Cars India 11650 14249 -18.23

Ford India 9041 8338 8.43

Two-wheelers

Hero MotoCorp 629,597 524,766 20

HMSI 489591 370122 32

TVS Motor 280942 206247 36.2

Suzuki Motorcycle 46147 33641 37.2

Royal Enfield 71354 56737 26

Commercial Vehicles

Tata Motors 41222 30407 36

Ashok Leyland 18181 14067 29

VECV 6882 5603 22.8

M&M 20946 16383 28

SML-Isuzu 965 1145 -15.7

Maruti Suzuki 1252 136 820.5

Three-wheelers

TVS Motor 9731 5223 86.3

M&M 5138 3426 50

7
Challenges and Opportunities

As the automotive industry braces for some long-term changes including

implementation of GST and the pan-India shift to BS-IV, the aftermarket will
have its own set of challenges as a result of the changes. For companies that
had anticipated the changes early and worked towards being future-ready, the
challenges present opportunities for growth and market share expansion.

Leading aftermarket player Delphi sees the following challenges and

opportunities in the aftermarket space: 1) Demonetization and digital usage –
changing dynamics of trade payment. 2) GST – Introduction &
Implementation. 3) Younger Parc of the AM – leading to growth of the market.

Delphi is engaged in strengthening its parts coverage in local aftermarket

(target to cover 90% parc) with a wider distribution reach and penetration in
2017, as the company sees tremendous potential in this market. It plans to
invest to be long-term player, and continue building and strengthening its
portfolio to grow faster than the market, while also focusing and aligning India
to its global aftermarket product offering, the company said in an official
statement.

Sharing his views on GST and the emission norm changes, Mr. Muralidharan
says: “GST is the big open question for the next six to twelve months. There is
no doubt GST is a good thing for the country, but we are not able to figure out
which way things will move – what the rate will be, how much of it will be
passed on to us by the manufacturers, etc. As for the changing emission
norms, it is something that will certainly help a more organized technology
solution provider like us. It will have tremendous impact on the product
portfolio of all companies without doubt and who adapts the best and fastest
at the garage level will come out on top.”

Major M&A

Nissan and Mitsubishi Motors

Price $2.3 billion

Date completed 2016

Why it's cool Nissan to the rescue once again and Mr. Carlos Ghosn on his
third mission of saving the auto world. We look forward seeing his third
success story after Renault and Nissan!

8
 Why would you add a troubled Mitsubishi Motors that only months ago
admitted in falsified fuel-economy data and plunged sales into a 17-year old
successful alliance of Renault-Nissan? Because of numbers: Adding
Mitsubishi in the equation, the Alliance now produces 10 million vehicles per
year, bringing it to the third place in the automotive world, only behind Toyota
Motors and Volkswagen. And Mitsubishi is not only troubles: The strong
presence of Mitsubishi in trucks and sport vehicles in the US, its cheap
sourcing of raw materials as well as its gas-electric hybrid systems is what
Nissan hopes to leverage. In the race for releasing autonomous technology in
public streets as soon cheap as possible, the above can be crucial success
points for Nissan. But we can only wait and see what 2018 will bring to this
new synergy.

Government Initiatives

The Government of India encourages foreign investment in the automobile

sector and allows 100 per cent FDI under the automatic route.

9
 Some of the recent initiatives taken by the Government of India are -

➢ The Government of Karnataka is going to obtain electric vehicles under FAME

Scheme and set up charging infrastructure across Bengaluru, according to Mr
R V Deshpande, Minister for Large and Medium Industries of Karnataka.

➢ The Ministry of Heavy Industries, Government of India has shortlisted 11 cities

in the country for introduction of electric vehicles (EVs) in their public transport
systems under the FAME (Faster Adoption and Manufacturing of (Hybrid) and
Electric Vehicles in India) scheme. The government will also set up incubation
centre for startups working in electric vehicles space.

➢ Energy Efficiency Services Limited (EESL), under Ministry for Power and New
and Renewable Energy, Government of India, is planning to procure 10,000
e-vehicles via demand aggregation, and has already awarded contracts to
Tata Motors Ltd for 250 e-cars and to Mahindra and Mahindra for 150 e-cars.

➢ The government is planning to set up a committee to develop an institutional

framework on large-scale adoption of electric vehicles in India as a viable
clean energy mode, especially for shared mass transport, to help bring down
pollution level in major cities.

10
11
Road Ahead

The automobile industry is supported by various factors such as availability of

skilled labour at low cost, robust R&D centres and low-cost steel production.
The industry also provides great opportunities for investment and direct and
indirect employment to skilled and unskilled labour.

Indian automotive industry (including component manufacturing) is expected

to reach Rs 16.16-18.18 trillion (US$ 251.4-282.8 billion) by 2026. Two-
wheelers are expected to grow 9 per cent in 2018.

12
References

➢ https://www.ibef.org/

13