Report

7,941 views

Published on

report

Published in: Business, Technology
0 Comments
5 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
7,941
On SlideShare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
330
Comments
0
Likes
5
Embeds 0
No embeds

No notes for slide

Report

  1. 1. Summer Internship Project “Alliances and Technology Transfer in the Auto Component Industry”Submitted in partial fulfillment of MBA-3C program 2010-12 Submitted by Name: Javed khan Roll Number: A1808710031Company Guide FacultyMr.Mandar Virginkar Prof .Alka MauryaGeneral Manager (Corporate Strategy)Caparo India Ltd. Gurgaon AIBS, AMITY UNIVERSITY NOIDA 1
  2. 2. ACKNOWLEDGEMENTI express my sincere gratitude to my industry guide Mr. Mandar Virginkar General Manager ( Corpo-rate Strategy) Caparo Engineering India Pvt Ltd., for his able guidance, continuous support and coop-eration throughout my project, without which the present work would not have been possible.My faculty guide Prof.Alka Maurya has been constantly guiding and supporting me by providing theright direction, focus and understanding of the project and for continuosly encouraging me to take upthis topic.Last but not least let me also thank the entire team of Caparo India Pvt Ltd., Mr. Rattan Yadav,Mr.Rakesh Yadav and others in the allocation team for projects for providing me with this opportunityto work on a project which is of paramount importance to the company.Javed Khan 2
  3. 3. CERTIFICATE OF ORIGINThis is to certify that Ms./Mr.___________________, a student of Post Graduate Degree in_____________________, Amity International Business School, Noida has worked in the____________________, under the able guidance and supervision ofMr./Ms._________________________, designation______________, Com-pany___________________________.The period for which he/ she was on training was for ______weeks, starting from ___________to_____________. This Summer Internship report has the requisite standard for the partial fulfillment thePost Graduate Degree in International Business. To the best of our knowledge no part of this report hasbeen reproduced from any other report and the contents are based on original research.Prof. Alka Maurya Javed Khan 3
  4. 4. INDEXS.no.1) Executive summary…………………………………………………………72) Company profile…………………………………………………...103) Introduction to project…………………………………………………….224) Case study…………………………………………………………..155) Research methodology…………………………………………………….236) Data analysis and findings………………………………………………...247) Bibliography…………………………………………………..488) Synopsis …………………………………………………………………...499) Conclusions……………………………………………………………………51 4
  5. 5. CHAPTER-1Executive Summary 5
  6. 6. Executive SummaryCaparo, founded in 1968 by Indian born British Industrialist, Lord Paul of Marylebone, is a fastgrowing UK based group with a 1billion Euro turnover. With business interests predominantlyin the manufacture of steel, automotive and general engineering products, the group has agrown as a global entity. Caparo group is now a collection of over 40 companies operatingfrom over 60 sites worldwide.Caparo India, the Indian business arm of Caparo Group, began its operations in 1994, as ajoint venture with India’s largest car manufacturer— Maruti Udyog. Today, through its twostrategic business entities, Caparo Engineering India Pvt. Ltd. and Caparo Maruti Ltd, thegroup offers end-to-end solutions in designing, developing and manufacturing automotivesystems, assemblies, advanced composites, modules and components to Indian AutomotiveOEMs and Engineering Industry.The Indian auto component industry had setup very large capacities to cater to the largegrowth in automotive volumes in 2007.However due to the global recession and the impend-ing consumption crunch of 2008 ,the largely invested capacities lay completely underutilisedimpacting both the company rating as well as cashflows with the bearing of the large fixedcost investment (assets) which could not be churned.Caparo is still facing the impact of theseinvestments and has taken several measures and has come up with a strategy to maintainand strengthen its position in the global auto component market.Caparo typically operates at the lowest end of the value chain in the automotive componentindustry and the main line of business is custom made products built to print. The manage-ment at Caparo has been bothered about the low gross margins of these virtually commodi-tised products which typically affect its cash to cash cycle and the working capital require-ments as well.The company has the necessary strength to move to the value added segments typicallyproprietary products like chassis and suspension products which have a much higher grossmargin and very large market demand and a huge demand supply gap.Caparo has come up with a multipronged strategy and one of the key levers is to enter thevalue added segment of chassis and suspension products which typically have gross marginsin excess of 35% against gross margins of 10%-15% in general auto components with con-tinuous demand from the automotive industry. The current market size for chassis and suspension capacity vehicles is 3500 crores.driventhe automotive values this segment is likely to double to atleast INR 7000 Crores by the year2014 driven by demand for the automotive industry.If Caparo is targets a market share of close to about 30% of this market by leavraging itspresence and current business relations with almost all automotive OEM’s to drive demand, itwould have business volumes at about 2100 Crores which is likely to double their turnover.Besides this Caparo has large unutilized landbanks in almost all automotive hubs viz. Chen-nai,Halol,Pune etc and necessary backward integration in terms of Stampings, Tubes, Fas-teners, Aluminium die casting and the necessary infrastructures in some hubs and the build- 6
  7. 7. ing of the rest of the infrastructure would require very little investment. Calculated investmentare to the tune of 36 lakhs in Chennai without any working capital to 8 crores in Pune. TheROE for the Chennai hub exceeds 150% and Bawal and pune to the tune of 35%-36% whichcross the required hurdles for automotive and manufacturing facilities. after expense calcula-tions PBT level are the tune of 27% and above.The key competitors in the segment areMagna Cosma, JBM, SKH, Futawa, Eurozone, Magnetti Marelly etc.Caparo is seeking JointVenture so as to build complete module which could act on plug and play in an automotive.Caparo is in discussion with Benteler and Magnetti Marelly and currently the discussions areunder MOU stage. 7
  8. 8. CHAPTER-2COMPANY PROFILE 8
  9. 9. THE CAPARO GROUP: COMPANY OVERVIEWCaparo is a global company with local understanding, founded in1968 by Lord Paul ofMarylebone which is managed and wholly owned by the Paul family. It is one of the largest100% single family owned business in the UK.Caparo is a private, diversified, UK based group, specialising principally in the manufac-ture and supply of steel, engineered and automotive products for industry although thegroup’s wider activities encompass materials testing services, hotels and private equityinvestment. Caparo has its plants in following countries: - North America, UK, Poland,Mexico, Spain, India, China and Dubai Group Turnover - € 1 billion Net Assets – over € 180 million Employees- 9,000 Number of sites worldwide-77 9
  10. 10. CAPARO INDIACaparo India was first established in 1994 as a joint venture with Maruti Suzuki.At present;Caparo owns or has interests in 5 entities in India – Caparo Maruti, Caparo EngineeringPrivate Ltd., Caparo India Private Ltd., Caparo Financial Solutions Ltd. and Caparo En-ergy. Many of the Caparo sites in India are a result of greenfield projects and containstate-of-the-art equipment. The businesses have extensive experience and a large cus-tomer portfolio in the automotive, construction, general engineering, aerospace, railways,oil and gas, financial, energy, and many other industries.Caparo India currently employs 5000 direct and indirect employeesacross 25 world-class functional and upcoming facilities. Caparo India currently operateson 16 sites in India & is expected to complete construction of another 15 plants within nexttwo years. CAPARO INDIA: COMPANY STRUCTURE 10
  11. 11. CAPARO INDIA OFFERINGS Under body Fasteners parts Skin panels Steel tech- nologies ModulesToolings CAPARO INDIA SuspensionSteel for- & safetygings Tailerwelded AL die casting blanks Chassis Tubes & tubu- members lar products 11
  12. 12. CHAPTER-3INTRODUCTION 12
  13. 13. OBJECTIVE To prospect for joint venture partners for value added products (chassis & suspension) in the automotive space for passenger cars in order to in- crease Caparo’s contribution levels and margins Build on Caparo’s brand equity through a tie-up with a global tier 1 Manage Caparo’s Key Accounts’ demand patterns for similar or value added products requiring a shared or similar setup. Leverage Caparo’s Industrial Land Banks as equity in the venture 13
  14. 14. CHAPTER 4CASE STUDY 14
  15. 15. THE AUTOMOTIVE INDUSTRY IN INDIAThe Automotive industry in India is one of the largest in the world and one of the fastestgrowing globally. India manufactures over 17.5 million vehicles (including 2 wheeled and 4wheeled) and exports about 2.33 million every year. It is the worlds second largest manufac-turer of motorcycles, with annual sales exceeding 8.5 million in 2009. Indias passenger carand commercial vehicle manufacturing industry is the seventh largest in the world, with anannual production of more than 3.7 million units in 2010. According to recent reports, India isset to overtake Brazil to become the sixth largest passenger vehicle producer in the world,growing 16-18 per cent to sell around three million units in the course of 2011-12. In 2009,India emerged as Asias fourth largest exporter of passenger cars, behind Japan, SouthKorea, and Thailand.As of 2010, India is home to 40 million passenger vehicles and more than 3.7 million automo-tive vehicles were produced in India in 2010 (an increase of 33.9%), making the country thesecond fastest growing automobile market in the world. According to the Society of IndianAutomobile Manufacturers, annual car sales are projected to increase up to 5 million vehiclesby 2015 and more than 9 million by 2020. By 2050, the country is expected to top the world incar volumes with approximately 611 million vehicles on the nations roads. VEHICLE PRODUCTION IN INDIA Type of Vehicle 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010Passenger vehicles 1,2 09,876 1,309,300 1,545,223 1,777,583 1,8 38,697Commercial vehicles 353,703 391,083 519,982 549,006 417 ,126Three wheelers 374,445 434,423 556,126 500,660 501,030Two wheelers 6,529,829 7,608,697 8,466,666 8,026,681 8,418,626Total 8,467,853 9,743,503 11,087,997 10,853,930 11,175,479 15
  16. 16. Source :SIAMMARKET SCENARIOPassenger Vehicles SegmentThis segment is majorly constituted by two types of vehicles which are the cars and theSUV’s. Cars hold a major section with 78% of the market. SUV’s are counted under thepremium vehicles in the industry, thus they hold a lower share in the market. The domestic PVmarket has grown by 15% over the last decade. The market leaders in this segmentare Maruti Suzuki who has been in the same state since decades. Being one of the firstentrants in the sector the company has enjoyed phases of monopolistic market in India.Although not much has changed in the market scenario, Maruti still holds the maximum shareof 46% in the PV segment. They are followed by Tata motors at 15% share and HyundaiMotors at 14% share. Tata Motors has recently launched the new Rs 1 lakh car and hasopened a new avenue in the market for the small cars manufacturing. Hyundai Motors Indiaon the other hand has established India as its manufacturing hub. Other share holders suchas Toyota aim at capturing 10% of the market by the year 2010; Honda and Ford are theleading players in the Indian premium cars segment. Most of the leading manufacturers in theworld have their presence in India as Joint ventures or subsidiaries. India is slowly emerging 16
  17. 17. as a global hub for small car manufacturing industries. This is evident from the export statis-tics of the market. Hyundai Motors India are the leaders of the export market with 66% of themarket share. Major section of the production of Hyundai Motors is exported to South Amer-ica, Africa and Europe. The company uses India as a manufacturing and export hub of com-pact cars around the world. Maruti Suzuki follows Hyundai with 24% of market share. Majorsection of the exports of Maruti goes to Latin America and the Middle East.SUPPLY CHAIN OF THE AUTOMOTIVE INDUSTRY IN INDIA VEHICLE PRODUCTION IN INDIA – SEGMENT WISE 17
  18. 18. MARKET SHAREFig.2 Source: ACMA 18
  19. 19. AUTO COMPONENT INDUSTRY: TurnoverFig.3 Source: ACMA 19
  20. 20. AUTO COMPONENT INDUSTRY: PRODUCT RANGEFig.4 Source:ACMA 20
  21. 21. VISION 2020: DOMESTIC AUTO COMPONENT DEMANDFig.5 Source: ACMA 21
  22. 22. FINDINGS AND ANALYSIS1. The Automotive Industry is growing at a tremendous pace and volumes in passenger car vehicles are likely to double in the next 5 years. To complement this productivity and capacity addition as well as technology will play a major role in the productivity of the supply chain2. The Chassis and Suspension Production in India is currently being driven via the assembly route which would not have a significant impact on production .In order to increase the rate of production and to meet the likely forecast of product constitution share of increasing from 10% to 13% modules will have to be introduced.3. The automotive OEMs have already started suggesting this possibility and working with Tier1’s for this purpose.4. From the graph (fig.1) we can see that the prodution of passenger cars is accelerating and growing at a rapid pace which is demand driven. 2,200 million in 2009 will be around 5100 million in 2015 and 87,00 million in 2020.5.Also we can see that the volumes of passenger vehicles is virtually going to double as according to the forecast Ref Fig 1.from 2200 Thousand to 5100 thousand which is more than double the current production levels.6. Most Passenger Car vehicles have been launching new platforms to spur this growth. In order to be able to produce as many cars ,there has to be constant support from the supply chain. 22
  23. 23. METHODOLOGYInitially,we did a SWOT analysis of Caparo ‘s businesses and also came to terms with theirStrategic intent to enter the value added segment .The decision whether caparo should getinto a particular product line (eg. chassis & suspension) is influenced by the demand fromoriginal equipments manufacturers (OEMs) & we decided to estimate & understand marketindicators by estimating demand in a few group of value added segments.Products chosen were:1. Chassis & Suspension Modules/Systems for Passenger Car Vehicles2. Exhaust Systems for Passenger Vehicles3. Axle Assembly for Heavy Commercial VehiclesThese Systems/Assemblies could be directly produced by technology acquisition as well asdesign in collaboration/Joint Venture with Global OEMs.Chassis and Suspension Modules for Passenger Vehicles seemed to qualify as an immediatepossibility due to demand from one of India’s largest passenger car vehicles.This product line was studied initially by making estimates of various market indicators asoutlined below:Initial Estimates were made grossly by speaking to a few industry contacts and later this wasfurther refined in the following manner:1. Market Size: Estimation of Demand from all OEMs (Passenger Car Vehicles) Estimation of Supply from various existing players2. Current Demand-Supply Gap3. Growth Rate of the segment based on growth rate of industry as well as demand drive for modules as enablers for increasing productivity4. Future Demand Supply Gap based on the growth rate and existing and planned supply capacities Year over Year for the next five years.5. Market Trends influencing consumption6. Actual Business Estimation & Confirmation by speaking to various OEMs and Players 23
  24. 24. We studied the profile of some of the players in the segment. The largest player is JBM, whichis primarily supplier to Maruti, Ford & likewise.JBM has manufacturing plants in Chennai,Pune, Gurgaon, Halol.They produce components like Axels (rear/front), trading arm. Torsionbeam etc. By technological assistance through Futawa &Eurozone. Similarly suspensionsystem are also supplied by SM rolling, Panse auto, SKH & likewise. All of these have eithertechnological collaboration or use OEM produced design, but with the two fold growth of theautomotive industry in the next 5 yrs, most automotive manufacturers have estimated that inorder to meet this demand they would require modular systems & which would increaseproductivity both for OEMs segments as well the aftermarket where these modules could beused for plug-play basis without any external interaction.The current market size of the automotive industry passenger cars production is growing atthe fastest rate as shown in the graph.Suspension and chassis market today is about 2300 crore as estimated based on as the priceof the entire system, & is likely to grow 7000 crores by 2015.The likely share of chassis andsuspension production is going to increase because of usage of modules is going to increasefrom 13% to 16% by 2015.By estimating the supply capacity and current suppliers of the major 4 players in the market ofchassis and suspension for passenger car vehicles we found a gap close to 300 crore, thisgap is likely to increase by almost 500%; 1500 crores. If moduler systems are not used, thiswill definitely hinder productivity.This gave us sound basis for evaluating opportunities & thereafter also based on marketindicaters & trends and decisions with OEM we decided to approach market leaders in tech-nology like Benteler & Magneti Marelli. We also did some benchmarking based on research,capabilities and facilities of other suppliers like JBM and SKH who are currently supplying amajor OEMs in this space in order to understand competitor setups etcSourceAssociation of Automotive Component ManufacturersSociety of Indian Automotive Manufacture 24
  25. 25. CAPARO-SWOT ANALYSISSTRENGTHS1) Backward integration like tubes, fasteners, stampings & welding.2) Current product portfolio contains chassis & suspension like trailing Arm, front cradle assembly, rear torsion beam.3) Large land banks around all their manufacturing plants at key Locations4) Market share of over 15%-20% of all automotive components5) Amongst the top 10 vendors of Maruti Suzuki India ltd, India’s largest passenger car manufacturer6) They have a joint venture with Maruti Suzuki.WEAKNESSES1) Lack of management control and partial degeneration2) Existence of chestered approach with dissimilar technology groupings.3) Lack of design & technological capabilities.4) Lack of process expertise.OPPORTUNITIES1) Large demand-supply gap in chassis and suspension system.2) Market size: 7000 crores, 30% share market covers only 2100 crores.3) Demand from global Original Equipment Manufacturers like ford etc in order to enhanceproductionTHREATS1) Many competitors are likely in the field2) Maruti has invited both Caparo and Skh and suggested joint venture partners3) Fast changing technology4) Market demand may contract. 25
  26. 26. Players in the Chassis and Suspension Market Benteler Automotive  One of the largest industrial enterprises in Germany.  Established in 1876  Type: Private family owned business  Employees: 23150  Chairman: Mr.Hubertus Benteler  Geographical presence: o Locations: 150 o Countries: 38 Business Divisions  Automotive o Research & Development o Chassis system o Structures o Engine & Exhaust system o Mechanical Engineering 26
  27. 27. Magneti Marelli  Established:1910  Turover:Euro 4.5 billion  Operating profit: euro 25 million  Headquaters:Milan(Italy)  CEO & MD:Mr.Euginio Razelli  Geographical presence  Locations:114  Countries:18  Employees:32,000  Strategy: Focus on emerging markets in joint participation with established players.Magneti Marelli is an international company committed to the design and production ofhigh-tech systems and components for the automotive sector based in Italy(Milan)Headquartered in Corbetta (province of Milan), the company includes 77 manufacturingplants, 11 R&D centres and 26 application centers in Italy, France, Germany, Spain, Po-land, Czech Republic, Russia, Turkey, United States, Mexico, Brazil, Argentina, China,Malaysia, and South Africa.Magneti Marelli was founded in 1919 as a joint-venture between Fiat and Ercole Marelli,and was named as F.I.M.M. - Fabbrica Italiana Magneti Marelli; the first plant was estab-lished in Sesto San Giovanni near Milan, Italy. The company started as a magneto andelectrical equipment manufacturer.The business lines include automotive lighting systems, power train control sys-tems, electronic instrument clusters, telematics systems, and com-puters,suspension systems and components, exhaust systems, and motorsport, whereinMagneti Marelli develops specific electronic systems for Formula One,Motorcycle GrandPrix and the World Rally Championship 27
  28. 28. CAPARO-BENTELER SYNERGIESCaparo SPV/JV BENTELER CHENNAI STAMPINGS CHASSIS CAPARO MARUTI HOT END SYSTEMS CAPARO STAMPINGS-MARKAL TUBES CAPARO TUBES-DEWAS TUBULAR FABRICATION FORD, SUZUKI, FIAT, GM The synergies between Beneteler and Caparo’s Businesses make it a viable case for exploration to begin with on the Chassis and Suspension Product Line for a joint eneterprise structure 28
  29. 29. BENTELER-PRODUCT LINES 29
  30. 30. 30
  31. 31. 31
  32. 32. 32
  33. 33. ANALYSIS OF CHALLENGES BENTELER LOOKING FOR MAJORITY IN JV -51%-75%(MAY POSSIBLY INVOLVE A LATER BUYOFF) SPV/JV NEEDS 51% HOLDING BY CAPARO GROUP COMPANY IN CHEN- NAI/BAWAL CHARGE CURRENTLY ON CHENNAI/BAWAL/PUNE AN ISSUE PUNE-OWNED LAND-NO ISSUES ON STAKES IN SPV/JV POSSIBLY A 50%-50% PARTNERSHIP MAY BE CONSTRUED UNLESS BENEFITS OTHERWISE FOR STAMPINGS CAPARO -LAND BANKS AS EQUITY-PRICE NEEDS TO BE DISCUSSED FOR INI- TIAL NEGOTIATIONS FORD AND SUZUKI TIGHT PRICING ISSUE NEEDS TO BE DISCUSSED POSSIBLE STAKE MAY BE OFFERED IN STEEL TUBES PLANT TUBULAR FABRICATIONS –NEW PROJECT IN CHENNAI MAY BE SUPPORTED- HIGHER PBT LEVELS ON WELDING TUBES/GOOD MARKET IN THE SOUTH 33
  34. 34. CAPARO – VALUE PROPOSITION  Entry in value added business / technology drive/ Proprietary products - HORIZONTAL SPREAD - MARGIN - RISK MITIGATION  Brand equity  Asset liquidation/ leverage  Possible exit/reduction in equity exposure in specific caparo business –tubes  Possible support for new projects fabrications.BENTELER –VALUE PROPOSITION Successful Tie up and entry into a broad range of synergistic business areas/products - Tie up with SKH unsuccessful - Currently producing chassis in Pune Entry into tubular and distribution business in a big way in India(including a base for seamless tubes) including the trade route 34
  35. 35. Location AnalysisLocations chosen Chennai, Pune, Delhi NCR, Halol these are the top 5 automotive hubs inIndia.Ford Nissan - ChennaiMaruti- BawalMahindra and General Motors-PuneChennaiCurrent products:Stamping, rear torsion beam, forging,Al Die casting and tool roomCurrent landed area 119 acresCurrent covered area 8 acresEstimated Cost of Land: Rs 2 Crores /AcreRemaining area available for construction is at 50% FAR= 59 acresCurrent available product to cater chassis and suspension component and assemblies: 1. Current portfolio at stamping including Rear Torsion Beam 2. Available infrastructure includes Test Rig for the Rear Torsion Beam. Installed at the tool room, Presses from 50 to 1000 Tonnes, Tube bending, MIG welding etc. 3. Other available infrastructure includes Aluminium die casting for small components used in suspension systems, paint shop with ED coating facility etc. 4. Required Investment by Caparo at Chennai:32 Lacs(without taking :and into Account) 5. Equity by partner would be to the extent of 51% of the total facility usage in the ven- ture which would include Land, Building etc 6. Additional Equity in the venture is assumed to result in Cash out situation for Caparo India enhancing the cashflow of the group by utilising the leasehold land banks which have allowable joint ventures on them. 35
  36. 36. 36
  37. 37. 37
  38. 38. 38
  39. 39. 39
  40. 40. Bawal HubCurrent products:Stamping, rear torsion beam, forging, Al Die casting and tool roomCurrent landed area 100 acresCurrent covered area 50 acresAvailable for fresh Construction: 32.25 AcresEstimated Cost of Land: Rs 1.4 Crores /AcreCurrent available product to cater chassis and suspension component and assemblies: 1) Pressing Setup from 50Tonnes to 1000 Tonnes 2) Available infrastructure includes a newly constructed paint shop at Bawal 3) Required Investment by Caparo at Bawal:2 Crores 45 Lacs(without taking and into Ac- count) 4) Equity by partner would be to the extent of 51% of the total facility usage in the venture which would include Land, Building etc 5) Additional Equity in the venture is assumed to result in Cash out situation for Caparo India enhancing the cash flow of the group by utilising the leasehold land banks which have allowable joint ventures on them. 40
  41. 41. 41
  42. 42. 42
  43. 43. Halol HubCurrent landed area 100 acresCurrent covered area 75 acresAvailable for fresh Construction: 10 AcresEstimated Cost of Land: Rs 50 Lacs /AcreCurrent available product to cater chassis and suspension component and assemblies: 1. Pressing Setup from 50Tonnes to 1000 Tonnes 2. Current Portfolio of products include supplies to General Motors (Rear Torsion Beam, Front Cradle etc) 3. Available infrastructure includes a newly constructed paint shop at Bawal/Steel Service centre at Halol 4. Required Investment by Caparo at Halol: Nil 5. Equity by partner would be to the extent of 51% of the total facility usage in the venture which would include Land, Building etc 6. Additional Equity in the venture is assumed to result in Cash out situation for Caparo India en- hancing the cashflow of the group by utilising the leasehold land banks which have allowable joint ventures on them. 43
  44. 44. Pune AreaCurrent landed area 120 AcresCurrent covered area 90 acresAvailable for fresh Construction: 30 AcresEstimated Cost of Land: Rs 2.5 Crores /AcreRequired Investment in Pune: 7.5 Crores for a fresh setupCurrent available product to cater chassis and suspension component and assemblies: 1. Pressing Setup from 50Tonnes to 1400 Tonnes-Hydraulic Presses 2. Current Portfolio of products include al suspension child parts to Fiat India 3. Available infrastructure includes welding, bending setup 4. Equity by partner would be to the extent of 51% of the total facility usage in the venture which would include Land, Building etc. 5. Additional Equity in the venture is assumed to result in Cash out situation for Caparo India enhancing the cash flow of the group by utilising the leasehold land banks which have allowable joint ventures on them. 44
  45. 45. 45
  46. 46. 46
  47. 47. BIBLIOGRAPHY1) SOCIETY OF INDIAN AUTOMATIVE MANUFACTURER.2) AUTOMATIVE COMPONENTS MANUFACTURERS ASSOCIATION. 47
  48. 48. SYNOPSISCaparo is a multinational automotive company with a broad product line.Caparo India, theIndian business arm of Caparo group, began its operations in 1994,as a joint venture withIndia’s largest car manufacturer-Maruti udyog.Caparo India leverages its exhaustive ca-pabilities in metal stamping ,fastening, Tubing Forging and Aluminium foundry business.The company has necessary strength to move to the value added segments typically pro-prietary products like chassis and suspension, Braking etc. Which have a much highergross margin and very large market demand and demand supply gap.Caparo has come up with a multipronged strategy and one of the key levers is to enter thevalue added segment of chassis and suspension products which typically have grossmargins in excess of 35% with continuous demand from the automotive industry.They have shortlisted the Chassis and Suspension Product lien to enter into based on ca-pabilities and facilities as well as demand from major automotive OEMs like Maruti andFord.They Studied key players who could be looked at for a joint enterprise structure and haveshortlisted Benteler Automotive based on industry information of their strategic intent aswell as a study of Caparo’s current facilities and requirements for such a joint venture inkey hubs of Bawal,Chennai and Pune as well as Halol which are the largest automotivehubs in the country.Based on demand from OEMs to increase throughput in order to cater to vast consumermarkets ,Caparo has been encouraged to enter into such arrangements. Assessment ofthe financial impact as well as asset banks required to start up such a venture would pro-vide caparo with dual benefits of utilising existing land banks as well as entering into aspecialised proprietary products segment affecting there gross margins,cashflow,workingcapital cycle as well as brand equity in a positive way.The Significant demand supply gap and the existence of very few players in the countrywith capabilities to cater to the world class technology and design specifications and de-manding volume would act as drivers to fuel the growth of such a venture.The return on Equity ij sokme of the Hubs exceeds 100% due to prior rxisting faicilties aswell as required skilled manpower for the purpose.Caparo also wishes to cater to theglobal volumes of Benteler through their existing stamping and aluminium die casting fa-cilties.Market Share wise Caparo aims to tap a 30% market share within 2 years and a grossblock of 500 Crores out of the 2100 crore demand supply gap(based on projections)These will be at gross margins of 40% and final PAT levels of around 25% which is one ofthe highest standards in the automotive industry. This would encourage Caparo, Bentelerhas also have certain benefits as it is expanding it is exploring new market in India 48
  49. 49. This venture if successful then it will double the benefits of the caparo in the next fewyears as well as the profitability will be double in the next 5 years and similar benefitswould be for Benteler which would be able to entrench the Indian Market for the first timein 10 years since they have set up their facilities in India. 49
  50. 50. CONCLUSIONThe automotive industry has faced major trend changes in the concentration of the mar-ket. It has shifted from a domestic market to a monopolistic to a global market to a per-fectly competitive market scenario. All these changes were accompanied by growth anddevelopment of the industry and overall economy as well. India has finally emerged as aworld class entity in the global market for automobiles and has made its presence felt bythe other nations. The future of Indian Auto Industry is bright as more and more compa-nies are getting attracted towards the Indian Market and are setting up their manufacturingunits in India.After investigating market indicators, the current company position,capabilities,facilitiesand objectives and strategic intend as well as its asset holding and synergies with Ben-teler.it is concluded that there is a viable business case for further prospecting with Ben-teler automotive and other OEMs and would result in three prong benefits including 1) Impact on turnover 2) Utilization of current asset holdings and facilities and 3) Increase brand equity for Caparo.This case has been approved by the management and further exploration regardingThe business model is currently been pursued. 50

×