Japan IT Week 2024 Brochure by 47Billion (English)
Report
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: A1808710031
Company Guide Faculty
Mr.Mandar Virginkar Prof .Alka Maurya
General Manager (Corporate Strategy)
Caparo India Ltd. Gurgaon
AIBS, AMITY UNIVERSITY
NOIDA
1
2. ACKNOWLEDGEMENT
I 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 the
right direction, focus and understanding of the project and for continuosly encouraging me to take up
this 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 opportunity
to work on a project which is of paramount importance to the company.
Javed Khan
2
3. CERTIFICATE OF ORIGIN
This 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 of
Mr./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 the
Post Graduate Degree in International Business. To the best of our knowledge no part of this report has
been reproduced from any other report and the contents are based on original research.
Prof. Alka Maurya Javed Khan
3
4. INDEX
S.no.
1) Executive summary…………………………………………………………7
2) Company profile…………………………………………………...10
3) Introduction to project…………………………………………………….22
4) Case study…………………………………………………………..15
5) Research methodology…………………………………………………….23
6) Data analysis and findings………………………………………………...24
7) Bibliography…………………………………………………..48
8) Synopsis …………………………………………………………………...49
9) Conclusions……………………………………………………………………51
4
6. Executive Summary
Caparo, founded in 1968 by Indian born British Industrialist, Lord Paul of Marylebone, is a fast
growing UK based group with a 1billion Euro turnover. With business interests predominantly
in the manufacture of steel, automotive and general engineering products, the group has a
grown as a global entity. Caparo group is now a collection of over 40 companies operating
from over 60 sites worldwide.
Caparo India, the Indian business arm of Caparo Group, began its operations in 1994, as a
joint venture with India’s largest car manufacturer— Maruti Udyog. Today, through its two
strategic business entities, Caparo Engineering India Pvt. Ltd. and Caparo Maruti Ltd, the
group offers end-to-end solutions in designing, developing and manufacturing automotive
systems, assemblies, advanced composites, modules and components to Indian Automotive
OEMs and Engineering Industry.
The Indian auto component industry had setup very large capacities to cater to the large
growth 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 underutilised
impacting both the company rating as well as cashflows with the bearing of the large fixed
cost investment (assets) which could not be churned.Caparo is still facing the impact of these
investments and has taken several measures and has come up with a strategy to maintain
and strengthen its position in the global auto component market.
Caparo typically operates at the lowest end of the value chain in the automotive component
industry 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 typically
proprietary products like chassis and suspension products which have a much higher gross
margin 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 the
value added segment of chassis and suspension products which typically have gross margins
in 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.driven
the automotive values this segment is likely to double to atleast INR 7000 Crores by the year
2014 driven by demand for the automotive industry.
If Caparo is targets a market share of close to about 30% of this market by leavraging its
presence and current business relations with almost all automotive OEM’s to drive demand, it
would 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. ing of the rest of the infrastructure would require very little investment. Calculated investment
are to the tune of 36 lakhs in Chennai without any working capital to 8 crores in Pune. The
ROE for the Chennai hub exceeds 150% and Bawal and pune to the tune of 35%-36% which
cross 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 are
Magna Cosma, JBM, SKH, Futawa, Eurozone, Magnetti Marelly etc.Caparo is seeking Joint
Venture 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 are
under MOU stage.
7
9. THE CAPARO GROUP: COMPANY OVERVIEW
Caparo is a global company with local understanding, founded in1968 by Lord Paul of
Marylebone which is managed and wholly owned by the Paul family. It is one of the largest
100% 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 the
group’s wider activities encompass materials testing services, hotels and private equity
investment. 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. CAPARO INDIA
Caparo 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 Engineering
Private 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 contain
state-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 employees
across 25 world-class functional and upcoming facilities. Caparo India currently operates
on 16 sites in India & is expected to complete construction of another 15 plants within next
two years.
CAPARO INDIA: COMPANY STRUCTURE
10
11. CAPARO INDIA OFFERINGS
Under body
Fasteners
parts
Skin panels
Steel tech-
nologies
Modules
Toolings
CAPARO INDIA Suspension
Steel for- & safety
gings
Tailerwelded
AL die casting blanks
Chassis
Tubes & tubu-
members
lar products
11
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
15. THE AUTOMOTIVE INDUSTRY IN INDIA
The Automotive industry in India is one of the largest in the world and one of the fastest
growing globally. India manufactures over 17.5 million vehicles (including 2 wheeled and 4
wheeled) and exports about 2.33 million every year. It is the world's second largest manufac-
turer of motorcycles, with annual sales exceeding 8.5 million in 2009. India's passenger car
and commercial vehicle manufacturing industry is the seventh largest in the world, with an
annual production of more than 3.7 million units in 2010. According to recent reports, India is
set 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 Asia's fourth largest exporter of passenger cars, behind Japan, South
Korea, 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 the
second fastest growing automobile market in the world. According to the Society of Indian
Automobile Manufacturers, annual car sales are projected to increase up to 5 million vehicles
by 2015 and more than 9 million by 2020. By 2050, the country is expected to top the world in
car volumes with approximately 611 million vehicles on the nation's roads.
VEHICLE PRODUCTION IN INDIA
Type of Vehicle 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Passenger vehicles 1,2 09,876 1,309,300 1,545,223 1,777,583 1,8 38,697
Commercial vehicles 353,703 391,083 519,982 549,006 417 ,126
Three wheelers 374,445 434,423 556,126 500,660 501,030
Two wheelers 6,529,829 7,608,697 8,466,666 8,026,681 8,418,626
Total 8,467,853 9,743,503 11,087,997 10,853,930 11,175,479
15
16. Source :SIAM
MARKET SCENARIO
Passenger Vehicles Segment
This segment is majorly constituted by two types of vehicles which are the cars and the
SUV’s. Cars hold a major section with 78% of the market. SUV’s are counted under the
premium vehicles in the industry, thus they hold a lower share in the market. The domestic PV
market has grown by 15% over the last decade. The market leaders in this segment
are Maruti Suzuki who has been in the same state since decades. Being one of the first
entrants 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 share
of 46% in the PV segment. They are followed by Tata motors at 15% share and Hyundai
Motors at 14% share. Tata Motors has recently launched the new Rs 1 lakh car and has
opened a new avenue in the market for the small cars manufacturing. Hyundai Motors India
on the other hand has established India as its manufacturing hub. Other share holders such
as Toyota aim at capturing 10% of the market by the year 2010; Honda and Ford are the
leading players in the Indian premium cars segment. Most of the leading manufacturers in the
world have their presence in India as Joint ventures or subsidiaries. India is slowly emerging
16
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 the
market 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. Major
section 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
22. FINDINGS AND ANALYSIS
1. 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 chain
2. 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. METHODOLOGY
Initially,we did a SWOT analysis of Caparo ‘s businesses and also came to terms with their
Strategic intent to enter the value added segment .The decision whether caparo should get
into a particular product line (eg. chassis & suspension) is influenced by the demand from
original equipments manufacturers (OEMs) & we decided to estimate & understand market
indicators by estimating demand in a few group of value added segments.
Products chosen were:
1. Chassis & Suspension Modules/Systems for Passenger Car Vehicles
2. Exhaust Systems for Passenger Vehicles
3. Axle Assembly for Heavy Commercial Vehicles
These Systems/Assemblies could be directly produced by technology acquisition as well as
design in collaboration/Joint Venture with Global OEMs.
Chassis and Suspension Modules for Passenger Vehicles seemed to qualify as an immediate
possibility 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 as
outlined below:
Initial Estimates were made grossly by speaking to a few industry contacts and later this was
further refined in the following manner:
1. Market Size:
Estimation of Demand from all OEMs (Passenger Car Vehicles)
Estimation of Supply from various existing players
2. Current Demand-Supply Gap
3. Growth Rate of the segment based on growth rate of industry as well as demand drive for
modules as enablers for increasing productivity
4. 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 consumption
6. Actual Business Estimation & Confirmation by speaking to various OEMs and Players
23
24. We studied the profile of some of the players in the segment. The largest player is JBM, which
is primarily supplier to Maruti, Ford & likewise.JBM has manufacturing plants in Chennai,
Pune, Gurgaon, Halol.They produce components like Axels (rear/front), trading arm. Torsion
beam etc. By technological assistance through Futawa &Eurozone. Similarly suspension
system are also supplied by SM rolling, Panse auto, SKH & likewise. All of these have either
technological collaboration or use OEM produced design, but with the two fold growth of the
automotive industry in the next 5 yrs, most automotive manufacturers have estimated that in
order to meet this demand they would require modular systems & which would increase
productivity both for OEMs segments as well the aftermarket where these modules could be
used for plug-play basis without any external interaction.
The current market size of the automotive industry passenger cars production is growing at
the fastest rate as shown in the graph.
Suspension and chassis market today is about 2300 crore as estimated based on as the price
of the entire system, & is likely to grow 7000 crores by 2015.The likely share of chassis and
suspension production is going to increase because of usage of modules is going to increase
from 13% to 16% by 2015.
By estimating the supply capacity and current suppliers of the major 4 players in the market of
chassis and suspension for passenger car vehicles we found a gap close to 300 crore, this
gap is likely to increase by almost 500%; 1500 crores. If moduler systems are not used, this
will definitely hinder productivity.
This gave us sound basis for evaluating opportunities & thereafter also based on market
indicaters & 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 a
major OEMs in this space in order to understand competitor setups etc
Source
Association of Automotive Component Manufacturers
Society of Indian Automotive Manufacture
24
25. CAPARO-SWOT ANALYSIS
STRENGTHS
1) 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 Locations
4) Market share of over 15%-20% of all automotive components
5) Amongst the top 10 vendors of Maruti Suzuki India ltd, India’s largest passenger car manufacturer
6) They have a joint venture with Maruti Suzuki.
WEAKNESSES
1) Lack of management control and partial degeneration
2) Existence of chestered approach with dissimilar technology groupings.
3) Lack of design & technological capabilities.
4) Lack of process expertise.
OPPORTUNITIES
1) 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 enhance
production
THREATS
1) Many competitors are likely in the field
2) Maruti has invited both Caparo and Skh and suggested joint venture partners
3) Fast changing technology
4) Market demand may contract.
25
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. 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 of
high-tech systems and components for the automotive sector based in Italy(Milan)
Headquartered in Corbetta (province of Milan), the company includes 77 manufacturing
plants, 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 and
electrical 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, wherein
Magneti Marelli develops specific electronic systems for Formula One,Motorcycle Grand
Prix and the World Rally Championship
27
28. CAPARO-BENTELER SYNERGIES
Caparo 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
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. 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. Location Analysis
Locations chosen Chennai, Pune, Delhi NCR, Halol these are the top 5 automotive hubs in
India.
Ford Nissan - Chennai
Maruti- Bawal
Mahindra and General Motors-Pune
Chennai
Current products:
Stamping, rear torsion beam, forging,Al Die casting and tool room
Current landed area 119 acres
Current covered area 8 acres
Estimated Cost of Land: Rs 2 Crores /Acre
Remaining area available for construction is at 50% FAR= 59 acres
Current 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
40. Bawal Hub
Current products:
Stamping, rear torsion beam, forging, Al Die casting and tool room
Current landed area 100 acres
Current covered area 50 acres
Available for fresh Construction: 32.25 Acres
Estimated Cost of Land: Rs 1.4 Crores /Acre
Current 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
43. Halol Hub
Current landed area 100 acres
Current covered area 75 acres
Available for fresh Construction: 10 Acres
Estimated Cost of Land: Rs 50 Lacs /Acre
Current 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. Pune Area
Current landed area 120 Acres
Current covered area 90 acres
Available for fresh Construction: 30 Acres
Estimated Cost of Land: Rs 2.5 Crores /Acre
Required Investment in Pune: 7.5 Crores for a fresh setup
Current 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
47. BIBLIOGRAPHY
1) SOCIETY OF INDIAN AUTOMATIVE MANUFACTURER.
2) AUTOMATIVE COMPONENTS MANUFACTURERS ASSOCIATION.
47
48. SYNOPSIS
Caparo is a multinational automotive company with a broad product line.Caparo India, the
Indian business arm of Caparo group, began its operations in 1994,as a joint venture with
India’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 higher
gross 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 the
value added segment of chassis and suspension products which typically have gross
margins 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 and
Ford.
They Studied key players who could be looked at for a joint enterprise structure and have
shortlisted Benteler Automotive based on industry information of their strategic intent as
well as a study of Caparo’s current facilities and requirements for such a joint venture in
key hubs of Bawal,Chennai and Pune as well as Halol which are the largest automotive
hubs in the country.
Based on demand from OEMs to increase throughput in order to cater to vast consumer
markets ,Caparo has been encouraged to enter into such arrangements. Assessment of
the 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 a
specialised proprietary products segment affecting there gross margins,cashflow,working
capital cycle as well as brand equity in a positive way.
The Significant demand supply gap and the existence of very few players in the country
with 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 as
well as required skilled manpower for the purpose.Caparo also wishes to cater to the
global 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 gross
block 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 of
the highest standards in the automotive industry. This would encourage Caparo, Benteler
has also have certain benefits as it is expanding it is exploring new market in India
48
49. This venture if successful then it will double the benefits of the caparo in the next few
years as well as the profitability will be double in the next 5 years and similar benefits
would be for Benteler which would be able to entrench the Indian Market for the first time
in 10 years since they have set up their facilities in India.
49
50. CONCLUSION
The 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 and
development of the industry and overall economy as well. India has finally emerged as a
world class entity in the global market for automobiles and has made its presence felt by
the 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 manufacturing
units in India.
After investigating market indicators, the current company position,capabilities,facilities
and 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 regarding
The business model is currently been pursued.
50
