MARKET ATTRACTIVENESS OF AUTO             COMPONENT BUSINESS IN INDIAPrepared For:Prepared By:                ,           ...
PrefaceThai-Indian business relations have improved considerably over the past decade.Thailand and India are close to conc...
In 2007, Thailand’s export for these 82 items was US $ 406.31 million. Due the FTAbetween two countries, Thailand is able ...
4. Auto parts and accessories: It would cover both types of auto parts:-              a. Essential auto parts (low volume ...
Table of Contents1     EXECUTIVE SUMMARY ....................................................................................
6.5   Break up of replacement parts market by type of vehicle ..................................................... 446.6 ...
1 EXECUTIVE SUMMARYThe Indian automobile ancillary sector is transforming itself from a low-volume, highlyfragmented one i...
Market Analysis – Indian Auto Component Market                                                                            ...
According to Automotive Component Manufacturers’ Association (ACMA), theproduction of automotive component in India was US...
grow more than two times in the next seven years. This high growth augurs the businesspotential in the Indian automotive c...
1.2 Foreign Direct Investment and Government PolicyThe automatic approval for foreign equity investment upto 100 per cent ...
For business collaboration, we suggest that Thai investors should initially export theseproducts for OEMs and aftermarket ...
2 GLOBAL AUTO COMPONENT INDUSTRY  2.1 Global Trends in the Automotive IndustryThe world’s automotive manufacturing sector ...
2.2 Major Auto and Auto Component MarketsThe United States is far ahead of other countries when it comes to vehicle popula...
The exhibit below maps vehicle penetration and nominal GDP per capita. In the long run,the emerging economies like India h...
Vehicle Density vs GDP/per capita              Exhibit 4: Vehicle density vs GDP / per capita – Current and Estimated in 2...
2.3 Major Auto Component CompaniesThe exhibit below shows top automotive component players and their sales figuresglobally...
3 INDIAN AUTO COMPONENT INDUSTRYThe Indian automobile ancillary sector is transforming itself from a low-volume, highlyfra...
3.1 Major Auto Component hubs in IndiaIn India, there are four major clusters as far as auto and auto components are conce...
3.2 Transition of Indian Auto Component IndustryThe Indian Auto component industry has transitioned from a supplier for th...
3.3 Auto Component Industry Cost Buildup    Across the auto component industry, material cost is almost the half of the to...
3.4 Classification of Auto Component MarketThe auto component industry can be classified into the 3 channels; as far as au...
3.5 Tier Structure of Auto Component MarketThe auto industry globally is structured based on vendor-supplier relationship ...
3.6 Classification of Auto ComponentsThe components in the Indian automotive component market are classified in thefollowi...
3.7 Major Automobile Players   The significant growth in the Indian automobile market as a result of growing income and   ...
3.8 Major Automobile Component Players (Two, Three and Four        Wheeler players)There is not any distinction between th...
Shock Absorbers                         Kalyani Brakes                                                                    ...
collaborations while others are actively chalking out their plans. Many of the world’s       leading Tier-1 suppliers have...
4 INDUSTRY AND MARKET ANALYSISThe macro environment of the Indian auto component industry can be assessed byunderstanding ...
4.1 Macro and Micro Environment Analysis: Indian Auto Component Market                                                    ...
The macro and micro environment can be analyzed by looking at Porter’s five forces formicro environment analysis and PEST ...
SWOT Analysis – Auto Component IndustryStrength                              KEY FEATURES                          Weaknes...
5 MARKET SIZE AND GROWTH FORECASTS  5.1 Global auto component market size and growth estimates            Global Automotiv...
5.2 Indian auto component market size and growth estimatesAccording to Automotive Component Manufacturers’ Association (AC...
5.2.2                 Consolidated Production, Export and Investment in value termsAs per the exhibit below, the exports i...
5.2.3   Value wise break up of sub-segments – two and four wheelersThe two wheeler automotive component market like the fo...
“All OEMs have their vendors located in India. However, some OEMs like us     (Ashok Leyland) have set up their offices in...
The highlighted components above are the promising auto component products for bothtwo wheelers and four wheelers auto com...
5.2.6   Trends in growth and margins – Two and Four wheelersAs mentioned in the section 5.2.2 above, the automobile market...
6 AUTO COMPONENT OEM AND REPLACEMENT    MARKETThis section highlights OEM supply chain and inventory management aspects fo...
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Report auto component_market

  1. 1. MARKET ATTRACTIVENESS OF AUTO COMPONENT BUSINESS IN INDIAPrepared For:Prepared By: , January 2009 IMRB International INVESTMENT POTENTIAL IN AUTO COMPONENT INDUSTRY IN INDIA 1
  2. 2. PrefaceThai-Indian business relations have improved considerably over the past decade.Thailand and India are close to concluding a Free Trade Agreement (FTA) covering tradein goods by 2010. The Free Trade Agreement between Thailand and India is expected toimprove trade relations between the two countries further. The FTA covering trade ingoods would lead to long term mutual benefits in trade and investment and thepartnership would be expanded further to cover technology know-how and expertise.Indias primary imports from Thailand are machinery, electronic appliances, textiles,plastic material, transport equipment, vegetable oil and latex. The major items of importsunder FTA are polycarbonate, cathode-ray tubes, color-TVs, air conditioners andAluminum products. Thailand’s main imports from India are jewelry, gemstones, steel,pharmaceuticals and ferrous metal ores.Indias trade with Thailand could touch USD 7 billion by 2010-11 propelled by adoubling in transaction under Free Trade Agreement (FTA). The EHS was implementedon September 1, 2004, under which tariffs on 82 items were to be phased out bySeptember 1, 2006 by both the sides.The trade between Thailand and India is estimated to be US $ 7 billion by 2010-11 fromUS $ 2.2 billion in 2005-06.The total trade of 82 items under Early Harvest Scheme (EHS) of the FTA was increasedby over 140 percent to about US $ 358.63 million in 2005-06 from US $ 149 million in2003-04. The share of these 82 items in India-Thailand trade increased from 10.34percent in 2003-04 to 15.68 percent in 2005-06.Thailand’s export to India of the identified 82 EHS items was increased from US $ 84.64million to US $ 275 million during the period from 2003 – 04 to 2005 – 06. During thesame time, India’s export to Thailand of these items increased from US $ 64.28 million toUS $ 83.03 million during the same period.MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 2
  3. 3. In 2007, Thailand’s export for these 82 items was US $ 406.31 million. Due the FTAbetween two countries, Thailand is able to manage the trade surplus of US $ 598 in 2007in bilateral trade between Thailand and India.With significant potential for growth of business between the two countries, the Ministryof Commerce, Thailand and Royal Thai Embassy would like to understand theinvestment potential across the following identified product categories:- 1. Home Utility and Furnishing: This would broadly include three product categories:- a. Furniture – Largely focusing on house hold furniture e.g. Sofa-set, Dining table, Corner / corner table etc. Also covering office furniture e.g. office chairs, cubicles, tables etc and open-air furniture i.e. the furniture used in the garden, near pools etc. b. Interior Decoration items – This would include: Show pieces, Wooden handicraft, photo frames, artificial flowers. c. Utensils – Household (kitchen), HoReCa (Hotel Restaurant Catering) Segment, Institutional / Office. d. Plastic Products - Food containers, plastic storage boxes etc e.g. Cello, Tupperware, Milton, Nyasa etc. 2. Construction Material: This would include Bathroom Fittings, Tiles/Floorings (including wooden), Roof Tiles (used in the costal areas), Metal (Al, Tin etc) / Gypsum boards used for partition. 3. Hospitality Services: This would be understood with the objective of tie-up with existing hotels – spas, specialty restaurant (e.g. Thai cuisine restaurant), health wellness services etc. The client would be interested in management control and running the property. The stand alone spas e.g. Kaya clinic is also covered in the purview of the study.MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 3
  4. 4. 4. Auto parts and accessories: It would cover both types of auto parts:- a. Essential auto parts (low volume high value items e.g. gear box, clutch plates etc and high volume low value items like break pads etc). These parts would be for 2-wheelers (e.g. moulding etc) and 4- wheelers – both cars and commercial vehicles. b. Accessories / decorative items e.g. music systems, alloy wheels etcIn order to understand the trade potential across the above categories, the Ministry ofCommerce, Thailand and Royal Thai Embassy has commissioned Business and IndustrialResearch Division (BIRD) of IMRB International to avail its research based consultancyservicesMARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 4
  5. 5. Table of Contents1 EXECUTIVE SUMMARY ................................................................................................... 71.1 Automotive Component OEM and Replacement Markets .................................................... 101.2 Foreign Direct Investment and Government Policy .............................................................. 111.3 Attractiveness of Auto Component Sub-segments and Entry Strategy ................................. 112 GLOBAL AUTO COMPONENT INDUSTRY ................................................................ 132.1 Global Trends in the Automotive Industry............................................................................ 132.2 Major Auto and Auto Component Markets ........................................................................... 142.3 Major Auto Component Companies...................................................................................... 173 INDIAN AUTO COMPONENT INDUSTRY ................................................................... 183.1 Major Auto Component hubs in India ................................................................................... 193.2 Transition of Indian Auto Component Industry .................................................................... 203.3 Auto Component Industry Cost Buildup ............................................................................... 213.4 Classification of Auto Component Market ........................................................................... 223.5 Tier Structure of Auto Component Market ........................................................................... 233.6 Classification of Auto Components ...................................................................................... 243.7 Major Automobile Players .................................................................................................... 253.8 Major Automobile Component Players (Two, Three and Four Wheeler players) ................ 263.9 Foreign Collaboration in the Auto Component Industry....................................................... 274 INDUSTRY AND MARKET ANALYSIS ........................................................................ 294.1 Macro and Micro Environment Analysis: Indian Auto Component Market ......................... 304.2 SWOT Analysis: Indian Auto Component Market ............................................................... 315 MARKET SIZE AND GROWTH FORECASTS............................................................. 335.1 Global auto component market size and growth estimates ................................................... 335.2 Indian auto component market size and growth estimates .................................................... 34 5.2.1 Production (in Number) and Growth rates of all vehicle categories including two wheelers .............................................................................................. 34 5.2.2 Consolidated Production, Export and Investment in value terms ............... 35 5.2.3 Value wise break up of sub-segments – two and four wheelers ................. 36 5.2.4 Import estimates and trends (for 2 and 4 wheelers) .................................... 36 5.2.5 Auto Component Export Destinations ........................................................ 38 5.2.6 Trends in growth and margins – Two and Four wheelers .......................... 396 AUTO COMPONENT OEM AND REPLACEMENT MARKET ................................. 406.1 OEM Market in the Indian auto component industry............................................................ 406.2 OEM Component Sourcing ................................................................................................... 406.3 OEM Vendor Selection Process ............................................................................................ 416.4 Inventory in Supply Chain of OEM suppliers ....................................................................... 42 6.4.1 Small and Medium OEM vendors .............................................................. 42 6.4.2 Large OEM vendors / strategic Tier-1 suppliers......................................... 43MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 5
  6. 6. 6.5 Break up of replacement parts market by type of vehicle ..................................................... 446.6 Automotive component replacement market: impact of structural changes ......................... 446.7 OEMs’ focus on replacement market .................................................................................... 456.8 Channel structure for auto component market ...................................................................... 467 GOVERNMENT INITIATIVES........................................................................................ 487.1 Foreign Direct Investment ..................................................................................................... 487.2 Auto Policy ............................................................................................................................ 487.3 Automotive Mission Plan 2016 ............................................................................................. 508 GROWTH DRIVERS AND CHALLENGES ................................................................... 518.1 Growth Drivers for Replacement Demand ............................................................................ 528.2 Issues and Challenges – Indian Auto Component Industry .................................................. 538.3 Indian Auto Component Industry amid changing global scenario ........................................ 548.4 Critical Success Factors......................................................................................................... 559 CONSUMER PREFERENCES FOR AUTO COMPONENTS ...................................... 5610 ATTRACTIVENESS OF AUTO COMPONENT SEGMENTS FOR THAIINVESTORS ............................................................................................................................... 5810.1 Attractive segments within auto component market for Thai investors ................................ 5810.2 Business Models for Collaboration ....................................................................................... 6111 CONCLUSIONS AND RECOMMENDATIONS ............................................................ 6311.1 Entry Strategy for Thai Investors in the Indian Auto Component Business ......................... 6311.2 Recommended Distribution Channel for Thai investors ....................................................... 6512 ANNEXURE: AUTO POLICY .......................................................................................... 6713 LIST OF EXHIBITS ........................................................................................................... 7714 REFERENCES .................................................................................................................... 79MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 6
  7. 7. 1 EXECUTIVE SUMMARYThe Indian automobile ancillary sector is transforming itself from a low-volume, highlyfragmented one into a competitive industry and backed by competitive strengths,technology and evolving value chain. The Indian Auto component industry hastransitioned from a supplier for the global aftermarket to becoming a full-scale globalTier 1 supplier.The components in the Indian automotive component market are classified into Engineparts, Drive transmission and steering parts, Body and chassis parts, Suspension andbraking parts, Electrical parts and Equipment and other parts.The macro environment of the Indian auto component industry can be assessed byunderstanding the social / consumer shifts, understanding its political and legalenvironment, technological environment and economic shifts. This 9-forces analysis forIndian auto component industry is done in the exhibit below:MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 7
  8. 8. Market Analysis – Indian Auto Component Market Technological shifts Political / Legal Environment - Fast becoming global hub for R&D: GM, Daimler - FDI growing due to competitive advantage; witnessed Entry Barriers Chrysler, Bosch, Suzuki, Johnson Controls etc. have set CAGR of 21.7% during 2002 – 07. The FDI was USD 7.2 - OEMs’ “inclusive growth” ensuring long term up development centres in India. Billion in 2007 – 08 relationship especially for high value-adding items - Casting and forging processes in India 25 to 30 % lower - Investment Commission of India facilitating FDI in all - Foreign suppliers supplying to global auto majors with than western counterparts. forms local knowledge and expertise may have easy access - 5 Indian auto component companies received coveted - No repatriation issues after paying taxes Deming Prize, largest number outside Japan. Supplier Power Industry Competitors Consumer Power - 450 – 500 mid to large players with - Tier structure supporting vendor - Auto OEMs have average 2 suppliers around 6000 – 7000 units in addition to relationship to ensure competitiveness around 10,000 units in unorganized - Most Tier – 3 suppliers are small units - New auto clusters being developed segment. largely from unorganized segment with OEMs and major ancillaries - Technical tie ups and R&D ensuring at - least 2 major players across segments Economic shifts Social / Consumer shifts Threat of Substitutes - Concentration of disposable income in top 6 – 8 cities- Auto component industry – incubator to entrepreneurship - Less threat to substitute for organized players - Rising spending patterns on “pampering” therapies initiatives especially for less value adding components working with OEMs and emphasizing on R&D - International economic environment augurs cautious- OEMs developing and launching “India centric” vehicles for future needs approach after understanding Indian consumers’ demands - Unorganized units stand chances for greater threat Exhibit: 18-Force Market Analysis of Indian auto component marketMARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 8
  9. 9. According to Automotive Component Manufacturers’ Association (ACMA), theproduction of automotive component in India was US$ 18 billion. It is growing at CAGRof 27% since 2002-03. The exhibit below shows that Indian auto component industry isgrowing more than 25% since 2003 – 04. The exports in 2007 – 08 were US $ 3.6 billion,out of these close to US $ 1 billion auto components were exported to top-3 USautomotive majors i.e. GM, Ford and Chrysler. Indian Automotive Component Market Auto Component Production 20,000 18,000 18,000 15,000 16,000 (In USD Million) 14,000 12,000 12,000 10,000 8,700 6,730 7,200 8,000 5,430 5,400 6,000 3,894 3,965 4,470 3,750 4,400 3,615 3,278 3,008 3,249 3,100 4,000 2,300 2,645 2,469 2,873 1,274 1,692 456 625 578 760 2,000 330 350 - * 7 8 9 1 2 3 4 5 6 7 00 8 -9 -9 -9 -0 -0 -0 -0 -0 -0 -0 -0 0 96 97 98 00 01 02 03 04 05 06 -2 07 19 19 19 20 20 20 20 20 20 20 99 20 19 Production Exports Investment Exhibit 22: Market size and growth trends – Indian auto component market Source: ACMA (Automotive Component Manufacturers Association) * Estimated figuresThe Indian auto industry and auto component industry in 2006 – 07 was US$ 34 billionand US$ 15 billion. As per Government of India’s automotive mission plan 2016, theIndian auto industry and auto component industry in 2015-16 is estimated to be US$ 105billion and US$ 40 billion respectively. It signifies that auto component industry wouldMARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 9
  10. 10. grow more than two times in the next seven years. This high growth augurs the businesspotential in the Indian automotive component industry in the long term.The auto component industry is facing transient challenges due to the changing globalsituation where 2 out of the top-3 U.S. are on the verge of filing bankruptcy. Since Indianautomotive component industry is exporting to these auto majors, the reduction in thepace of growth is expected this year. This reduction is coupled with reduced growth rateof domestic vehicles sales in 2008-09. These rough times, however, are short timed in thelight of Government’s automotive mission plan 2016 whereby it aims to achieve the turnover of US$ 145 billion by 2016. The growth factors i.e. lesser penetration of vehicles,growing income levels portends health growth for Indian auto and auto componentindustry in the long term. 1.1 Automotive Component OEM and Replacement MarketsThe OEM (Original Equipment Manufacturer) market is also known as the organizedmarket segment in the Indian auto component industry. All the Tier-1 suppliers/ vendorto OEMs have their respective distribution channels in the aftermarket (or replacementmarket) segment.The inventory in the value chain of Indian automotive industry varies according to thesize of auto component suppliers. The large strategic Tier-1 suppliers who are betterconnected with OEMs through ERP (Enterprise Resource Planning) system are able tomanage inventories better. On the other size, the small and medium sized Indian autocomponent players not leveraging technology end up piling inventories due to “bull whipeffect”.The Indian automotive component replacement market have various channels sellinggenuine and spurious parts that makes it one of the most dynamic market segment (out ofthe three market segments i.e. replacement demand, OEM demand and export market).According to the study conducted by IMRB International for SIAM in 2006-07, thecounterfeit components constitute about 35% - 51% of private vehicle componentsreplacement market. Lately, OEMs have started showing increasing interest in thereplacement auto component.MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 10
  11. 11. 1.2 Foreign Direct Investment and Government PolicyThe automatic approval for foreign equity investment upto 100 per cent of manufactureof automobiles and component is permitted for the auto and auto component industry.The import of technology /technological up gradation on the royalty payment of 5%without any duration limit and lump sum payment of USD 2 million is also allowedunder automatic route in this sector. The norms for Foreign Investment and import oftechnology have also been progressively liberalized over the years for manufacture ofvehicles including passenger cars in order to make this sector globally competitive. Withthe gradual liberalization of the automobile sector since 1991, the number ofmanufacturing facilities in India has grown progressively. 1.3 Attractiveness of Auto Component Sub-segments and Entry StrategyThe exhibit below shows that the domestic market for high grade plastic, electronics /Integrated Circuit auto parts would be best suited for the auto component imports fromThailand. The other attractive sub-segments would be rubber based intensive parts andskill intensive parts. Attractiveness Matrix for Thai Investors Low High Relative Degree of Technical Expertise Ability in cost effective supply High - Rubber Intensive parts High grade plastic, IC e.g. tyres, Accessories based electronic parts / - Skill intensive parts assemblies Low High grade plastic, IC Parts for evolving based electronic parts / technology aggregates assemblies Exhibit 40: Attractiveness matrix for Thai investorsMARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 11
  12. 12. For business collaboration, we suggest that Thai investors should initially export theseproducts for OEMs and aftermarket in India. Later on, when the product volumes wouldincrease, we suggest that it should set up the assembly base in one of the auto clusters, tobe selected based on initial experience. The exhibit below pictorially represents theattractive areas and the timeframe for entering across various auto component marketsub-segments in India. Entry strategy for Thai Investors Degree of Attractiveness Low Medium High Plastic, silicon intensive Auto Component Sub-segments electronic parts Rubber intensive parts and accessories Parts for evolving technology aggregates Skill intensive parts covering engine parts Labour intensive parts – casting, forging etc Legend Immediate entry as OEM & aftermarket supplier Enter in these sub-segments after 1 – 2 years of immediate entry Do not enter Exhibit 42: Entry strategy for Thai investorsMARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 12
  13. 13. 2 GLOBAL AUTO COMPONENT INDUSTRY 2.1 Global Trends in the Automotive IndustryThe world’s automotive manufacturing sector consists primarily of about 20 verylarge multinational corporations. The automotive supply sector, however, comprises ofthousands of firms ranging in size from a few employees to more than 100,000.According to industry estimates, the size of the global auto component industry inthe year 2008 was approximately US$1.4 trillion and is likely to grow to aboutUS$1.9 trillion by 2015. Out of this total auto component demand by 2015, about40% (i.e. US$ 750 billion) is likely to be sourced from low cost countries (LCCs)such as China, ASEAN countries and India. The trends that are shaping the globalautomotive industry are shown in the exhibit below:- Global Trends in the Automotive Industry Strategic “Tier-1" acting closely with OEMs for designs Pressure to lower Level of profitability prices continues too low Global Trends – Automotive Industry Continued Emerging markets are consolidation fastest growing markets Shared platforms & modules increasingly important Exhibit 1: Global trends in the automotive industryMARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 13
  14. 14. 2.2 Major Auto and Auto Component MarketsThe United States is far ahead of other countries when it comes to vehicle population per1,000 vehicle driving age. It is home to the largest passenger vehicle market of anycountry In 2007, there were about 250 million vehicles in the United States.The exhibit below shows the penetration of LCVs across the major countries and theemerging economies like Brazil, China and India. Cars for 1,000 inhabitants in different countries Exhibit 2: Penetration of LCVs in different countries Source: Secondary SearchMARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 14
  15. 15. The exhibit below maps vehicle penetration and nominal GDP per capita. In the long run,the emerging economies like India hold immense potential as far as global automobileindustry future is concerned. GDP / Capita vs. Vehicle Density: India vis-à-vis Major Markets Exhibit 3: GDP / Capita vs. Vehicle Density: India vis-à-vis major marketsThe exhibit below shows per capita income and the number of inhabitants per vehicle inthe year 2002 and expected ratio and per capita income in the year 2014. After comparingthe potential for future auto and auto component markets, it can be deduced that theemerging economies like China and India would be at growth stage whereas thedeveloped economies like US and Japan are the saturated stage, expected to remainstagnant or grow at less rate in the medium to long term.MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 15
  16. 16. Vehicle Density vs GDP/per capita Exhibit 4: Vehicle density vs GDP / per capita – Current and Estimated in 2014 Source: EIU, Goldman Sachs and A.T. Kearney analysisThe above analysis clearly indicates the importance of U.S. automotive market for theglobal auto component industries, especially from the emerging economies and ASEANcountries. The exhibit below shows US Auto Component imports from the leadingexporters:- Year Mexico Brazil China Thailand India 2001 18,469 820 1,470 380 141 2002 20,433 1,137 1,885 516 177 2003 21,477 1,319 2,363 498 191 2004 23,672 1,550 3,246 540 296 2005 25,445 1,847 4,328 535 426 Exhibit 5: Major US Auto Component Imports (In US$m): 2001-05 Source: US Census Bureau’s Foreign Trade Statistics 2001-2005MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 16
  17. 17. 2.3 Major Auto Component CompaniesThe exhibit below shows top automotive component players and their sales figuresglobally in 2004 and 2005. Robert Bosch Corporation (entered in India in collaborationwith MICO as MICO Bosch but now has standalone existence) and Delphi AutomotiveSystems are the globally ranked number one and two respectively according to their salesfigures.Company Sales in 2004 Sales in 2005 Change% (USD Bn) (USD Bn)Robert Bosch Corporation 35.4 30.7 -13.28Delphi Automotive Systems 28.6 26.9 -5.94Denso Corporation 23.2 25 7.76Magna International 20.6 22.8 10.68Johnson Controls Inc. 17.7 19.2 8.47Lear Corporation 16.9 17.1 1.18Visteon Automotive Systems 18.7 16.9 -9.63TRW International 12 12.6 5.00Eaton Corporation 9.8 11.1 13.27 Exhibit 6: Top Ten Auto Component Manufacturers-2004 & 2005 Source: Various Auto reports, Database searchMARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 17
  18. 18. 3 INDIAN AUTO COMPONENT INDUSTRYThe Indian automobile ancillary sector is transforming itself from a low-volume, highlyfragmented one into a competitive industry, and backed by competitive strengths,technology and transition up the value chain. Broadly the Indian automotive componentindustry can be divided into the organized and the unorganized segments. While the forteof the organized sector is the high valued added precision engineering products, thepresence of a large unorganized sector is characteristic especially of the lower value-added segments of the industry.The ACMA-McKinsey Vision 2015 document forecasts the potential for the Indian autocomponent industry to be US$ 40-45 billion by 2015. Investments and exports in thissegment are witnessing continuous growth. Global automobile manufactures see India asa manufacturing hub for auto components and are rapidly ramping up the value ofcomponents they source from India due to:• The cost competitiveness in terms of labor and raw material• Its established manufacturing base• Fine quality of components manufactured in India (used as original components for vehicles made by General Motors, Mercedes, IVECO and Daewoo among others).MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 18
  19. 19. 3.1 Major Auto Component hubs in IndiaIn India, there are four major clusters as far as auto and auto components are concerned.The Chennai cluster has around 25 – 30% organized auto component manufacturers. Theexhibit below maps major auto and auto component clusters in India:- Major Auto and Auto Component Cluster Delhi NCR and Pantnagar cluster text text Pune cluster Chennai cluster text Bengaluru cluster Exhibit 7: Major auto and auto component clusters in India Source: Secondary searchMARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 19
  20. 20. 3.2 Transition of Indian Auto Component IndustryThe Indian Auto component industry has transitioned from a supplier for the globalaftermarket to becoming a full-scale global Tier 1 supplier. The transition has beenbrought upon by increased competition from foreign players that have helped Indian autocomponent industry becoming auto component manufacturer and export of complex autospare parts. The exports from Indian auto components manufacturers to U.S. top 3automotive majors have been in excess of US $ 900 Million last year. The exhibit belowshows the transition of Indian auto component industry. Transition of Indian Auto Component Industry Rotating Auto Heavy Forgings Electricals Wheel Rims Tyres & Tubes High Product Complexity Small Castings & Plastic Components Forgings Medium th Pa iti on ns Tra Hand Tools Metal bonded & Low Moulded Rubber Parts Aftermarket Tier 2-n supplier Tier 1 supplier Customer complexity Exhibit 8: Transition of Indian auto component industryMARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 20
  21. 21. 3.3 Auto Component Industry Cost Buildup Across the auto component industry, material cost is almost the half of the total cost build up of the total expenditure. The exhibit below shows the percentage break up of total cost in the auto component industry. Auto component industry cost item % Material Costs 50.9% Power & Fuel 4.4% Employee Costs 5.9% Other Mfg Expenses 4.1% Selling expenses 2.1% Interest & Finance Costs 1.5% Depreciation 3.3% Tax 2.3% OPBDIT Margins 16.9% NPM Margins 8.6% TOTAL 100% Exhibit 9: Auto component industry Cost Structure FY06 Source: Primary interviews and database search Out of the 5 sub-segments i.e. equipment parts, braking parts, steering parts, electrical parts and engine parts, the percentage contribution of raw material out of the total cost at 75% is highest in the braking parts sub-segment. The exhibit below provides the cost break up for the auto component by segments in the Indian auto component market:- Equipment Braking Steering Electrical Engine Parts-% Parts-% Parts-% Parts-% Parts-%Raw Material Cost 60% 74% 71% 68% 51%Power and Fuel Cost 5% 5% 6% 4% 4%Employee Cost 15% 7% 10% 10% 21%Consumable Stores 1% 3% 4% 2% 6%Selling Cost 5% 3% 3% 1% 5%Others 14% 8% 6% 15% 13% Exhibit 10: Segment-wise cost structure in the auto-component Sector FY06 Source: Primary interviews and database search MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 21
  22. 22. 3.4 Classification of Auto Component MarketThe auto component industry can be classified into the 3 channels; as far as autocomponent market is concerned. The classification of auto component market, as per themarket spread, is shown in the exhibit below: Classification of Auto Component Market Auto Component Market OEM demand After market demand Exports demand Auto Components Auto Accessories Exhibit 11: Classification of auto component marketThe OEM (Domestic and Export demand) contributes to 70% of the turnover, rest 30% ofthe auto component demand is generated through aftermarket or replacement demand. Break up of OEM and Replacement Demand 30% 70% OEM Demand (Including Domestic & Exports) Replacement Demand Exhibit 12: Break up of OEM and replacement demand Source: ACMAMARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 22
  23. 23. 3.5 Tier Structure of Auto Component MarketThe auto industry globally is structured based on vendor-supplier relationship with 3 to 5nodes in the value chain ending at OEM (Original Equipment Manufacturer), that are alsothe automotive major. In general, the OEMs in India typically have 100 to 500 Tier-1equipment suppliers. These vendors are further classified as per the auto component sub-segments that has been explained in the next section of this report. The tier structure inthe automotive industry is shown in the exhibit below:- Tier Structure in the Auto Component Industry 2nd Tier 2nd 2nd Tier 2nd Tier 2nd Tier Tier 1st 1st Tier Tier Tier 0.5 2nd OEM Tier 2nd 2nd Tier Tier 2nd Tier3rd 3rd 2ndTier Tier Tier 2nd 3rd 3rd Tier Tier Tier 1st 2nd Tier Tier Tier-3 supplier to Tier-2 as well as 2nd Tier-1 supplier to OEM Tier 2nd Tier Exhibit 13: Tier structure in the auto component industryMARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 23
  24. 24. 3.6 Classification of Auto ComponentsThe components in the Indian automotive component market are classified in thefollowing sub-segments:- Segments within Auto Component Industry Engine parts - Requires high precision and high quality adherence - These fall into three broad categories: Core engine parts, fuel delivery system and others. - Major parts include Pistons, piston rings, engine valves, fuel pumps etc Drive transmission & steering parts - Major sub-segments in this category include gears (tones), wheels/wheel rims, steering gears and systems - Major parts include starter motors, generators and spark plugs, gears, steering gears and systems, wheel, clutch etc - Technology intensive, top ten players account for about 80% of the total segment size - Size of replacement market for this segment is likely to increase esp. for wheels Body and chassis - The chassis is the skeleton upon which all other components are positioned Auto Component - The parts under this segment include underbody, closure, body side, doors, Industry plastic-molded parts and exhaust systems etc Suspension & braking parts - Major sub-segments in this category are shock absorbers, leaf springs and brake shoe assembly segments - Gabriel India Ltd and Munjal Showa Ltd are the majors in the shock absorber segment Electrical parts - New technology in cars and electric start two-wheelers are leading to the growth of this segment - Major parts include carburettors, starter motors, generators, bimetal bearings, distributors, air conditioning unit etc Equipment & Others - Major equipment parts include headlights, dashboard instruments, wiper motors and electric horns etc. Other components include sheet metal components and plastic moulded parts Exhibit 14: Segments within auto component industryMARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 24
  25. 25. 3.7 Major Automobile Players The significant growth in the Indian automobile market as a result of growing income and purchase power has provided opportunities to all the global automobile players to set up their base in India in the last one decade. The setting up of new plants has provided cluster development of automobile and automotive component market in India. The exhibit below shows the major players in the Indian market who have manufacturing units in India:- Passenger Cars Commercial Vehicles Two-Wheelers Three-WheelersMaruti Suzuki Ashok Leyland Hero Honda Bajaj AutoHyundai Tata Motors Bajaj Auto PiaggioTata Motors Eicher Motors TVS Motors Mahindra & MahindraHonda Swaraj Mazda Royal Enfield Motors TVS MotorsMahindra & Mahindra Volvo Kinetic Motors Tata MotorsToyota MAN-Force Suzuki Motors Force MotorsFiat Yamaha MotorsHindustan Motors HondaGeneral Motors LML IndiaFordVolkswagenRenaultMercedes BenzSkodaBMWVolvo Exhibit 15: Auto Component Sub Segments and Major Players in Indian Markets MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 25
  26. 26. 3.8 Major Automobile Component Players (Two, Three and Four Wheeler players)There is not any distinction between the two wheeler and four wheeler automobilecomponent players in the Indian automobile component industry. The major organizedplayers who are catering to two wheeler OEMs are also catering to four wheeler OEMs.However, for some niche commercial vehicle components, due to specialized loadbearing and design requirements, some automobile component players are the vendorsonly to commercial vehicles.The exhibit below shows the major players operating in the key sub-segments in theproduct segments of the auto components:- Product Segment Key Sub-Segments Major Players Gears & Drive 1. Rico Auto Inds Clutches 2. Automotive AxlesTransmission and Steering Axles 3. Wheels India Ltd. Others Sona Koyo Steer. GKN Driveline (India) Starter Motors, Generator, Denso Distributor, Spark Plugs, Motherson Sumi Ignition Coil, Flywheel MICOElectrical Parts Magnet, Voltage Regulator, Minda Industries Electrical Ignition India Nippon Lucas TVS Escorts India Pistons Goetze (India) Pistons India Pistons Piston Rings Rane Engine ValvesEngine Parts Engine Valves Shriram Pistons & Rings Carburettors Spaco Carburettors Fuel Delivery System Ucal Fuel Lucas TVS MICO Germany Lumax, Autolite, Phoenix Headlight Lamps Premiere Instruments &Equipment Dashboard Controls Jay Bharat Maruti, Omax Sheet Metal Auto, JBM tools Brake System Automotive AxlesSuspension and Braking Brake Linings Brakes IndiaMARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 26
  27. 27. Shock Absorbers Kalyani Brakes Allied Nippon Rane Brake Lining Sundaram Brake Gabriel India Munjal Showa Fan Belts Rico AutoOthers Sheet Metal Rico Auto Exhibit 16: Auto Component Sub Segments and Major Players in Indian Markets Source: Database search “Top 50 auto component companies in India would have around 1000 auto component units across clusters. The vendors supplying to OEMs can be considered as organized segment players. These (organized players) would be around 5,000 – 6,000. The total players including unorganized segment would be around 15,000.” - Sr. Vice President, One of the leading Tier-1 component suppliersSince components used in Commercial Vehicles and Tractors call for the properties ofhigh strength and load requirement, it was, therefore, observed that the operation of theseparts manufacturers are following in nature: a) The manufacturer is a niche player exclusively catering to the need of Commercial Vehicle or Tractor replacement market segment OR b) A large organized player supplying to the traditional 2& 3 wheeler and passenger vehicles component markets has established a separate SBU (Strategic Business Unit) for servicing the need of Commercial Vehicles and Tractors segment 3.9 Foreign Collaboration in the Auto Component IndustryThe Indian automotive industry is characterized by a strong competition betweenincreasingly quality conscious manufacturers. The large, highly skilled but low costmanufacturing base makes partnering linkages with overseas players attractive. Thesestrengths coupled with India’s well established strengths in IT/software combinedtogether to make India an emerging player in this sector. However, the industry needs tocontinue to increase its quality standards and develop new products to compete globally.Many domestic manufacturers have successfully entered into strategic alliances/MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 27
  28. 28. collaborations while others are actively chalking out their plans. Many of the world’s leading Tier-1 suppliers have set up manufacturing facilities in India including Bosch, Delphi, Visteon and Denso etc. Additionally, there is a well-developed domestic component and ancillary industry with some suppliers already meeting global technical and quality standards at the Tier-1 level. Some of India’s leading OES (Original Equipment Suppliers) include TACO, Bharat Forge, Sundaram Clayton, and Sundaram Brake Linings that have proven quality track record. However, many other suppliers lack such competence and are looking to upgrade their process/technologies to remain competitive. The exhibit below shows a part of Indian auto companies that have collaborated with the foreign partners in the Indian market:- Name of Foreign Name of Indian Company Item of Manufacture CollaboratorsAmtek Auto Ltd., Gurgaon Bendo Kogyo, Japan Fly wheel ring gearsJay Bharat Maruti Ltd., Gurgaon Allied Signal, USA Seat belts and Air bagsSubros Ltd., New Delhi Allied Signal, USA Catalytic converters Exhaust Systems,Mark Exhaust Systems Ltd., Gurgaon Sankei Giken, In.Co., Japan Catalytic Converters Saint Gobain Vitgrage, Laminated Safety GlassAtul Glass Industries Ltd., New Delhi France Alcan Deutschland GmbH, Pistons & Piston RingsMenon Pistons Ltd., Kholapur Germany Rockwell International Corp., Axle systemsAutomotive Axles Ltd., Mysore USA Blue Chip Products Inc., Water pumpsAutolec Industries, Madras USASpicer India Ltd., New Delhi Dana Corp., USA Engine bearings Ball joints & SuspensionSona Steering Systems Ltd., New Delhi Somic Ishikawa, Japan joints Asbestos free brakeSona Steering Systems Ltd., New Delhi Fedoro, UK liningsSona Steering Systems Ltd., New Delhi Matsuda Industries, Japan Cold forgingHaryana Sheet Glass Ltd., Haryana Pilkington Plc., UK Laminated sheet glass Johnson Controls Inc., USA Seating systems Sommer Allibert, France Interiors and Plastics Yazaki, Japan Wiring harness Transmission of steeringTata Industries Ltd., Bombay ZF, Germany systems NIFCO, Japan Plastic Fasteners Brake systems, Electrical ITT, USA & wiper systems Exhibit 17: Indian Auto Component-Foreign Collaborations (2006) Source: Database search MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 28
  29. 29. 4 INDUSTRY AND MARKET ANALYSISThe macro environment of the Indian auto component industry can be assessed byunderstanding the social / consumer shifts, understanding its political and legalenvironment, technological environment and economic shifts. The micro environment ofthe industry can be assessed under the Porter’s 5 forces framework by understanding theentry barriers, threats and supplier / buyer power. Merging the two assessmentframeworks provides an indication of macros (at a broader level) and micro (at anindustry level) factors influencing the entry of new players in the market. This 9-forcesanalysis on a framework (comprising macro and micro factors) for Indian autocomponent industry is done in the exhibit below:-MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 29
  30. 30. 4.1 Macro and Micro Environment Analysis: Indian Auto Component Market Market Analysis – Indian Auto Component Market Technological shifts Political / Legal Environment - Fast becoming global hub for R&D: GM, Daimler - FDI growing due to competitive advantage; witnessed Entry Barriers Chrysler, Bosch, Suzuki, Johnson Controls etc. have set CAGR of 21.7% during 2002 – 07. The FDI was USD 7.2 - OEMs’ “inclusive growth” ensuring long term up development centres in India. Billion in 2007 – 08 relationship especially for high value-adding items - Casting and forging processes in India 25 to 30 % lower - Investment Commission of India facilitating FDI in all - Foreign suppliers supplying to global auto majors with than western counterparts. forms local knowledge and expertise may have easy access - 5 Indian auto component companies received coveted - No repatriation issues after paying taxes Deming Prize, largest number outside Japan. Supplier Power Industry Competitors Consumer Power - 450 – 500 mid to large players with - Tier structure supporting vendor - Auto OEMs have average 2 suppliers around 6000 – 7000 units in addition to relationship to ensure competitiveness around 10,000 units in unorganized - Most Tier – 3 suppliers are small units - New auto clusters being developed segment. largely from unorganized segment with OEMs and major ancillaries - Technical tie ups and R&D ensuring at - least 2 major players across segments Economic shifts Social / Consumer shifts Threat of Substitutes - Concentration of disposable income in top 6 – 8 cities- Auto component industry – incubator to entrepreneurship - Less threat to substitute for organized players - Rising spending patterns on “pampering” therapies initiatives especially for less value adding components working with OEMs and emphasizing on R&D - International economic environment augurs cautious- OEMs developing and launching “India centric” vehicles for future needs approach after understanding Indian consumers’ demands - Unorganized units stand chances for greater threat Exhibit 18: 9-Force Market Analysis of Indian auto component marketMARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 30
  31. 31. The macro and micro environment can be analyzed by looking at Porter’s five forces formicro environment analysis and PEST analysis for analyzing macro environment of theauto component industry.In the exhibit above, while looking at competitors, there are 450 – 500 medium to largeplayers with around 6000 – 7000 units in addition to around 10,000 units in theunorganized segment. This distribution highlight that auto component industry isdominated by unorganized players. It provides opportunity for organized Thai investorsto provide the products identified as their core competence in the later part of the report.Analyzing other aspects like entry barriers, threat of substitute and supplier and consumerpower also helps in understanding the Indian auto component market and devising theentry strategy and positioning plank for the products supplied by the entrepreneurs fromThailand to Indian auto component market. 4.2 SWOT Analysis: Indian Auto Component MarketThe classical tool to assess the industry environment is through SWOT analysis. Theexhibit below identifies Strengths, Weaknesses, Opportunities and Threats (SWOTanalysis) in the Indian Auto Component Industry:-MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 31
  32. 32. SWOT Analysis – Auto Component IndustryStrength KEY FEATURES Weakness ▪ Is globally cost competitive ▪ Annual production turnover of ▪ Industry has low level of research ▪ Adheres to strict quality Rs. 210 billion (US $4.5 billion): and development capability small by global standardscontrols ▪ Around 5,000 players in the ▪ Industry is exposed to cyclical ▪ Has access to latest unorganised sector and 400 in the downturns in the automotivetechnology organised sector. industry ▪ Provides support to critical ▪ Share of unorganised sector at ▪ Most component companies areinfrastructure and metal 23%: caters primarily to dependent on global majors for replacement marketindustries technology ▪ Share of organised sector at 77%: caters primarily to Original Equipment Manufacturers, exports and replacement market ▪ All prominent companies have technological tie-ups with global majors ▪ Manufactures products that may be classified into six categories: Engine Parts; Electrical Parts; Opportunities Drive, Transmission & Steering Threats ▪ May serve as sourcing hub for Parts; Suspension & Braking Parts; ▪ The presence of a large Equipment; and Others global automobile majors counterfeit components market ▪ The fortunes of the industry are ▪ Significant export largely driven by the automotive poses a significant threat opportunities may be realised industry ▪ Pressure on prices from through diversification of ▪ Posted a decline in margins and OEMs continues export basket returns in last five years till ▪ Imports pose price based FY2002: working capital cycle ▪ Implementation of Value- competition in the replacement increased during the same period Added-Tax (VAT) in FY2004 market will negate the cascading ▪ Further marginalization of impact of prices smaller players likely Exhibit 19: SWOT Analysis – Indian auto component industryWith the growing sales of automobiles, new global OEMs are entering in the Indianautomotive industry which in turn provides the auto component industry the opportunityto register robust growth over next 5 – 8 years. The component industry has not morethan 50 players with turnover of more than US$ 500 million per annum. Around 70 –80% of the total numbers of players, at the bottom of the pyramid, have revenues of lessthan US$ 1 million per annum. The growing automobile demand and the increasingawareness to purchase genuine spare parts in the aftermarket poses attractive marketopportunities for the two and four wheeler auto component manufacturers.MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 32
  33. 33. 5 MARKET SIZE AND GROWTH FORECASTS 5.1 Global auto component market size and growth estimates Global Automotive Component Market (US$ billions) Exhibit 20: Growth trends of global automotive component market Source: Database searchAs shown in the exhibit above, the global automotive components consumption isexpected to grow from US$ 1.2 trillion in 2003 to US$ 1.65 trillion in 2015 (exhibitbelow). As per one of the reports, of this US$ 1.65 trillion, LCC (Low Cost Country)players can theoretically address roughly 42 per cent or US$ 700 billion. They cannotaddress US$ 425 billion or 26 per cent of the market that will primarily be manufacturedby OEMs in their home countries. Another US$ 525 billion or 32 per cent of the globalmarket will be ruled out because of practical difficulties in off-shoring or because it willyield negligible savings.MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 33
  34. 34. 5.2 Indian auto component market size and growth estimatesAccording to Automotive Component Manufacturers’ Association (ACMA), theproduction of automotive component in India was US$ 18 billion. It is growing at CAGRof 27% since 2002-03. The investment in the Indian auto component industry is alsogaining momentum with almost all major global automotive component manufacturersare setting up their plants in India. 5.2.1 Production (in Number) and Growth rates of all vehicle categories including two wheelersThe exhibit below indicates that in 2006-2007, out of the total automobiles market size ofaround 1,10,65,000 vehicles, 94,42,000 or around 85% of the vehicles were twowheelers. On an average, the overall annual growth rate of vehicles in the last 5 years hasbeen in excess of 15%. Category 2002-03 2003-04 2004-05 2005-06 2006-07 Passenger Car 609 843 1018 1113 1323 Utility Vehicle 114 146 192 197 222 Commercial Vehicle 204 275 354 391 520 Two-Wheeler 5076 5623 6530 7609 9442 Three-Wheeler 277 356 374 434 556 Grand Total 6280 7244 8468 9744 11065 Growth Rate 18.13% 15.34% 16.90% 15.06% 13.55% All Number in 000 units while Growth Rate is in percentage Source: Ministry of Heavy Industries, Government of India Exhibit 21: Production and growth rates of all vehicle categories Source: ACMAAbove table also points out that the two-wheelers and passenger cars have been the mostsignificant product categories (combined share -97%) and growing steadily over the pastfew years. The two wheeler replacement auto component market also holds significantimportance due to the sheer volumes. Therefore, the 2-wheeler automotive componentmarket cannot be ignored while gauging the attractiveness of automotive componentmarket of India. The synergies between the two-wheeler & four wheeler componentmarket also enable two-wheeler component manufacturers to service the four wheelersegment easily.MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 34
  35. 35. 5.2.2 Consolidated Production, Export and Investment in value termsAs per the exhibit below, the exports in 2007 – 08 were US $ 3.6 billion, out of theseclose to US $ 1 billion auto components were exported to top-3 US automotive majorsi.e. GM, Ford and Chrysler. Indian Automotive Component Market Auto Component Production 20,000 18,000 18,000 15,000 16,000 (In USD Million) 14,000 12,000 12,000 10,000 8,700 6,730 7,200 8,000 5,430 5,400 6,000 3,894 3,965 4,470 3,750 4,400 3,615 3,278 3,008 3,249 3,100 4,000 2,300 2,645 2,469 2,873 1,274 1,692 456 625 578 760 2,000 330 350 - * 7 8 9 1 2 3 4 5 6 7 00 8 -9 -9 -9 -0 -0 -0 -0 -0 -0 -0 -0 0 96 97 98 00 01 02 03 04 05 06 -2 07 19 19 19 20 20 20 20 20 20 20 99 20 19 Production Exports Investment Exhibit 22: Market size and growth trends – Indian auto component market Source: ACMA (Automotive Component Manufacturers’ Association)As per the exhibit above the consolidated production of the two, three and four wheelerauto component industry is growing at CAGR of 25 – 27% from the past 4 – 5 years. Theproduction is catering to both the domestic demand, coming from OEM and replacementdemand, and the growing rate of exports.The investment in the auto component industry has also been doubled to USD 7.2 Billionin the last three years. This highlights the growth momentum in the Indian autocomponent industry.MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 35
  36. 36. 5.2.3 Value wise break up of sub-segments – two and four wheelersThe two wheeler automotive component market like the four wheeler automotivecomponent market can be classified into the same sub-segments categories. Out of theconsolidated automotive component market, the engine parts have the major share amongthe other auto components. It accounts for 31% of the total auto component market (invalue terms). The equipments, electrical and other parts account for 10%, 12% and 7%respectively of the total auto component market size (in value terms). The break up of theauto component industry (in value terms including 2 and 4 wheeler components) isshown in the pie chart below: Beakup of Various Segments in Indian Auto Component Industry (In Value terms) 31% 19% 7% 12% 9% 10% 12% Engine parts Drive transmission & steering parts Body & chassis Suspension & braking parts Equipment Electrical parts Others Exhibit 23: Percentage breakup of sub-segments in the Indian auto component industry Source: ACMA (Automotive Component Manufacturers Association of India) 5.2.4 Import estimates and trends (for 2 and 4 wheelers)The imports for the auto components are ranging 2-4% for the total replacement market(which is 30% of total auto component demand in India). In the OEM demand, import ofauto-components is negligible (less than 1%), as it can be identified from the commentbelow:-MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 36
  37. 37. “All OEMs have their vendors located in India. However, some OEMs like us (Ashok Leyland) have set up their offices in China from where we are importing some components that are cost effective. These components would be less than 1% of the total auto component requirements - Strategic Sourcing Official from one of leading Vehicle manufacturer Within imports of auto components, Engine and Suspension / Braking have relatively higher proportion in imports whereas Transmission and Equipments have lesser proportion. The table below highlights the items that are either high in import proportion (in value terms) or are growing at rapid rate i.e. 50% or more. India imported US$ 20 million auto components from China in 2004 – 05 whereas the imports from ASEAN countries were close to US$ 73 million during the same time. The estimated imports (based on the growth trends) from China and ASEAN countries in 2008 – 09 would be around US$ 120 – 150 million and US$ 350 – 400 million respectively. Auto component import Total Import – 2004-05 (US $ Million) Growth Rate (2001-05) (OEM + Replacement) Imports Imports Share of Imports Imports from All AllComponents detail from from China & from China ASEAN Imports Imports China ASEAN ASEANParts and accessory of motor 543.38 3.98 61.16 12% 28% 28% 58%vehiclesEngine parts 203.19 8.99 3.09 6% 15% 113% 24%Electrical parts and accessories 29.80 0.68 0.1 3% 26% 63% -50%Bumpers and parts 23.09 0.23 1.59 8% 69% 74% 288%Injection pumps, oil pumps, 22.67 0.73 0.01 3% 39% 111% -29%water pumpsDrive axles with differential 18.63 0.01 0.87 5% 50% -Lighting equipment 17.46 1.8 2.01 22% 24% 14% 107%Other Brakes/Servo brakes 17.20 0.9 0.23 7% 46% 63% -17%Starter motors 11.16 0.3 1.44 16% 33% 166% 5%Clutches 9.17 0.2 0.74 10% 25% 26% 147%Wheels 7.86 0.75 0.29 13% 80% 127% 14%Steering wheels and columns 7.06 0.01 0.45 7% 45% 21% 208%Rear view mirror 4.23 0.74 0.6 32% 37% 104% 97%Laminated safety glass 1.84 0.63 0.29 50% 87% 281% 313%Total 916.7 20.0 72.9 30% 55% 49% Exhibit 24: Auto component imports (OEM + Replacement market) Source: ACMA (Automotive Component Manufacturers Association, DGFT (Directorate General of Foreign Trade) MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 37
  38. 38. The highlighted components above are the promising auto component products for bothtwo wheelers and four wheelers auto components that have are either high on value or therate of growth of import is significantly higher. These items could be looked as thepotential export items by Thai investors to export to India. The consumable items marketslike injection pumps, oil pumps, bumper and parts and wheels are growing at faster ratein the replacement market due to increase vehicle population.We expect the share of imported parts (especially from China and ASEAN countriesincluding Thailand) to grow in the future because of the two major reasons:-  FTA’s that India has sign with a number of countries including Thailand would result in increase in imported parts  Launch of similar products in India and China / ASEAN. 5.2.5 Auto Component Export DestinationsThe U.S. and European markets account for 28% each of the total exports from the Indianauto component companies. The exhibit below shows the break up of the total autocomponent export markets across the major auto importing markets. Auto Component Export Destinations (In Value terms) 28% 27% 28% 4% 2% 11% U.S. Europe Asia Africa Australia Others Exhibit 25: Indian auto component export destinations Source: ACMAMARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 38
  39. 39. 5.2.6 Trends in growth and margins – Two and Four wheelersAs mentioned in the section 5.2.2 above, the automobile market is growing at CAGR of25 – 27%. Notwithstanding the temporary global economic meltdown, it is expected thatthe domestic demand for automobiles would grow unabatedly over the next 3 – 5 years.The exhibit below shows the gross margin and net margin at the distribution and retailerlevel:- Gross Margins Net Margins Distribution Ranges between 12 – 15% Ranges between 4 – 6% based Margin based on type of part and on type of part and type of type of manufacturer manufacturer Retail Ranges between 14 – 18% Ranges between 6 – 8% based Margin based on type of part and on type of part and type of type of manufacturer manufacturer Exhibit 26: Distributor and Retailer MarginThe average distribution margin per players (made by distributors / wholesalers) isdependent on the number of layers in the channel. The margins and incentives play a keyrole in pushing the product at the retail end. The margins are relatively higher forelectrical parts and brake & suspension parts.MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 39
  40. 40. 6 AUTO COMPONENT OEM AND REPLACEMENT MARKETThis section highlights OEM supply chain and inventory management aspects for smalland large auto component supplier. In the replacement market segment, changes in thereplacement market including the increasing focus of OEM on aftermarket in the recentyears and the channel structure have been highlighted in this chapter. 6.1 OEM Market in the Indian auto component industryThe OEM market is also known as the organized market segment in the Indian autocomponent industry. All the Tier-1 automotive component vendors have their respectivedistribution channels in the aftermarket segment. Typically, an OEM works with around100 – 200 Tier-1 suppliers and around 500 Tier-3 / Tier-2 suppliers (to Tier-2 / Tier 1suppliers), depending upon the diversity of product line offerings. 6.2 OEM Component SourcingThe automotive manufacturing industry in India is on par with the globally competitivemarkets. All the plants are typically connected with ERP systems with their strategicvendors and distribution channels that enable them to control raw material, WIP (Work InProcess) and finished products (vehicles) inventory. The exhibit below shows typicalorder-to-delivery process supply chain in the automotive industry.MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 40

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