Report on automobile sector

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REPORT ON
AUTOMOBILE SECTOR

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PREFACE:
The study represents the figures of Indian Automobile Industry during the period 2005to
2013. The study has been conducted considering the segments such as passenger vehicle,
commercial vehicle, utility vehicles, multi-purpose, two wheelers and three wheelers. Each
section concisely explains the current and future market trends, and developments in the
Indian automobile market.
The methodology used to find the trends and the market share of the Indian
automobile industry. The research takes into account the past and current trends in an
economy, and more specifically in an industry, to bring out an objective market analysis.
Despite economic slowdown, the Indian automobile sector has shown high growth. The
economic sustainability and increasing living standards and purchasing powers of the Indian
customer’s automobile sector has a bright coming future.
The Automotive Mission Plan 2006-2016, a ten year plan of action was conceived out
of a felt need for a roadmap to steer, coordinate and synergies the efforts of all stakeholders
in order to accelerate and sustain the growth in the automotive sector, by inter alia,
removing the impediments coming in the way of its growth.
The National Automotive Testing, Research & Development Infrastructure Project (NAT Rip)
was approved by the GOI for setting up state of the art automotive testing and R&D
infrastructure in the country in order to usher in new automotive regulations and for bridging
the vital automotive testing infrastructure gap necessary for spurring the growth of
automotive industry in India. The project envisages up-gradation of three existing centers and
setting up four new centers at a total cost of 2288 cr. by July, 2013. The project is in advance
stages of completion and certain facilities have been finished and commissioned also.

TABLE OF CONTENTS:
Introduction. 4
Expert Review. 5
Indian Automotive Industry - An overview. 6
Market Share of Automobile Industries. 7 - 8
Key Players in Automobile Industry. 9
The Automotive Aftermarket Business in India. 10
Q2FY2013 Auto earnings review. 11 - 12
Valuation. 13
Technical views on Stocks. 14 - 15
Conclusion. 16
INDEX PAGES

INTRODUCTION:
Automobile industry in India is an emerging sector and has a potential to improve it. The key
players have framed the strategies to tap the sector as per their features of the automotives.
The increasing GDP and economical resources have boost up during the last decade which has
increased purchasing power of the Indian peoples. The car segment in India has emerged as
one of the promising sector and has shown growth trends in tremendous sales. Tata Motors
has emerged as key player in Indian automobile industry and its share in Commercial Vehicles
has 63.94%, Passenger Vehicles 16.45%. Tata Motors Limited is India’s largest automobile
company, with consolidated revenues of USD 14 billion in 2008-09. It is the leader in
commercial vehicles and among the top three in passenger vehicles. Maruti Suzuki India
Limited, a subsidiary of Suzuki Motor Corporation of Japan, one of the India's largest
passenger car companies has grabbed a share for over 45% of the domestic car market. Other
key players in automobile segment of India have contributed significantly and their existence
in market has made others players to act actively in India. Despite economic slowdown, the
Indian automobile sector has shown high growth. The passenger vehicle market, which
constitutes around 80% of automobile sales, has immense growth potential as passenger car
stock stood at around 18 per 1,000 people in 2012. Anticipating the future market potential,
the production of passenger vehicle is forecasted to grow at a CAGR of around 10% from
2009-10 to 2012-13.
This took the Indian automobile production from 2001-02 to 10.8 Million Units in 2007-
08 to 14.6 Million Units 2011-12. The other reasons attracting global auto manufacturers to
India are the country’s large middle class population, growing earning power, strong
technological capability and availability of trained manpower at competitive prices. These are
the major findings of our new report, 'Indian Automobile Sector - A Booming Market” In 2006-
07, the Indian automotive industry provided direct employment to more than 300,000 people,
exported auto component worth around US$ 2.87 Billion, and contributed 5% to the GDP. Due
to this large contribution of the industry in the national economy.

EXPERT REVIEW:
Every major shift in policies made by the Indian government, the automotive industry has
come out stronger and better. While the shift in policies seems to have mostly been brought
by chance Events, the Indian government has at least to be credited for making the right
decisions and implementing them correctly. It is paradoxical that the Indian middle class, the
most attractive feature for foreign investment in the liberalization phase, was an outcome of
the statist ideologies in the regulatory phase. The product innovations of domestic firms like
Tata Motors and Bajaj Auto today are the fruits of indigenization and protection policies of
the regulatory phases.
Buyer decision processes are the decision making processes undertaken by consumers
in regard to a potential market transaction before, during, and after the purchase of a
product or service. Consumers have to make different kinds of decisions everyday according
to their different needs. Some of the decisions are playing critical roles in consumers’ daily
life, for example, purchasing a new home or purchasing a car, whereas sometimes the
decisions are made on a virtually automatic basis. There are not a lot published research
articles available on the decision-framing process. C. proposed a conceptual model of the
buying decision framing process sees Figure below. This model focuses on the information
search phase which includes two reference points: an initial which is internal to the company-
expectations and buying objectives, and a final one that takes into account the sales message
and justification/reward of the offer. These two stages lead to the final choice.

INDIAN AUTOMOTIVE INDUSTRY- AN OVERVIEW:
The Automotive Industry is globally one of the largest industries and a key sector of the
economy. Owing to its deep forward and backward linkages, it has a strong multiplier effect
and acts as one of the important drivers of economic growth 1.2, with the gradual
liberalization of the automotive sector in India since 1991, the number of manufacturing
facilities has grown progressively. It produces a wide variety of vehicles: passenger cars, light,
medium and heavy commercial vehicles, multi-utility vehicles such as jeeps, two wheelers
such as scooters, motor-cycles and mopeds, three wheelers, tractors and other agricultural
equipments etc. With a CAGR of over 15% during the last 5-7 years, it is aptly described as the
next sun rise sector of the Indian economy. In fact, in the last ten years, the volumes, exports
and turnover have increased by 3.8, 19.6 and 6 times respectively. The contribution of this
sector to the National GDP has risen from 2.77% in 1992-93 to close to 6% now. At present,
there are 19 manufacturers of passenger cars & multi utility vehicles, 14 manufacturers of
commercial vehicles, 16 of 2/3 wheelers and 12 of tractors besides 5 manufacturers of engines
in India. This includes virtually all the major global Original Equipment Manufacturers (OEMs)
and also home grown companies. In 2011-12, India surpassed France, UK and Italy to become
the 6th largest vehicle manufacturer globally. Today, it is the largest manufacturer of
tractors, second largest manufacturer of two wheelers, 5th largest manufacturer of
commercial vehicles and the 4th largest passenger car market in Asia. During 2000-11, India
exported 2.35 million vehicles to more than 40 countries which included 0.45 million
passenger cars and 1.54 million two wheelers. Today, the automobile industry provides direct
and indirect employment to 13.1 million people. The majority of the population of the country
is young with high aspirations and with rising income levels due to economic growth and
ready availability of finance, the demand for automobiles in the foreseeable future is
expected to remain buoyant. The Indian automobile industry is dominated by two wheelers
which account for 75% of the total vehicles sold in the country.

MARKET SHARE OF AUTOMOBILE INDUSTRIES:
Market Share of Passenger Vehicles Industry:
The increasing scenario of passenger car segment has shown positive effect on the sales of
the segment because of the tourist industry growth. Passenger car production in India is
projected to cross three million units in 2014-15. Sales of passenger cars during the period
2015-16 are expected to grow around 10%.
Market Share of Commercial Vehicles Industry:
Commercial vehicle segment has dominated by the Tata group of motors in India and stood
first in automobile industry. It has a share or 63.94 percent.

Market Share of Two Wheeler Industry:
Hero Honda has a remarkable share in the market of the two wheeler industry of India. It
has recorded more than 41 percent share in the segment during the period. As per the survey
of the industry, Motorcycle sales will perform positively in future, which will exceed 10 Million
units by 2012-13.
Market Share of Three Wheeler Industry:
This research analyzes the Indian market for Motorcycles, Scooters & Mopeds in Thousand
Units by the following product segments: The research analysis shows that Bajaj auto
dominates the three wheelers market share (58.6%) followed by the Piaggio Vehicle.

KEY PLAYERS IN AUTOMOBILE INDUSTRY:
Tata Motors-
Sales across various sector has been up compared to August last year,
exceptions are the medium and heavy vehicles section and the
numbers for Indigo have been down. The frontrunner for Tata has
been Nano with record sales of 6,500 in this month alone. Compared
to August 2011 when it was 1,202.
Mahindra & Mahindra-
XUV 500 has propelled M&M to heights that Tata was initially eyeing
with Sumo and its variants. Passenger vehicles (Verito and UVs) have
registered a growth of 39.37% and exports are up by 56.12%
(compared to August 2011). The surprise has been the facelift version
of Verito which sold 2000+ units.
Maruti Suzuki-
The month long lockdown at its Manesar plant took its toll. The
victims have been cars across the spectrum with small car segment
down by 41.2% and Dzire down by 60.7%. Even exports fell by 72%.
Hopefully Maruti gets its HR and the plant in place soon and back on
the track.
Bajaj Auto-
The industry looks flat because stocks have been put into dealerships-
according to our estimates; motorcycle-makers have added about
400,000 vehicles into dealership stock. By the end of the year, the
growth rate of the scooter industry could also fall by 3 percent on a
year-to-year basis.

THE AUTOMOTIVE AFTERMARKET BUSINESS IN
INDIA:
The Indian automotive aftermarket is currently estimated at Rs 33,000 Crores, where the
global market is at Rs 2,70,000 Crores. India has been one of the few markets globally to buck
the recessionary trend and recorded a strong 28.6% volume growth in FY 2011. The growth
momentum continues to be non track with first 11 months of FY 2012, registering a growth of
32.8% over the corresponding period in the previous year.
The automotive aftermarket for parts in India is a large and growing market that
spans manufacturers, distributors, retailers, service providers and garages. Currently worth
INR 19,000 crore to INK 24,000 crore, the market has been growing at 11 per cent, and is
estimated to reach INR 39,000 crore to INR 44,000 crore by 2015. The Indian market is valued
at INR 19,000 crore to INR 24,000 crore, of which roughly 30 per cent comprises spurious
parts. The two - wheeler market is the largest at INR 10,000 crore to INR 11,000 crore, or 44
percent of the market, and Tamil Nadu, Maharashtra, Gujarat and Uttar Pradesh constitute
close to 45 per cent of the market.

Q1FY2013 AUTO EARNINGS REVIEW:
Earnings boosted by M&M and Apollo Tyres in Q1FY2013:
The aggregate revenues of the automobile (auto) companies under our active coverage
reported a revenue growth of 12.7% and a net profit growth of 6.3% as compared with the
corresponding period of the previous fiscal. Given the prevailing tough macro-economic
conditions, the performance appears to be robust due to a strong growth reported by both
Mahindra and Mahindra (M&M) and Apollo Tyres. Excluding M&M, the aggregate revenue
growth drops to 4.9% and the earnings decline by 2.5% as most of the other companies
reported a decline at the profit after tax (PAT) level.
ALL added to our conviction list on robust Q1FY2013 performance:
During the last three months, most of the stocks under our coverage, except M&M, had been
kept on Hold recommendation. We recently added Ashok Leyland Ltd (ALL) to our Buy list due
to an improved growth and margin outlook (refer to our Stock Update on ALL dated
November 9, 2013).

Q1FY2013 results of auto universe:
M&M and Tata Motors emerged outperformers on the revenue front in the OEM space
while Exide and Apollo Tyres dominated the auto ancillary segment in Q1FY2013. Two-
wheeler players amongst the OEMs, and SKF India and Bharat Forge amongst the ancillaries
reported a decline in their earnings during the quarter
Contribution margin improved YoY but remained flat QoQ:
The contribution margin improved for most companies on a year-on-year (Y-o-Y) basis. Exide
witnessed the maximum improvement while FAG Bearings and M&M recorded the maximum
deterioration in Q2FY2013 compared with the corresponding period of the previous year.
Commodity prices declined sequentially:
The prices of commodities declined marginally on a sequential basis during Q2FY2013.
However, most companies reported a flattish material cost on quarter on quarter (QoQ) basis
as the benefit of the offending raw material prices is felt with a lag.

VALUATION:
We expect the auto volumes to recover in H2FY2013 on the back of the festive season in
Q3FY2013 and an improved economic outlook with the easing of interest rates expected in
Q4FY2013. Raw material prices are expected to remain subdued. With a recovery in the
volumes, the benefits of operating leverage are expected to result in a margin improvement
in H2FY2013. M&M remains our preferred pick in the auto sector.

TECHNICAL VIEWS ON STOCKS:
Tata Motors-
As per our technical view TATA MOTER has consolidation phase so investors CAN TAKE LONG
POSITION above 290 for the target 315.
Mahindra & Mahindra-
As per our technical view M&M has consolidation phase & this consolidation is not good for
investment so investors should not take any long position in m&m.

Maruti Suzuki-
As per our technical view MARUTI has bullish trend so investors can take long position above
1540 for the target 1640
Bajaj Auto-
As per our technical view BAJAJ AUTO has consolidation phase so investors CAN TAKE LONG
POSITION above 1850 for the target 2080

CONCLUSION:
This report is based on our best research and various information of different informative
sites. The industry has recorded phenomenon growth during the last decade. A market trend
is growing at a faster rate. According to CAGR the market will further grow in years to come.
The opening of the Indian automobile market for foreign companies the competition is
expected to enhance further. The opportunities can be grabbed through the diversification of
export basket in untouched foreign destinations. Thus strict quality standards, services and
use of latest technology can provide an edge over competitors across the globe.

Report on automobile sector

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