INDUSTRY ANALYSIS Today the automobile sector in India contributes 5% to the nation’s GDP, making it a prominent player in the economy. It will contribute around 19% of the Tax collection for financial year 2009-10. Following have been the features of Auto industry in the past financial year. The following tables and charts consist of the performance of Auto industry in past few years. Industry Aggregate (Rs in million)| | AMJ 10 (E)| Net Sales| 363904. 38| Change (%)| 39%| EBITDA| 64665. 22| Change (%)| 94%|
Depreciation| 7303. 60| Interest| 3348. 58| Other Income| 7118. 93| PBT| 61131. 97| Tax| 16645. 21| Effective tax rate| 27%| Reported PAT| 44486. 77| Change % (Reported PAT)| 92%| Market Cap (Rs in bn)| 1647. 17| Source: BSE India; Cygnus Research| Note: The aggregate consists of the following companies- Bajaj Auto, Ashok Leyland, Tata Motors, TVS Motors, Force Motors, Hero Honda, Escorts Ltd. , Eicher Motors, Maruti Udyog Limited, Punjab Tractors Limited, Mahindra & Mahindra, and Hindustan motors
Source: QPAC Indian Automobile industry Apr-Jun 2010 INDIAN AUTOMOBILE INDUSTRY AND TRENDS Overview The auto industry in India is the ninth largest in the world. After Japan, South Korea and Thailand, in 2009, India emerged as the fourth largest exporter of automobiles. Several Indian automobile manufacturers have spread their operations globally. Indian auto industry, which is currently growing at the pace of around 18 % per annum, has become a hot destination for global auto players like Volvo, General Motors and Ford.
The Indian automobile industry is going through a phase of rapid change and high growth. With new projects coming up on a regular basis, the industry is undergoing technological change. The major players are expanding their plants and focusing on mass customization, mass production. Yearly-Analysis Year on year as the Indian population grows the requirement for the transportation will also grow, so it is clear that the industry demand is directly proportional to the population.
Presently in India there are 100 people per vehicle while the figure in china is 82. Indian automotive industry is strong and productive sector for the economy growth. It gives nearly 5% of the employment to the country’s population. Continue improving quality results in exports of automobile and ancillary industry is boosting out the demand in oversees business. The Indian auto-players are expanding their presence in oversees market. In the last 5 years the foreign investment in this sector nearly doubled.
Production Trend: The Indian automotive industry face a tough time during FY08 and its production were almost stagnated. From the early FY09, the industry started showing marginal growth in terms of production and reached to 14. 04m units till FY10. Due to the huge insist in the domestic market company’s sale nearly 88% of their total production in the country and rest 12% vehicles they export. Domestic and Exports sales trend: In terms of domestic sales the industry is showing positive approach from the last 3-years.
During FY10 the industry domestic sales reached to 12. 29m units. The Indian exports are increasing gradually form the past 5-years and reached to 1. 80m units in FY10. Earlier the industry depended on the foreign auto parts, but due to the increase of the global players in the country and establishing the plants ended painless move to the Indian auto-players. INDUSTRY PERFORMANCE (YEARLY) Indian Automobile Industry Performance (Apr-Mar)| | Production| Domestic Sales| Exports| | 2009| 2010| %| 2009| 2010| %| 2009| 2010| %| Passenger vehicles (PVs)|
Passenger Cars| 1516967| 1926484| 27| 1220475| 1526787| 25| 331535| 441710| 33| UVs| 219498| 272848| 24| 225621| 272733| 21| 3034| 2823| -7| MPVs| 102128| 151908| 49| 106607| 150256| 41| 1160| 1613| 39| Total PV| 1838593| 2351240| 28| 1552703| 1949776| 26| 335729| 446146| 33| Commercial vehicles (CVs)| M&HCVs| | | | | | | Passenger Carriers| 40995| 46026| 12| 34892| 43081| 24| 7456| 6069| -19| Goods Carriers| 151288| 204145| 35| 148603| 201977| 36| 9363| 14354| 53| Total M&HCVs| 192283| 250171| 30| 183495| 245058| 34| 16819| 20423| 21| LCVs| | | | | | |
Passenger Carriers| 28635| 34751| 21| 26952| 34421| 28| 5426| 2708| -50| Goods Carriers| 195952| 281686| 44| 173747| 251916| 45| 20380| 21876| 7| Total LCVs| 224587| 316437| 41| 200699| 286337| 43| 25806| 24584| -5| Total CVs| 416870| 566608| 36| 384194| 531395| 38| 42625| 45007| 6| 3-wheelers| Goods Carriers| 417434| 530203| 27| 268463| 349662| 30| 146914| 172505| 17| Total 3-Wheelers| 79586| 88890| 12| 81264| 90706| 12| 1152| 777| -33| Grand total| 497020| 619093| 25| 349727| 440368| 26| 148066| 173282| 17| 2-Wheelers|
Scooter| 1161276| 1494409| 29| 1148007| 1462507| 27| 25816| 30125| 17| Motorcycles| 6798118| 8444852| 24| 5831953| 7341139| 26| 971018| 1103104| 14| Mopeds| 436219| 571070| 31| 431214| 564584| 31| 7300| 6905| -5| Electric Two Wheel| 24179| 2558| -89| 26445| 3001| -89| 40| 50| -| Total 2-Wheelers| 8419792| 10512889| 25| 7437619| 9371231| 26| 1004174| 1140184| 14| Grand Total| 11172275| 14049830| 26| 9724243| 12292770| 26| 1530594| 1804619| 18| source: SIAM; Cygnus Research| Demand-supply mismatch: The new capacity addition till 2012, may anticipate a demand and supply mismatch in the short term.
Demand is only expected to grow by 10-12% every year. In 2009-10 the domestic auto industry was utilizing 80-85% of its capacity, but this may drop to 65% by 2012. India may be in a similar position in 2012 as the global auto industry is in right now. The global capacity utilization in 2009-10 was around 65%, down from 80% in 2008-09. In the near future it is expected that the mismatch is going to see between Demand and Supply. Capacity addition: Accoding to Fitch Ratings, by 2012, the existing players in the market are expected to add 0. 9m units to the 2. 6m units’ capacity of the passenger vehicle segment and 0. 6m units to the 0. 5m units’ capacity of the commercial vehicle segment. Meanwhile, global automakers who currently only assemble in India, are expected to set up production units, in order to be more competitive with local players. Quarterly-Analysis Production Trend During AMJ10, the segmental market size of 2-wheeler stood at 77%, followed by Passenger vehicles at 16% and then followed by 3-wheelers at 4%. In this quarter the total industry production increased by 33. 27 to 4. 09m units from 3. 06m units in the previous year same period. The commercial vehicle segment production has increased by 57. 11% to 0. 16m units and recorded top among the segments.
Sales and Exports Trend From the past two years the sale of the vehicles are increasing during this quarter due to the domestic demand made by the festive season and the exports are declining. In terms of sales commercial vehicles sales had increased by 55% during AMJ10 and stood in top against AMJ09. Passenger vehicle sales increased by 33% next to Commercial Vehicles and stood at 0. 55m units followed by 2 and 3-wheelers. The total Indian automobile exports during AMJ10 increased by 59. 30% to 0. 58m units against 0. 36m units. The 3-wheeler segment stood in top in- terms of exports by 150. 3% increase followed by C. V and P. V. SEGMENTAL ANALYSIS OF THE INDUSTRY (QUARTERLY) Automobile Sales Performance in AMJ (in terms of Volume)| I PASSENGER VEHICLES| | AMJ’09| AMJ’10| % change| A. Passenger Cars| 324,985| 433,641| 33%| B. UVs| 60,969| 76,432| 25%| C. MPVs| 31,965| 44,493| 39%| TOTAL (A+B+C)| 417,919| 554,566| 33%| II. COMMERCIAL VEHICLES (CVs)| M&HCVs| | | | A. Passenger Carriers| 7,482| 11,574| 55%| B. Goods Carriers| 31,408| 59,642| 90%| TOTAL (A+B)| 38,890| 71,216| 83%| LCVs| | | | A. Passenger Carriers| 9,601| 11,566| 20%| B. Goods Carriers| 48,376| 67,095| 39%| TOTAL (A+B)| 57,977| 78,661| 36%|
TOTAL COMMERCIAL VEHICLES (CVs)| 96,867| 149,877| 55%| III. THREE WHEELERS| A. passenger carrier| 72,339| 84,298| 17%| B. goods carrier| 18,963| 20,855| 10%| TOTAL (A+B)| 91,302| 105,153| 15%| IV TWO WHEELERS| A. scooters| 317,400| 470,323| 48%| B. motor cycles| 1,689,716| 2,097,415| 24%| C. mopeds| 128,738| 157,588| 22%| TOTAL (A+B+C+D)| 2,135,854| 2,725,326| 28%| Total volume (units)| 2,741,942| 3,534,922| 29%| Source: SIAM; Cygnus Research| SEGMENTAL PERFORMANCE Two-wheelers Note: Demand is expected on the base of country population bases and the base year is taken as 2000 for projections.
The Indian 2-wheeler industry has reported a 26% (Y-o-Y) growth in FY10 with sales at 9. 37m units as against 7. 43m units sold in FY09. On the exports front, the 2-wheeler industry with 1. 14m shipments in FY10 posted a growth of 14% (Y-o-Y). Hero Honda Motors Ltd. (HHML), the world’s largest two wheeler manufacturer continued to dominate the total 2-wheeler industry with a market share of 48. 10%. In the motorcycle segment, the domestic sales grew 26% (Y-o-Y) to 7. 34m units while the exports grew 14% (Y-o-Y) to 1. 10m shipments in FY10.
Hero Honda dominated the motorcycle space with a market share of 44% followed by Bajaj Auto (21%) and TVS Motors (15%). Market Penetration The two-wheeler industry is growing at a good phase in the country and expected a presence of 92 per every 1000 people at the end of 2010. The segment expects huge demand in the next 5 years. The industry is expected to sell nearly 26. 56m units till 2015. The segment is expected to face a tough time in 2011, due to the heavy compilation by the low cast cars and the alternative electronic vehicles. From 2012 the segment is expected to grow at the CAGR of 19% till 2015. Segment Boosters
New launches, coupled with low base and festive (marriage) season, helped the 2- wheeler industry post an impressive volumes growth for the month of May 2010. While the low base helped Bajaj Auto Ltd. (BAL) posts a growth of 62% (Y-o-Y) in total sales over the same month of the last fiscal. Three Wheelers The 3-wheeler industry posted an impressive growth of 26% (Y-o-Y) to 0. 44m units in FY10 as against 0. 34m units sold in the last fiscal. On the exports front, the 3-wheeler industry reported 17% (Y-o-Y) growth with 0. 17m units shipments in FY10. The passenger carrier segment reported higher growth in the domestic market at 0. 4m units 30% (Y-o-Y), while the goods carrier segment posted a 12% (Y-o-Y) growth for FY10. On the exports front, the passenger carrier segment posted a 17% (Y-o-Y) growth with 0. 17m unit shipments, while the goods segment posted a 33% (Y-o-Y) decline with exports of 777 units in FY10. Market share and players performance: Piaggio Vehicles continued to dominate the 3-wheeler industry with a market share of 41% followed by Bajaj Auto (35%) and Mahindra ; Mahindra (11%). In this 3-wheeler segment 81% sub-segment is captured by Passenger carriers, which is primarily for the rural people moving long distances.
The remaining 19% is covered by cargo or goods carriers; there are the versatile vehicles suitable for both intra and inter-city transport. Segment Boosters In suburban and rural areas 3-wheelers are primarily used as substitutes for buses. They thrive because of very poor public transport and on shorter trip distances. Some of the opportunities of this segment are; the inability of state government to provide the required number of buses, lack of political will to privatize public transport and free up fares.
Increasing number of 3-wheelers on these routeswill bring download availability form 10-12% to 6-8%, people for 80% of the trips. PRINCIPLE APPLICATION OF 3-WHEELERS| Segments| Primary uses| Fuel used| Forecasted 3-yearsCAGR| In-city| Home-Office,Home-shopping,Schoolchildren, Home-Railways or Air port. | Petrol/LPG/CNG| 10%| Rural| Stage coach| Diesel| 11%| Cargo| Wholesaler to retailerRetailer to end user distribution| Diesel/CNG| -6%| Growth drivers and Indian in the world automobile industry (2010) Growth Drivers of Indian Auto Market| India in world production| ? Rising industrial and agricultural output? Rising per capita income?
Favourable demographic distribution with rising working population and middle class? Urbanisation? Increasing disposable incomes in rural agri-sector? Availability of a variety of vehicle models meeting diverse needs and preferences? Greater affordability of vehicles? Easy finance schemes? Favourable government policies? Robust production| ? Well-developed, globally competitive auto ancillaryindustry? Established automobile testing and R;D centers? Among one of the lowest cost producers of steel in the world? World’ssecondlargestmanufactureroftwo wheeler? Fifthlargestmanufacturerofcommercial vehicles?
Largest manufacturers of tractors in the world? Fourth largest passenger car market in Asia? India is the second largest two-wheeler market in the world.? 11th largest passenger car market in the world? Expectedtobetheseventhlargestauto industry by 2016| Inter- firm Comparison: Two – Wheelers Operational Performance The sales figure of Hero Honda is estimated to increase by 33. 73% in revenue terms from Rs3824. 40m in AMJ09 to Rs51116. 77m in AMJ10. Hero Honda scooter segment, pleasure sales have been growing at an average of 16000 units per month, it also crossed its land mark of 4. 5m unit sales for FY10.
Bajaj Auto is estimated to show a sharp increase in sales figure by 33% from Rs 233384. 70m in AMJ09 to Rs31230. 88m in AMJ10, this has been led by its two game changing brands, Pulsar and Discover, with clocked robust volumes. TVS Motors is estimated to show an increase of 34% in sales from Rs9886. 97m in AMJ09 to Rs13254. 32m in AMJ10. Its scooter and motorcycle segment sales grew by 24% and 15% respectively; exports were increased by 22% to 20067 units during May. The newly launched TVS Jive and the TVS Wego have supported better volume growth for the month of March. Two-Wheeler Rs (m)| AMJ 09 (A)| AMJ 10 (E)| Growth| Bajaj Auto| 23384. 70| 31230. 88| 33. 55| Hero Honda| 38224. 40| 51116. 77| 33. 73| TVS| 9886. 97| 13254. 32| 34. 06| Source: BSE India; Cygnus Research| Financial Performance The overall sale of all the companies is expected to rise. In case of TVS Motors OPM will improve mainly due to reduction in other expenses and raw material cost. The operational performance of Hero Honda has also improved and is directly reflected in its OPM and NPM growth which has increased by 837bps and 486bps respectively. Bajaj Autos OPM and NPM have been increased by 94bps and 170 bps points respectively.
Overall in terms Hero Honda stood in top position in terms of operational and financial performance. | Bajaj Auto| Hero Honda| TVS| | AMJ 09 (A)| AMJ 10 (E)| AMJ 09 (A)| AMJ 10 (E)| AMJ 09 (A)| AMJ 10 (E)| Net sales| 23384. 70| 31230. 88| 38224. 40| 51116. 77| 9886. 97| 13254. 32| NPM (%)| 12. 55| 14. 25| 13. 08| 17. 95| 1. 84| 2. 85| OPM (%)| 18. 45| 19. 38| 17. 01| 25. 38| 6. 33| 6. 01| Source: BSE India; Cygnus Research| Cost Structure Analysis Cost Structure (as % of Net sales) AMJ09 Vs AMJ10| Company| Hero Honda| Bajaj Auto| TVS Motors| Industry| Year| 09| 10| 09| 10| 09| 10| 09| 10| (Increase)/Decrease in Stock| 0. 33| -2. 3| 2. 04| 1. 34| 3. 15| 4. 49| -0. 74| 0. 68| Consumption of raw materials| 67. 42| 62. 86| 60. 60| 64. 04| 67. 61| 60. 50| 65. 91| 62. 41| Purchase in stock in trade| 0. 00| 0. 00| 3. 51| 3. 67| 1. 62| 1. 88| 4. 44| 5. 55| Staff cost| 3. 62| 2. 76| 4. 83| 2. 98| 5. 29| 4. 87| 5. 34| 3. 86| Other expenditure| 11. 62| 11. 32| 10. 57| 8. 59| 15. 99| 22. 26| 12. 33| 9. 73| Depreciation| 1. 19| 0. 86| 1. 41| 0. 12| 2. 57| 1. 89| 2. 63| 2. 01| Interest & Financial Charges| -0. 14| -0. 10| 0. 26| 0. 00| 1. 73| 0. 91| 1. 25| 0. 92| Tax| 3. 99| 7. 69| 5. 22| 6. 11| 0. 19| 0. 76| 2. 62| 4. 57| Source: BSE India; Cygnus Research|
Raw material cost forms the major chunk of cost for two-wheeler companies followed by other expenditure, staff cost. In terms of raw material, staff cost and other expenses the performance of Bajaj is better compared to its peers. Overall, Bajaj auto is efficient from operational point of view. It has declined its overall cost structure by 159 bps to 86. 84% from 88. 44% as the percentage of sales during AMJ09. Porter Five Forces model Here is the analysis of Auto Industry with help of the porter’s five forced model. This is common for auto industry in India. Supply | Some amount of excess capacity. hile India would be capable of producing 5. 4 m cars a year by 2014, domestic demand is likely to edge up to between 3. 5 and 4. 8 m units. | Demand | Largely cyclical in nature and dependent upon economic growth and per capita income. Seasonality is also a vital factor. | Barriers to entry | High capital costs, technology, distribution network, and availability of auto components. | Bargaining power of suppliers | Low, due to stiff competition. | Bargaining power of customers | Very high, due to availability of options. | Competition | High. Expected to increase even further. | Now if we make the five-force model for two wheelers:
