Group

Assignment

NON-COMMERCIAL VEHICLES

Industry Report

Submitted in partial fulfillment of the course

Sales and Distribution Management

To: Prof. Manoj Motiani

Term IV, PGP2
IIM, Indore


By: Group 5

Naveen Tegar | Anjali Burman | Marshall Goldsmith | Ravi Pratap Gond
Sanath Thumu | Nallamala Hemanth | Syeda Zufeshan Zareen Zofair
Janapareddy Santosh Kumar Naidu

TABLE OF CONTENTS

INTRODUCTION ................................................................................................................. 3
MARKET SIZE ..................................................................................................................... 4
PORTER FIVE FORCES ANALYSIS ......................................................................................... 6
INVESTMENTS ................................................................................................................... 7
GOVERNMENT INITIATIVES ............................................................................................... 8
PROSPECTS ...................................................................................................................... 10

INTRODUCTION

The Indian auto
industry is one of the
largest in the world.
The industry accounts
for 7.1 per cent of the
country's
Gross
Domestic
Product
(GDP). As of FY 2014-
15, around 31 per cent
of small cars sold
globally
are
manufactured in India.
Moreover, the growing
interest of the companies in exploring the rural markets further aided the growth of the
sector. The overall Passenger Vehicle (PV) segment has 13 per cent market share.

India is also a prominent auto exporter and has strong export growth expectations for
the near future. In addition, several initiatives by the Government of India and the major
automobile players in the Indian market are expected to make India a leader in the Two
Wheeler (2W) and Four Wheeler (4W) market in the world by 2020.

The The Indian automobile
market can be divided into
several segments viz., two-
wheelers
(motorcycles,
geared
and
ungeared
scooters and mopeds), three
wheelers,
commercial
vehicles (light, medium and
heavy), passenger cars, utility
vehicles (UVs) and tractors.
Demand is linked to
economic growth and rise in
income levels. Per capita
penetration at around nine cars per thousand people is among the lowest in the world
(including other developing economies like Pakistan in segments like cars).

While the industry is highly capital intensive in nature in case of four-wheelers, capital
intensity is a lot less for two-wheelers. Though three-wheelers and tractors have low barriers
to entry in terms of technology, four wheelers is technology intensive. Costs involved in
branding, distribution network and spare parts availability increase entry barriers. With the
Indian market moving towards complying with global standards, capital expenditure will rise
to take into account future safety regulations.

As compared to their global counterparts, both the two-wheeler as well as four

wheeler segments are relatively lesser fragmented. However, things have changed, especially
on the passenger cars front as many foreign majors have entered the Indian market. As a
result, pricing power is likely to diminish going forward.

Automobile majors increase profitability by selling more units. As number of units sold
increases, average cost of selling an incremental unit comes down. This is because the
industry has a high fixed cost component. This is the key reason why operating efficiency
through increased localization of components and maximizing output per employee is of
significance.

MARKET SIZE


Sales of passenger vehicles increased by 11.04 per cent to 242,060 units in April 2016
driven by demand for utility vehicles. While sales of passenger cars went up by 1.87 per cent
to 162,566 units in April 2016, those of utility vehicles grew by 43 per cent to 62,170 units.
Sales of commercial vehicles maintained its momentum on back of replacement demand and
grew by 17.36 per cent to 53,835 units.

A total of 16 m two-wheelers were sold in FY15, a growth of a tepid 8% over the

previous year. The slow growth was on account of the tepid recovery in the Indian economy.
In the domestic market, volumes in the 3-wheeler segment were up 11% YoY led by passenger
carriers. Exports growth was healthy at 15% YoY.

After two consecutive years of steep declines, FY15 was a strong year for the medium
and heavy commercial vehicles (M/HCVs) segment as volumes increased 16% led by reversal

of mining bans, resumption of some stalled infrastructure projects, improvement in freight

rates and overall operations of fleet operators. LCVs, however, were at the receiving end as
volumes dropped by 12% YoY. As a result, volumes for the overall CV industry fell by 3% YoY.

Volumes of passenger vehicles (PV) grew by 4%. Within this, passenger cars and utility
vehicles (UVs) grew by 5% YoY each. Volumes of vans, however, declined by 10% YoY during
the year. Maruti Suzuki remained the market leader in the passenger vehicles space. Volumes
of vans for the company grew at a robust pace of 26% YoY even though the industry volumes
declined. The companys cars and utility vehicles grew in double digits during the year.

Most of the companies reported an improvement in operating margins largely on account of

various cost rationalization measures undertaken and benign commodity prices.

PORTER FIVE FORCES ANALYSIS

Bargaining Power of Suppliers

It is low as most of the auto
component manufacturers are
specialized in some segments related
to inly one client
Suppliers in turn depend on them

Substitute Products
It is low, with public transportation
being under developed even in cities
Changing travel patterns and the
convenience give it an edge

Competitive Rivalry
It has increased post liberalization to a great
extent
The competition has turned more intense after
the entry of foreign players in low priced
segment
These foreign firms have aggravated the
competition by changing their traditional design

Threat of New Entrants

It is generally medium because of the
brand equity and capital intensive
nature of the business
But due to liberalization and Make in
India initiatives lot of firms are
entering and performing

Bargaining Power of Customers

It is high as lot of options are
available in different segments
But as the market penetration is low,
still automobile players have a fair
chance of leveraging their power

INVESTMENTS

In order to keep up with the growing demand, several auto makers have started investing
heavily in various segments of the industry during the last few months. The industry has
attracted Foreign Direct Investment (FDI) worth US$ 14.32 billion during the period April 2000
to December 2015, according to data released by Department of Industrial Policy and
Promotion (DIPP).

Some of the major investments
and developments in the
automobile sector in India are as
follows:
MV Agusta, the Italy-based
premium
motorcycle
manufacturer, has entered
India through an exclusive
partnership with Pune-based
Kinetic group with the launch
of three luxury bikes, which
will be sold through the
Motoroyale chain in Pune.
Sweden-based electric vehicle maker Clean Motion plans to invest US$ 10 million in India
over the next three years in order to expand operations including setting up of an
assembly unit for its Zbee three-wheelers in the country.
Isuzu Motors, the Japan-based utility vehicle manufacturer, has inaugurated its greenfield
manufacturing unit in SriCity, Andhra Pradesh, at a cost of Rs 3,000 crore (US$ 450.94
million).
Japanese two-wheeler manufacturer Honda Motorcycle and Scooter India (HMSI) has
opened its fourth and worlds largest scooter plant in Gujarat, set up to initially produce
600,000 scooters per annum to be scaled up to 1.2 million scooters per annum by mid-
2016.
American car maker Ford has unveiled its iconic Ford Mustang in India and will make its
debut in second quarter of FY2016 within the price band of Rs 45 lakh (US$ 66,146) and
Rs 50 lakh (US$ 73,496) in the Indian market.
Nissan Motor Co. Ltd is in discussion with Government of India to bring electric and hybrid
technologies to India as the government plans to reduce air pollution caused by vehicles.
Global auto major Ford plans to manufacture in India two families of engines by 2017, a
2.2 liter diesel engine codenamed Panther, and a 1.2 liter petrol engine codenamed
Dragon, which are expected to power 270,000 Ford vehicles globally.
The worlds largest air bag suppliers Autoliv Inc, Takata Corp, TRW Automotive Inc. and
Toyoda Gosei Co are setting up plants and increasing capacity in India.
General Motors plans to invest US$ 1 billion in India by 2020, mainly to increase the
capacity at the Talegaon plant in Maharashtra from 130,000 units a year to 220,000 by
2025.
US-based car maker Chrysler has planned to invest Rs 3,500 crore (US$ 513.5 million) in
Maharashtra, to manufacture Jeep Grand Cherokee model.

 Mercedes Benz has decided to manufacture the GLA entry SUV in India. The company has
doubled its India assembly capacity to 20,000 units per annum.
Germany-based luxury car maker Bayerische Motoren Werke AGs (BMW) local unit has
announced to procure components from seven India-based auto parts makers.
Mahindra Two Wheelers Limited (MTWL) acquired 51 per cent shares in France-based
Peugeot Motorcycles (PMTC).

INCREASING INVESTMENTS BY GLOBAL CAR MANUFACTURERS

GOVERNMENT INITIATIVES

The Government of India encourages foreign investment in the automobile sector and allows
100 per cent FDI under the automatic route.
Some of the major initiatives taken by the Government of India are:
Mr. Nitin Gadkari, Minister of Road Transport, Highways & Shipping has announced plans
to set up a separate independent Department for Transport, comprising of experts from
the automobile sector to resolve issues such as those related to fuel technology, motor
body specifications and fuel emissions, apart from exports.
Government of India aims to make automobiles manufacturing the main driver of Make
in India initiative, as it expects passenger vehicles market to triple to 9.4 million units by
2026, as highlighted in the Auto Mission Plan (AMP) 2016-26.
In the Union budget of 2015-16, the Government has announced to provide credit of Rs
850,000 crore (US$ 124.71 billion) to farmers, which is expected to boost the tractors
segment sales.
The Government plans to promote eco-friendly cars in the country i.e. CNG based vehicle,
hybrid vehicle, and electric vehicle and also made mandatory of 5 per cent ethanol
blending in petrol.
The government has formulated a Scheme for Faster Adoption and Manufacturing of
Electric and Hybrid Vehicles in India, under the National Electric Mobility Mission 2020 to

encourage the progressive induction of reliable, affordable and efficient electric and
hybrid vehicles in the country.
The Automobile Mission Plan (AMP) for the period 20062016, designed by the
government is aimed at accelerating and sustaining growth in this sector. Also, the well-
established Regulatory Framework under the Ministry of Shipping, Road Transport and
Highways, plays a part in providing a boost to this sector.
Road Ahead
Indias automotive industry is one of the most competitive in the world. It does not cover
100 per cent of technology or components required to make a car but it is giving a good
97 per cent, as highlighted by Mr. Vicent Cobee, Corporate Vice-President, Nissan Motors
Datsun.
Leading auto maker Maruti Suzuki expects Indian passenger car market to reach four
million units by 2020, up from 1.97 million units in 2014-15.
The Indian automotive sector has the potential to generate up to US$ 300 billion in annual
revenue by 2026, create 65 million additional jobs and contribute over 12 per cent to
Indias Gross Domestic Product#.

PROSPECTIVE OPPORTUNITY

With the Modi Government in power, there are expectations of increased focus on
reforms and ramp up in infrastructure. Thus, government spending on infrastructure in
roads and airports and higher GDP growth in the future will benefit the auto sector in
general. We expect a slew of launches both in passenger cars and utility vehicles (UVs) given
that the competition has intensified.

In the 2-wheeler segment,
motorcycles are expected to witness a
flurry of new model launches. Though
the market size is expected to grow by
10% to 12%, competitive pressure
could keep prices and margins under
control. TVS, Honda and Hero
Motocorp will continue to benefit
from higher demand for ungeared
scooters in the urban and rural
markets. In the last four years, scooters have grown at a faster clip than motorcycles and this
trend is expected to continue going forward. The 3 wheeler industry, where Bajaj Auto is the
market leader, is also poised for growth on the back of new permits and increase in exports.

While good monsoon is a positive for the tractor sector, assuming that non-farm incomes
climb up, volumes should hold up well in the longer run despite a year or two of poor
monsoons. The longer-term picture is
healthy in light of poor mechanization
levels in the countrys farm sector and the
thrust of the government on improving
rural infrastructure.

Demand for HCVs is expected to grow by
7% to 8% over the long term. The
privatization of select state transport
undertakings bodes well for the bus
segment.

References

http://www.ibef.org/industry/automobiles-presentation
https://www.equitymaster.com/research-it/sector-info/auto/Automobiles-Sector-
Analysis-Report.asp#kp
http://www.makeinindia.com/sector/automobiles
http://www.siamindia.com/statistics.aspx?mpgid=8&pgidtrail=9
http://economictimes.indiatimes.com/industry/auto
http://automobiles.mapsofindia.com/
http://www.globalsuzuki.com/automobile/
https://en.wikipedia.org/wiki/Automotive_industry
http://economictimes.indiatimes.com/topic/automobile-industry