Indian Automotive Industry Presentation 010709

A U TO M OT I V E I N D U S T RY
December 2008

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AU TO M OT I V E I N D U S T RY
December 2008

Contents

• Profile of Indian Automotive Industry
• Growth Potential of Indian Automotive Industry
• India as a Manufacturing Hub

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PROFILE OF INDIAN
AUTOMOTIVE INDUSTRY

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PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY
AUTOMOTIVE INDUSTRY • December 2008

Indian auto industry has entered the era of globalisation
Era of globalisation and evolution of India
as a global manufacturing hub

Pre 1983 1983-1993 1993-2007
• Closed market • Japanisation - • De-licensing of sector
• Growth of market limited by GoI-Suzuki joint in 1993
supply venture to form
• Outdated models Maruti Udyog • Global major OEMs
• Joint ventures start assembly in India
- Players with companies (GM, Ford, Honda,
• Hindustan Motors in commercial Hyundai)
• Premier vehicles and
• Telco components • Imports allowed from
• Ashok Leyland April 2001 alignment
• Mahindra Mahindra - Players of duty on components
• Maruti Udyog and parts to ASEAN
• Hindustan levels
Motors • Implementation of VAT
• Premier
• Telco
• Ashok Leyland
• Mahindra
Mahindra

Prerequisites for globalisation, high level of competence
and productivity has become the forte of Indian
automakers due to the favorable environment in the
country.
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Indian automobile industry crossed a historic landmark of
10 million vehicles in 2006-07

• The Indian auto industry has the potential to emerge Automotive Production (Million units)
as one of the largest in the world. Presently, India is 10.83
2007-08

-Second largest two wheeler market in the world 2006-07 11.09

2005-06 9.74
-Fourth largest commercial vehicle market in the world
8.47
2004-05

-11th largest passenger car in the world and is 2003-04 7.24 CAGR
expected to be the seventh largest market by 2016. 11.5%
2002-03 6.28

0 2 4 6 8 10 12
million units
Source: SIAM, IMaCS analysis

Segment Share in CAGR
total
Two wheelers 74.1% 9.6%
Passenger vehicles 16.3% 19.5%
Three wheelers 4.6% 12.6%
Commercial vehicles 5.0% 21.8%

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The OEM as well as the component industry is highly competitive

• GM • Tata Motors
• Toyota • Mahindra Mahindra
• Bajaj Auto
• Ford
Global OEM Indian OEM
• TVS Motors
• Hyundai
• Hero Honda
• Maruti Suzuki
• Bajaj Tempo
• Honda
• Skoda • Ashok Leyland
• Volvo
• Mercedes • Bharat Gorge
• Sundram Fasteners
• Delphi • Rane Group
Global Indian
Suppliers Suppliers
• Visteon • Shriram Pistons
• Bosch • RICO Auto
• Denso • Sona Koyo Steering
• Valeo
• Thyssen Krupp

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The OEM as well as the component industry is highly competitive

• The Indian auto industry is highly competitive
with a number of global and Indian auto companies
present
• The supplier industry is equally competitive with
a mix of global and Indian players

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Most automotive players are present in more than one segment

Manufacturer Segments Manufacturer Segments
Ashok Leyland LCVs, MHCVs, buses Mahindra Mahindra Three wheelers, cars, MUVs, LCVs
Asian Motor Works MHCVs Majestic Auto Three wheelers
Atul Auto Three wheelers Maruti Suzuki Cars, MUVs, MPVs
Bajaj Auto Two and three wheelers Piaggio Three wheelers, LCVS
BMW India Cars and MUVs Reva Electric Car Co. Electric cars
Daimler Chrysler India Cars Royal Enfield Motors Two wheelers
Eicher Motors LCVs, MHCVs, buses Scooters India Three wheelers
Electrotherm India Electric two wheelers SkodaAuto India Cars
Fiat India Cars Suzuki Motorcycles Two wheelers
Force Motors Three wheelers, MUVs and LCVs Swaraj Mazda Ltd LCVs, MHCVSs, buses
Ford India Cars and MUVs Tata Motors Cars, MUVs, LCVs,MHCVs, buses
General Motors India Cars MUVs Tatra Vectra Motors MHCVs
Hero Honda Motors Two Wheelers Toyota Kirloskar Cars, MUVs
Hindustan Motors Cars, MUVs and LCVs TVS Motor Co Two wheelers
Honda Two wheelers, cars and MUVS Volvo India MHCVs, buses
Hyundai Motors Cars and MUVs Yamaha Motor India Two wheelers
Kinetic Motor Two wheelers

MUVs: Multi utility vehicles; MPVs: Multi purpose vehicles; LCV:
Light commercial vehicles; MHCVs: Medium and heavy commercial vehicles

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Two wheelers industry is dominated by motorcycles
Domestic two-wheeler industry Break up of the industry by segment
Million units
• Scooter/Scooterette :
2008 7.25 6% Wheel size less than or
equal to 12 inches
2007 7.86 14%
• Motorcycle: Wheel size
2006 7.05 more than 12 inches
• Mopeds: Engine capacity
2005 6.21
less than 75 cc with fixed
transmission, wheel size
2004 5.36
more than 12 inches
2003 • Electric Two Wheelers:
4.81
CAGR 13%
Electrically Driven
2002 4.2
80%

0 1 2 3 4 5 6 7 8
Source: SIAM, IMaCS analysis n Motorcycles n Scooters
n Mopeds

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Two-wheelers industry is dominated by motorcycles

• Domestic two-wheeler industry has steadily
grown at a CAGR of 9.5 per cent to reach
7.25 million units in 2006-07
• Motorcycle segment has attained highest growth
and dominates the market
• Entry level bikes (engine power below 125 cc
and price US$ 850-1,100) account for around
80 per cent sales
• Cost of ownership and economics of operation
are key purchase criteria
• Premium bike segment (engine power above
125 cc and price US$ 1,200-2,000) growing
at a faster pace as compared to the entry level
vehicles, an indication of increasing affluence
of users
• Some manufacturers have opted out of 100CC
segments and are positioning the 125cc as entry level

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While the motorcycles segment is growing, the scooter segment is shrinking

• Scooter segment as a whole has been shrinking, Segment-wise analysis of two-wheeler market
except for the A2 segment Segment Description Share in Share in
2001-02 2007-08
• Bikes having engine capacity 75-125 cc corner
A1 Scooter with engine capacity 5% 0.5%
the major share of the two wheeler market less than 75 cc
A2 Scooter with engine capacity 5% 13%
• B3 segment is the fastest growing segment in the between 75-125 cc
Indian two wheeler market. A3 Scooter with engine capacity 12% 1%
between 125-250 cc
B Motorcycle with engine % %
capacity between -1 cc
B Motorcycle with engine % 1%
capacity between 1-0 cc
B4 Motorcycle with engine capacity 1% 0.5%
above 250 cc
C1 Mopeds 10% 6%

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The domestic two wheeler market is dominated
by Indian as well as foreign players

• Hero Honda: Largest Two-wheeler manufacturer Market share of key players in 2006-07
in the world 3%
9%
• Bajaj Auto: Second largest Two-wheeler
manufacturer in India and the largest 3 wheeler
42%
manufacturer 19%

• TVS Motor Co: Third largest Two-wheeler
manufacturer in India. Established a manufacturing
facility in Indonesia 27%

• Honda Motors: Has recently entered the Indian
n Hero Honda Motors n Bajaj Auto Ltd
market through its direct subsidiary (in addition n TVS Motor Co, n HMSIL
to its joint venture Hero Honda) n Others

• Suzuki: Has recently entered the Indian market
through its direct subsidiary

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The domestic two wheeler market is dominated
by Indian as well as foreign players

• In the Two-wheeler market in India, competition is
intense with around 10 players competing for the
share of the industry
• The players include global giants like Honda, Suzuki,
Yamaha as well as Indian players like Bajaj and TVS
• The market leader is Hero Honda Motors, closely
followed by Bajaj Auto
• Industry is characterised by frequent new product
launches, with over 22 models launched in 2007-08

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Two wheelers exports have grown at an impressive CAGR of 41%
Two wheeler exports from India Market share of key players in exports 2007-08
Thousand units
4%
2008 819.8
9%
2007 619.2

2006 11%
513.2 CAGR
41%
59%
2005 366.4

2004 265.1
17%
2003 179.7

2002 104.2

0 100 200 300 400 500 600 700 800 900

(in ‘000 units) n Bajaj Auto n TVS Motor Company
n Hero Honda Motors Ltd n Others
n Hond(HMSIL

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Two wheelers exports have grown at an impressive CAGR of 42%

• Exports of two wheelers have grown at over
41 per cent CAGR in last six years
• Majority of exports are to Bangladesh, Sri Lanka,
Bhutan and Nepal
• Highest growth (year on year growth of 79 per cent)
witnessed in the above 125 CC motorcycles segment,
which constituted 36 per cent of two wheeler export
market up from previous year’s 26 per cent.
• 58 per cent of the bikes exported were those with
engine capacity below 125 cc.
• Bajaj Auto is the market leader in exports with
59 per cent share.

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Passenger vehicles segment in India is dominated by cars
Domestic passenger vehicles industry
Domestic passenger vehicles industry
thousand units

2008 1548.0
22%
2007 1379.7
2006 1143.1

2005 1061.6
78%
2004 902.1

2003 707.2
CAGR14.8%
2002 675.1

200 400 600 800 1000 1200 1400 1600

n Passenger cars n SUVs/MVs

Source: SIAM, IMaCS Analysis

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Passenger vehicles segment in India is dominated by cars

• The domestic Indian passenger vehicles market has
grown at a CAGR of 14.8 per cent over the last six
years to reach 1.5 million units in 2007-08.
• Passenger cars, contributing to 78 per cent of
volumes, grew at a CAGR of 15 per cent.
• The remaining share is with utility vehicles and
sports vehicles

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All major global players in passenger vehicles segment
have a presence in India

• Maruti Udyog: Largest passenger car manufacturer Market shares of key players in 2007-08
in the country, India considered as strategic market
by Suzuki 13%

• Tata Motors: Largest automotive player in the 4%

Indian industry; launching the Rs. 1 lakh (US$ 2,500) car 8%

46%
• Hyundai Motors: Third largest passenger car 14%
manufacturer in India, has established India as one
of its manufacturing bases in the world 15%

n Maruti Udyog Ltd. n Tata Motors Ltd . n Hyundai Motor India Ltd.
n Mahindra Mahindra n Toyota n Others

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• Mahindra Mahindra: Amongst the largest players
in the multi utility vehicles segment, has tied up
with Renault for manufacturing and marketing of
Logan brand of cars in India
• Toyota: Has vision of capturing 10 per cent share
of the Indian passenger car market by 2010
• Honda Motors: One of the leading players in the
Indian premium cars segment
• Ford: Leading player in the premium cars segment
• General Motors: Leading player in the premium
segment; entered the compact car segment recently

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• There are more than a dozen manufacturers
in the industry
• Most of the leading global players have a presence in
India in the form of joint ventures or subsidiaries
• The industry leader is Maruti Udyog with
46 per cent market share, closely followed by Tata
Motors and Hyundai Motors at 15 per cent and
14 per cent respectively

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India is increasingly becoming a manufacturing hub for passenger cars
Cars Exports from India Market share of key players in exports 2007-08
Thousand units
3%
2008 217.05 7%
2007 198.48

2006 175.57

166.40
2005 24%
66%
2004 129.29

2003 72.01 CAGR 26%
2002 53.17

0 50 100 150 200 250 300 350 400

n Hyundai Motor India Ltd. n Maruti Suzuki India Ltd
n Tata Motors Ltd n Others


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India is increasingly becoming a manufacturing hub for passenger cars

• Exports of cars from India have grown at a CAGR
of 26 per cent CAGR in the last six years to reach
217 thousand units in 2007-08.
• Hyundai Motors is the market leader in exports
of cars with 66 per cent share up from previous
year’s 58 per cent share; the company uses India
as a manufacturing base for compact cars across
the globe.
• Exports are made to South America, Africa, Europe,
Latin America and the Middle East.

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Commercial vehicles segment has witnessed
the highest growth rate in the automotive industry

Domestic CV Industry Breakup of the Industry by segment

2008 486.82
6%
8%
2007 467.88

351.04
2006

2005 318.43
48%
38%
2004 260.11
CAGR
2003 190.68
22%
2002 146.67

0 100 200 300 400 500

n M HCV Goods n LCV Goods
n M HCV Passenger n LCV Passenger


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Commercial vehicles segment has witnessed
the highest growth rate in the automotive industry

• Domestic CV industry sales reached 486.82 thousand
vehicles in 2007-08, registering a CAGR of
22 per cent over last six years.
• Share of LCVs is gradually increasing, indicating the
emergence of hub and spoke model of transportation
• In 2007-08, MHCV passenger vehicles lead the
growth at 34 per cent over the last year.
• Goods industry is dominated by multi axle vehicles,
which account for nearly 50 per cent of the market

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CV industry is dominated by Indian players

• Tata Motors Ltd: Largest commercial vehicle Market Shares of Key Players in 2006-07
manufacturer in the country, has acquired the
6%
Korean manufacturer Daewoo Gap Motors 6%

• Ashok Leyland Ltd: Second largest player with 11%

considerable market share in MHCV segment;
has formed a JV to manufacture LCVs with Nissan 15% 62%

• Mahindra Mahindra Ltd: Relatively new player
in the segment; has formed JV with International
Trucks to manufacture MHCV trucks in India
n Tata Motors Ltd n Ashok Leyland Ltd
• Eicher Motors Ltd: Leading player in the LCV trucks n MM Ltd n Eicher Motors Ltd
segment; has entered the MHCV trucks segment n Others
recently
• Swaraj Mazda Ltd: One of the leading players in the
LCV segment
• Volvo India: One of the leading players in luxury
passenger buses and heavy duty tippers

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CV industry is dominated by Indian players

• Tata Motors is the market leader in both goods and
passenger segments, closely followed by Ashok Leyland
• LCV market is dominated by Tata Motors, followed
by Mahindra Mahindra
• Introduction of Tata Ace has contributed significant
growth in the sub one tonne segment
• Many players are in the process of strengthening
their hold in the market through JVs .

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Indian CV exports have witnessed a more impressive growth
CV Exports from India (Thousand units Market Share of Key Players in Exports (2007-08)

2%
59.00
2008 4%

49.77
2007 15%

40.60
2006
12%
29.94
2005

17.43
2004 67%

12.26
2003 CAGR
30.6%
11.87
2002

n Tata Motors Ltd n Ashok Leyland Ltd
10 20 30 40 50 60
0
n MM Ltd n Eicher Motors Ltd
n Others


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Indian CV exports have witnessed a more impressive growth

• Exports have grown at a fast pace of over 30 per cent
over the last six years.
• Tata Motors accounts more than 70 per cent
of the CV exports, with Ashok Leyland and
MahindraMahindra making up for a large portion
of the balance.
• LCV goods carriers accounted for 52 per cent
of the overall exports
• Major portion of the exports are to Sri Lanka,
Gulf countries and Africa

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Growth in three wheelers has been driven by the need
for low cost last mile transportation system

Domestic three wheeler Industry (Thousand units) Break-up of Industry by segment (2008)

2008 364.70

2007 403.91

2006 359.92
36%
2005 307.86
64%
284.08
2004

2003 231.53
CAGR 10.5%
200.28
2002

0 100 200 300 400 500

n Passenger Carrier n Goods Carrier


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Growth in three wheelers has been driven by the need
for low cost last mile transportation system

• Three Wheeler sales in India touched a new record
of 0.36 Million registering a growth of 10.5 per cent
CAGR over the last six years
• The proportion of Goods carriers in the
proportion of overall sales has doubled
indicating towards the increased need for
low cost last mile transportation systems
• Sub 3.5 tonne segment in goods accounted
for 71 per cent of the sales and Sub Four seater
segment in passenger versions accounted for
97 per cent of the sales

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The three wheeler market is dominated by Bajaj Auto

• Bajaj Auto Ltd. : Market leader in the Market Share of Key players 2007-08
Three wheeler segment, in the process of revamping
its product portfolio 8%

9%
• Piaggio Vehicles : The Italian manufacturer is one
of the leading players with fast growing market 42%

share, in the process of making India as their
global hub
41%
• MM Ltd: One of the leading players in the segment
• Atul Auto Ltd: Have introduced new products
n Bajaj Auto n Piaggio Vehicles
in the rear engine segment, and also is a manufacturer n MM n Others

of ‘Chakda’’ a Three wheeler reengineered from Two Source: SIAM, IMaCS Analysis

wheeler, popular in the western parts of the country
• Force Motors Ltd: A JV between Bajaj Tempo
and MAN AG of Germany; leading player in the
goods segment

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The Three wheeler market is dominated by Bajaj Auto

• Bajaj Auto emerged the leader in Three Wheeler
industry with 42 per cent share, closely followed
by Piaggio with 41 per cent share
• Bajaj Auto lead the passenger carrier segment
with 54 per cent share, while Piaggio lead the goods
segment with 44 per cent market share

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Exports of Three wheelers have been growing rapidly,
with Bajaj Auto the clear market leader

• Exports of three wheelers touched a new high Three wheeler exports and growth
(Thousand Units)
of 141.24 thousand units, registering a robust
growth of 44.5 per cent CAGR over the last six years 2008 141.24

143.90
2007
• This has been contributed almost entirely
by Bajaj Auto, which accounted for around 2006 76.88

2005 66.80
97 per cent of exports in 2006-07
2004 68.14
• Bajaj Auto exports to Sri Lanka, Egypt, Nepal, 43.37
2003
CAGR 44.5%
Bangladesh among other countries 15.46
2002

0 25 50 75 100 125 150 175

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Indian firms are increasingly partnering with foreign firms

Indian OEM Foreign Partner Type of Partnership
Maruti Suzuki Suzuki Motor Corporation- Equity partner
Japan
Mahindra Logan Renault Joint Venture
Tata motors Fiat Tie-up for manufacturing and
marketing in India

KINETIC Group Sanyang Industry Co Ltd Technology
(SYM- Taiwan
Italjet -Italy Tie-up for manufacturing and
distribution
Hero Honda- Japan Technology
Hero Cycles Ultra Motor Company, U.K Technology
Bajaj Auto Kawasaki Heavy Industries Ltd, Engine Technology
Japan
Engine Technology Technology
Kubota Corp, Japan Technology
LT Ltd Scania-Spain Tie-up for marketing in India
Ashok Leyland Hino-Japan Engine Technology
Irizar-Spain Bus body Technology
ZF-Germany Gearbox Technology
Tata Motors Marco Polo-Brazil Bus/Coach Technology
Cummins-USA Engine Technology

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Three major automotive clusters exist in India

• Major automotive clusters - Mumbai-Pune-Nasik-
Aurangabad (West), Chennai-Bangalore-Hosur
(South) and Delhi-Gurgaon-Faridabad (North)
• Export oriented companies have formed base
in the West/South regions, due to proximity
to ports

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North / Central
• Ashok Leyland • Eicher Delhi-Gurgaon-Noida-
Ghaziabad
• Force Motors • Hero Honda Ludhian Haridwar
a
• Hindustan Motors • Honda
• Honda SIEL • ICML
Jamshedpur
• Kinetic • LML Pitampur Kolkata
• Majestic • Maruti Suzuki
• Piaggio • Yamaha
• Swaraj Mazda • Tata Motors
East
• Hindustan Motors
• Tata Motors Chennai Bangalore Hosur

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West
• Ashok Leyland • Atul Auto Delhi-Gurgaon-Noida-
Ghaziabad
• Bajaj Auto • Daimler Chrysler Ludhian Haridwar
a
• FIAT • Force Motors
• GM • Greaves
Jamshedpur
• Kinetic • MM Pitampur Kolkata
• Piaggio • Premier
• Skoda • Tata Motors

Chennai Bangalore Hosur

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South
• Ashok Leyland • Enfield Delhi-Gurgaon-Noida-
Ghaziabad
• Ford • Greaves Ludhian Haridwar
a
• Hindustan Motors • Hyundai
• Mahindra Mahindra
Jamshedpur
• Tatra • Volvo Pitampur Kolkata
• Toyota Kirloskar • TVS Motors

Chennai Bangalore Hosur

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Indian Auto Policy is designed for supporting the growth of the industry

In 2002, the Indian Government
• Automatic Approval for Foreign
formulated an Auto Policy aimed equity investment up to 100%
• No Minimum Investment Criteria
at promoting an integrated, phased
enduring and self-sustained growth
of the industry
LOW
ENTRY
BARRIER

• Investment Incentives by the • Government’s intention on
Indian Auto Policy 2002
INVESTMENT CONCERN FOR
Local State Governments: Most harmonizing the regulatory
INCENTIVES EMISSIONS
States Customise incentives for standards with the rest of
Large Investments world

EMPHASIS
ON RD

• Weighted Tax Deduction up
to 150 per cent for in-house
research and RD activities
Source: ARAI, IMaCS Analysis

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Indian automotive regulations are in the process
of being aligned with European regulations

• Indian automotive regulations are closely aligned
81 21 20
to the ECE regulations. The diagram below depicts
the level of alignment of the Indian regulations with 2007

the ECE regulations 0 50 100 122

• The key regulations that are likely to impact the n Fully/ Partially Allign n In Process of Being Aligned
n Items/ Regulations to be covered
auto industry and create the need for world class Source: ARAI, IMaCS Analysis
products in the future are crash related regulations
and introduction of Bharat Stage IV norms

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Safety and emission related regulations in India - Achievements and Plans

Achievements Till Date Plan

NCR and 10
EURO - IV Major Cities
NCR and 10 Entire Country
EURO - III Major Cities
Emission Regulations
NCR and 3 NCR and 10 Entire Country
EURO - II Major Metros Major Cities
Entire Country
EURO - I

2000 2001 2003 2005 2010

• Anti Brake Skid –2007
• Brakes•Steering effort•Gradeability•Installation • Truck cab occupant
of mirror, Horn Lighting devices•Rear Under protection -Crash
run Protective Devices (RUPD) Lateral Protective • Super structure of bus. Safety Regulations
Devices (LPD)•Safety belt•Electro Magnetic •Airbags
Interference (EMI)•Wiping system•Rear View • Electro Magnetic Compa-
Mirror etc tibility (EMC)
• Front Under run protecti-
ve Devices (FUPD)

Source: ARAI, IMaCS Analysis

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The Government of India has taken a strong initiative
to strengthen automotive related RD infrastructure

Facilities of National Automotive Testing and RD
Infrastructure Project (NATRIP)

Rae Bareilly Centre
Complete homologation services to Agri Tractors, Off
road Vehicles , Gensets as per Indian or Global standards
Driver Training centre
Center of Excellence For Accident Data Analysis
Commissioning Schedule Phase-I : July 2010; Phase-II :
Aug 2010

Ahmednagar-VRDE Up-Gradation
Research, Design, Development and Testing of Vehicles
Centre of Excellence For Photometry, EMC, EMI,Test
Tracks
Commissioning Schedule Phase-I : July 2010; Phase-II :
Aug 2010

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Pune- ARAI Up-Gradation
Complete homologation services to all vehicle
categories as per Indian or Global Standards
Centre of Excellence For Power Training Development,
Materials, Fatigue
Commissioning Schedule Phase-I : 2008; Phase-II : 2009

Manesar- iCAT
Center of Excellence For Component Development,
NVH

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Silchar Centre
Hill area Driver Training Centre and Inspection
Maintainence Facilities
Centre of Excellence For Driver Training

Indore -Proving Grounds
Complete Testing Facilities to all vehicle categories as
per Indian or Global Standards
Centre of Excellence For Vehicle Dynamics, Tyre
Development

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Chennai Centre
Center of Excellence For Infotronics,EMC,Passive Safety

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GROWTH POTENTIAL OF INDIAN
AUTOMOTIVE INDUSTRY

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GROW T H P OT E N T I A L O F I NDIAN AUTOMOTIVE INDUSTRY

Growth drivers for the Indian automotive industry
- Overall economic growth
- Lower duties and taxes
Government
Policies

- Growth in income levels
- Contemporary products
- Easier financing
New products Increasing consumer
Indian Automotive
- Shorter life cycle
launches demand
Industry

Cost
Competiveness

- Export competitiveness
- Reduced cost to consumer
- India emerging as a manufacturing hub

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GROW T H P OT E N T I A L O F I NDIAN AUTOMOTIVE INDUSTRY

Indian Automotive Mission Plan – Vehicle sales
expected to grow to 32 million by 2015-16

Potential vehicle sales in India (2015-16)
• The size of the Indian automotive industry
million units
is expected to grow at 13 per cent p.a over the next
decade to reach around US$ 120-159 billion Cars 2.65
by 2016
• The total investments required to support the CVs 0.64

growth are estimated at around US$ 35-40 billion
Two 27.8
• The Two wheelers industry is expected to lead wheelers

the growth, with an estimated sales of 27.8 0.87
Three
million units by 2016 Wheelers

• Total export in the automotive sector would 31.96
Total
be around US$ 30-35 billion, of which component
exports would account for US$ 20-25 billion Source: SIAM, ACMA, AMP Vision IMaCS Analysis

and vehicle exports for the rest

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INDIA AS A
MANUFACTURING HUB

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IN D I A A S A M A N U FAC T U R I NG HUB

Global passenger car companies are taking advantage
of India’s manufacturing base

• Nissan Motor Co. has identified India as one of
the five low-cost countries to manufacture its new
generation compact cars, including the Micra.
• Volkswagen is investing in 110,000-unit passenger car
assembly plant, expected to be operational by end of
2009.Volkswagen’s India plans include manufacture of
small cars based on the ‘Polo’ platform.
• Toyota has announced plans for a second plant to
begin operations in 2010, having an initial annual
production capacity of around 100,000 vehicles apart
from the transmission plant which it had already setup
to meet the regional demand.

Source: Industry News

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Global passenger car companies are taking advantage
of India’s manufacturing base

• Hyundai Motors - Hyundai has shifted its entire
production of the Atos Prime, its compact model, to
its Chennai Plant. It has also set up a US$ 40 million
computer-aided design centre in Hyderabad. For the
newly launched Model i10,India would be the sole
manufacturing base. The company also plans to invest
a further US$ 250 million in India by 2013, raising its
cumulative investment in the country to around
US$ one billion.
• General Motors, the US$ 60 million technical centre
in Bangalore will be its powerhouse for developing
future technologies and shaping new cars.
• Ford Motor Co: It exports 58 per cent of the total
production from India.

Source: Industry News

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Indian Auto Industry is witnessing more JVs and acquisitions than ever.

• Mergers, acquisitions and joint ventures have
continued to be the driving force in the Indian
automobile industry in sync with the dynamics of an
open market. Leading automobile companies have
either set up their own manufacturing base in India or
have tied up with Indian automotive firms to roll out
new products from Indian market. The list includes
International, MAN, Daimler, Toyota, Nissan, Renault,
Fiat, Honda, Kawasaki, Cummins and many more.
During the first half of 2008, Daimler AG bought 26
per cent stake in Sutlej Motors.
• Indian companies have also been bullish in acquiring
foreign automobile companies to reinforce their
presence in the global market. The landmark deal in
the first half of 2008 has been Tata Motors’ acquisition
of Jaguar-Land Rover from Ford for US$ 2.30 billion.
During this period MM acquired three Italian
companies - GR Grafica Ricerca, Metalcastello and
Engines Engineering.
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Several factors make India a favourite investment destination

Proven product developmental capabilities Proximity to Markets
- More than 125 Fortune 500 (including - Proximity to other Asian economies
large auto companies) have RD cen- - Proximity to the emerging markets like
tres in India Africa
- Companies can leverage India’s acknow- - Shipments to Europe are cheaper than
ledged leadership in the IT industry those from Brazil and Thailand

High quality standards
- 11 Indian component manufacturers
Stable economic policies
have won the Deming Award for quality
- Continuity in economic reforms
- Most leading component manufacturers
and policies related to investments
are QS and ISO certified
India as
an Auto
Large and growing domestic demand Hub
- Demand growth of 14% CAGR makes Competitive manufacturing cost
India one of the fastest growing markets - Skilled labour costs amongst the lowest
in India

Availability of Manpower Export Potential
- 0.4 million Engineering graduates pass - Total value of exports by 2015 expected
out every year to reach US$ 8–10 billion for vehicles
- Seven million enter workforce every year and US$ 20–25 billion for components

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Competitiveness of Indian automotive manufacturing

In order to emerge as a manufacturing hub,
India would face competition from other low
cost countries such as
• China
• Thailand
• Brazil
IMaCS has compared the cost competitiveness
of automotive (car and CV compared separately)
manufacturing in India with respect to these
countries in terms of factors like
• Taxes and duties
• Cost of manufacturing (for example, power
and fuel costs, labour costs, including
productivity interest rates)
• Economies of scale

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Competitiveness of Indian automotive manufacturing

Competitiveness of manufacturing in India can
be improved by reducing the level of taxes and
the cascading impact of taxes and by improving
the business infrastructure

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Tax structure in India vis-à-vis other countries

The burden of direct and indirect taxes is higher India Brazil China Thailand

in India than in other countries Excise Small CVs* - - -
Cars*
• Government of India announced an across the 8.18% 12.27%
+cess +cess
board excise duty reduction of four per cent across
VAT 12.5% 17% 17% 7%
automobiles on December,7 2008. In case of Bus
Other Taxes - 15%# - -
chassis, Excise duty is further less at 8.18 per cent.
Corporate Tax 34% 34% 25% 30%
#Refers to local taxes(WHT) Exemptions Specific Tax incentives Preferential Tax incentives
packages for companies corporate for investments
^Import duty on heavy plates have been reduced to twp provided by in export tax policies outside central
states for large processing for Foreign zone
per cent, but with a cap of 20,000 tonnes. investments zones Investment
Enterprises
Import duty on 13% 16% 8% Free
rubber
Import duty on 5% 12%^ 2% 10%
steel

Source: GOI, Apectariff,

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Labour Labour Productivity in India vis-a-vis other countries

• India compares favourably with other low cost India Brazil China Thailand

countries in productivity adjusted labour cost Labour cost (US$/hour) 0.75 4.2 0.75 0..8

• Indian labour productivity in the manufacturing Labour cost (US$/day)* 6 33.6 6 6.4
sector is on an increase with the application of Productivity index** 1.0 2.0 1.0 1.2
production management techniques and many Productivity adjusted 6 16.8 6 5.33
companies have doubled their productivity labour cost (US$/day)

in last five years *Assuming 8 hour shift per day
** Gross value added per person employed when compared to India
• Government of India has earmarked nearly Rs
10 billion for human resource skill development Source: GOI, Apectariff,

initiatives across industry sectors.

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Power Cost in India vis-à-vis other countries

• Recent downturn across the global economy has Power costs
forced the central banks of major countries to slash Country Cost per kwh (US$)
lending rates. India 0.14
Brazil 0.05
• Power cost in India is the highest amongst the
China 0.03
competing countries Thailand 0.11

• However, power cost accounts for around
3 per cent of the overall cost structure, hence not
a significant disadvantage Interest costs

• Power costs in India varies by state and Country Annual lending interest rate
is as low as US$ 0.1 in states like Maharashtra India 10-11%
Brazil 14-16%
• With privatisation and competition in the China 5-6%
emerging Indian power sector, cost of power Thailand 7-8%
is expected to come under control
• Interest rates in India are high as compared
to competing countries, but expected to soften
in the future

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Cost competitiveness - India versus China

• Indian manufacturers suffer from a cost Cost breakup Cars CV

disadvantage vis-à-vis Chinese manufacturers Cost of vehicle of an Indian 100 100
mainly because of higher level of taxes and their Company
Less
cascading impact, higher cost of labour (arising Taxes and Duties Net state level -1.2% -1.89%
out of inflexible labour laws) and higher interest levies and cascading
impact of taxes
costs and power and fuel costs
Import duty on -0.62% -0.34%
raw materials
• Power costs in India vary from state to state, and
Corporate taxes -0.24% -0.24
is much lower than the average considered for Total -0.0% -.%
calculations in the power surplus, hydroelectricity Industry costs Power fuel -3.4% -3.6%
generating states. Labour cost - -
Cost of funds -0.8% -0.8%
Total -.% -.%
Cost disadvantage -6.02% -11.4%
for India
Economies of scale no diff no diff
Total cost -.% -.%
disadvantage for
India

Source: Government websites, discussions with leading automotive players, IMaCS analysis

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Cost competitiveness - India versus Thailand

• Indian vehicle manufacturers have a small cost Cost Break-up Cars CV

disadvantage vis-à-vis Thai vehicle manufacturers, Cost of vehicle of an Indian 100 100
primarily due to higher level of taxes in India. Company
Less
The cost disadvantage has reduced by 2.23 per cent Taxes and Duties Net state level -4.69% -5.36%
over last year in the case of small cars due to two levies and cascading
impact of taxes
consecutive cuts in excise duty announced by GOI in
Import duty on -0.1% -0.1%
FY 2008-2009. raw materials
Corporate taxes -0.2% -0.20%
• However the large market potential and steady
Total -.% -.%
growth of the Indian market more than makes Industry costs Power fuel -1.26% -1.11%
up for this disadvantage. Labour cost -0.3% -0.5%
Cost of funds -0.5% -0.66%
Total -.0% -.%
Cost disadvantage -6.85% -7.73%
for India
Economies of scale no diff no diff
Total cost -.% -.%
disadvantage for
India

Source: Government websites, discussions with leading automotive players, IMaCS Analysis

0 www.ibef.org


Cost Competitiveness - India versus Brazil

• India is competitively positioned vis-à-vis Brazil Cost Break-up Cars CV

in cars as well as CV Cost of vehicle of an 100 100
Indian Company
• India enjoys greater scale advantage as compared to Less
Brazil in the case of cars as capacity utilisation Taxes and Duties Net state level levies -0.2% -1%
and cascading impact
in India is better, despite Brazil having larger of taxes
installed capacities Import duty on raw - -
materials
Corporate taxes - 0% - 0%
Total -0.% -1.0%
Industry costs Power Fuel - 2.36% - 2.56%
Labour cost 8% 16.4%
Cost of funds 0.1% 0.16%
Total .% .1%
Cost advantage for 5.54% 13.0%
India
Economies of scale 7% no diff
Total cost 1.% 1.0%
advantage for India

Source: Government websites, discussions with leading automotive players, IMaCS Analysis

1 www.ibef.org


Conclusions

• India has a cost advantage when compared
to Brazil
• However, India suffers from a cost disadvantage
vis-à-vis China and Thailand, primarily due
to high level of taxes and their cascading impact
• India, in the near future is expected to go ahead
with the abolition of interstate Central Sales Tax
(CST), which will reduce the cascading impact
of taxes to some extent

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Conclusions

• Implementation of Goods Services tax
(along the lines of VAT) and abolition of all
other taxes by 2010 is under consideration, which
will reduce the taxation loading on the automotive
sector considerably. This step is expected to
strengthen India’s future position as a leading
automobile manufacturing hub
• Various steps being taken by the Indian
government in improving infrastructure would
reduce the disadvantage that India suffers from
because of poor infrastructure that causes
project delays, delays in deliveries and so on.
This would increase the demand for road
transportation in the country

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AU TO M OT I V E I N D U S T RY
December 2008

DISCLAIMER

This presentation has been prepared jointly by the India Brand Author’s and IBEF’s knowledge and belief, the content is not
Equity Foundation (“IBEF”) and ICRA Management Consulting to be construed in any manner whatsoever as a substitute for
Services Limited, IMaCS (“Authors”). professional advice.
All rights reserved. All copyright in this presentation and related The Author and IBEF neither recommend or endorse any
works is owned by IBEF and the Authors. The same may not be specific products or services that may have been mentioned
reproduced, wholly or in part in any material form (including in this presentation and nor do they assume any liability or
photocopying or storing it in any medium by electronic responsibility for the outcome of decisions taken as a result
means and whether or not transiently or incidentally to some of any reliance placed in this presentation.
other use of this presentation), modified or in any manner
Neither the Author nor IBEF shall be liable for any direct or
communicated to any third party except with the written
indirect damages that may arise due to any act or omission
approval of IBEF.
on the part of the user due to any reliance placed or guidance
This presentation is for information purposes only. While due taken from any portion of this presentation.
care has been taken during the compilation of this presentation
to ensure that the information is accurate to the best of the

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Indian Automotive Industry Presentation 010709

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