Establishment of Tyre manufacturing unit. Automobile and auto components Government of Gujarat

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1 Establishment of Tyre manufacturing unit Automobile and auto components Government of Gujarat

Contents Project Concept 3 Market Potential 4 Gujarat Competitive Advantage 6 Growth Drivers 7 Project Information 8 - Location - Infrastructure

2 Contents Project Concept 3 Market Potential 4 Gujarat Competitive Advantage 6 Growth Drivers 7 Project Information 8 - Location - Infrastructure Availability - Raw Material/ Manpower - Key Players - Major plant and machinery/equipment Project Financials 11 Approvals & Incentives 13 Page 2

3 Project Concept Indian Auto Component Industry Overview The Indian auto-components industry has grown at a steady pace in last few years owing to a buoyant end-user market, improved consumer sentiment and return of adequate liquidity in the financial system. According to the Automotive Component Manufacturers Association of India, the industry is expected to register a turnover of US$100 billion by 2020 backed by strong exports, and is set to become the third largest in the world by 2025.The Indian auto-components industry can be classified into - organised and unorganised sectors. It comprises of around 700 organized players and a few thousand unorganized players, with its size at about INR2.3 trillion in FY15. During FY15, the industry reported a growth of 11% y-o-y primarily due to recovery in domestic demand and exports. The future demand is expected to be driven by high automobile demand in India, especially from the middle class and in is expected to grow at a CAGR of 8 9%, during FY15 20 to reach 200 million units by FY20. Indian Auto and Auto Components Industry Classification Automobile Passenger cars Two-wheeler Three-wheeler Commercial vehicles (CV) Cars Motorcycles Commercial purpose Light CVs Utility vehicles Scooters Passenger carrier Medium and heavy CVs Multi Purpose vehicles Mopeds Mining equipment and earth movers Auto components Engine and engine parts Powertrain parts Suspension and braking parts Lighting and other equipment Tyres Accessories and others Source: O9hLECvTuNueppNFKWCExayUoGQImfWe Page 3

4 units billion Market Potential Global tyre industry overview The global tyre market is expected to grow at a CAGR of 6.8% during to reach a market size of US$ billion by A rise in demand for passenger and commercial vehicles, Global tyre demand % technological advancement and innovation are 1.0 0% expected to drive the industry. The tyre demand in 2015 is estimated at 1.66 billion units and is expected to rise a CAGR of 2.8% to reach 1.80 billion units in 2018, majorly driven by demand in emerging markets, especially in China and India E 2017E 2018E Global tire demand (volume) Growth -10% India tyre industry trends The Indian tyre market is one of the fastest growing markets globally. ICRA pegged Indian tyre industry to be worth INR520 billion in FY15, growing at a CAGR of 12.6% during FY11 15 in terms of revenues. The revenues are expected to grow by 7 8% during FY16, up from 5.7% during FY15, due to rising vehicle demand and an improving economy. Continued benefits of expected lower raw material costs, particularly during the first half of FY16, and an anticipated increase in exports are expected to support demand in the industry. Tyre production in India grew at a CAGR of 8.3% during FY10 15 to reach 146 million units in FY15. The domestic tyre demand grew by 13% during FY15, supported by % growth in OEM segment and 12 15% growth in the replacement segment. ICRA expects the tyre industry to report a growth of 4 6% during FY16 18, supported by pick up in auto OE demand across segment, and reach around 200 million units by Source: Automotive Tyre Manufacturers' Association -- Production and Export Trend EU tyres update, HSBC Global Research, 1 February 2016, via ThomsonOne Page 4 98 The healthy demand for OEMs, coupled with continued radialization in the CV segment, is projected to aid the long-term growth of the industry. However, prices of several key input materials are currently at an all-time low on account of the fall in global demand. Moreover, with the US imposing anti-dumping duty on Chinese tyres, imports of such tyres into India has surged over the past several months, adding to the pressure on Indian tyre makers. There was a 60% rise in tyre imports in India during FY15. Indian tyre production (in million units) FY10 FY11 FY12 FY13 FY14 FY15 FY20E

5 Market Potential Segmental share of total production (FY15) Two and thee wheeler 52% Others 4% Truck and bus 12% Light Trucks 7% Passenger cars and Jeep 25% Based on type of vehicles, the Indian tyre industry can be broadly segmented into commercial vehicle tyres and passenger vehicle tyres. The commercial vehicle tyre segment includes truck tyres for M & H CVs and LCV tyres; the passenger vehicle tyre segment includes cars, utility vehicles and two-wheeler tyres. While the twowheelers have the largest share by volumes, in terms of value truck and bus tyres constitute majority of the market. Auto industry in Gujarat Gujarat is emerging as a key investment destination for the major auto players. It is one of the leading states in owning vehicles with 14.4 million total vehicles in FY12. The state is set to become the country's automotive hub within the next few years. Gujarat government plans to increase the share of automotive industries in its overall engineering output to 10% by 2020, from the current 3.7%. Gujarat expects to surpass the production capacity of top car manufacturing states like Haryana, Maharashtra and Tamil Nadu, with an installed capacity to roll out 10 lakh units annually within the next 3 4 years. In addition, as many as 350 ancillary units are expected to come up in Sanand-Mandal- Becharaji region over the next three years. This is expected to attract an investment of around INR10,000 15,000 crore in the coming decade. Gujarat is set to become a hub for both Indian and global tyre manufacturers in the country, augmented by the revival in automobile demands and formation of new auto-clusters in the state. Recently, MRF has announced its plan to set-up a tyre manufacturing plant in the state, likely in Bharuch. Taiwanese tyre company Maxxis Group is in the process of setting up its manufacturing plant in Motown Sanand with an investment of INR25 billion, while top tyreproducing companies like CEAT and Apollo Tyres are already running their plants in Halol and Vadodara, respectively. Incremental manpower requirement in Gujarat for the manufacturing of engineering goods is expected to be 53,580 during Source: Sectorial risk outlook: Tyre, July 2015, Dun and Bradstreet Indian tyre industry, September 2014, ICRA Page 5

6 Gujarat - Competitive Advantage Skill development and training in auto sector is a focus area for Gujarat government Gujarat is a hub of engineering industry, with the manufacturing and engineering sector in Manufacturing and engineering sector growth Well-developed skill development industry Gujarat has a strong educational infrastructure in automobile sector with 27 colleges providing technical Gujarat contributing over education in the sector with 27% to the state s GSDP annual intake capacity of and contributing 9% 1,980, and additionally 111 overall to the national colleges provide technical engineering output. education in mechanical field. The Gujarat government has recently passed the Labour Laws Bill (December 2015), to give an impetus to industrialization in the State. Favorable labor policy Government focus to develop CoEs Industrial automation COE in Mehsana. Government of Gujarat has decided to set up an international Centre of Excellence at PDPU to strengthen R&D and skill development in automobile sector in joint venture with Maruti Suzuki India Ltd. (MSIL). In addition to the national level incentives, the Gujarat government Financial incentives Better social infrastructure Gujarat has one of the lowest cost of living amongst all the States and is relatively less is providing financial congested and polluted incentive for setting up of offering better standards of CoEs for the living to the inhabitants. manufacturing sector. Source: _1.html Page 6

7 Growth Drivers 1 2 Recovery in domestic vehicle sales Rising demand for radial tyres The domestic automotive industry has witnessed a gradual recovery in following two years of demand slowdown because of weak economic activity, rising inflation, poor consumption and liquidity constraints. The recovery has been primarily supported by the two wheeler and Medium and Heavy Commercial vehicle (M&HCV) segments.. The major demand for radial tyres has been witnessed in the truck and bus segment due to improved road infrastructure and the introduction of fuel-efficient products in the automobile industry. Furthermore, although tyre production in the passenger car segment is already completely radialized, the number of radial tyres in various segments of the market is expected to increase. 3 Favourable input costs driving margins 4 Poor infrastructure augmenting the replacement tyre demand 5 Improving economic growth to drive OEM demand The industry is recording sharp expansion in profits, driven by low input costs. Although the prices of natural rubber trended upward during 4Q15 due to policy measures, they are still trading lower at INR120-INR130 per kg in July 2015, compared with INR143 per kg in July Crude-linked material such as synthetic rubber, carbon black and rubber chemical remains favourable. The correction in the low prices of natural rubber is expected in months Of the overall road network, national highways are the most modernized and developed, but they account for 1.6% of the total road network. Inadequate and poor road infrastructure causes early damage to tyres, which has been fuelling replacement demand for tyres. About 48% of total tyre production is supplied to the replacement market. The replacement market for tyres is the highest for trucks/buses and tractor front tyres. Demand in the automobile industry is closely linked to economic growth. A slowdown in economic growth over the past two fiscal years has affected overall consumer and investor sentiment, and consequently overall auto industry sales. However, going forward, various pro-growth measures adopted by the new Government are expected to impact the auto industry and allied sectors, including tyre industry, favorably. Source: Automotive Tyre Manufacturers' Association -- Production and Export Trend EU tyres update, HSBC Global Research, 1 February 2016, via ThomsonOne Page 7

Project Information Project at a Glance Project Name Location Area of the Estate Focus Sector Target Audience Tyre manufacturing Halol, Gujarat 600 ha Automobiles and ancillary units, Auto-component,

8 Project Information Project at a Glance Project Name Location Area of the Estate Focus Sector Target Audience Tyre manufacturing Halol, Gujarat 600 ha Automobiles and ancillary units, Auto-component, Tyre rubber, Engineering, Plastics, Electrical and Electronics MRF, Apollo Tyres, JK Industries, CEAT, TVS Srichakra, Balkrishan Industries Project site Halol (Gujarat) Halol is an indicative location for establishment of the proposed unit. The city in Panchmahal district of Gujarat, spread over 600 hectares of land. Alternatively, the plant can be set up in other suitable locations in the State. There is a 220 KV power station and 220 KV power line passing through Halol and two 66 KV substations in proposed Halol site. There is a continuous 3-phase, power supply in the region. Water supply is made available from Narmada main canal. There is a 20 millions of liters per day water exclusively available to the existing industries. There is a gas distribution line passing through the proposed Halol-Savli sites. The gas connectivity is laid and maintained by Gujarat State Petroleum Corporation. There are several automobile, engineering and tyres manufacturing companies in the region, including General Motors, Hero Motor, Bombardier, Larsen & Tourbo, Apollo Tyres and CEAT. Halol has the advantage of a Broad Gauge railway network at a close distance of kms and is connected to Vadodara through SH87 and to Savli through SH158. Vadodara Domestic Airport is the nearest airport located at a distance of 35 kms from Halol. Port Connectivity is available with three ports Dahej, Hazira, Kandla and Mundra. Page 8

9 Infrastructure Availability Logistics & Connectivity Rail Road The broad gauge double track rail line from Vadodara to Godhra passes along at a distance of around km from Halol industrial area with the railway station at Kahakariya village of Savli Taluka. The Halol industrial area is connected to this railway line through SH150. Halol is connected to NH8 and NE1 through 4 lane State Highway No 87. SH87 connect Vadodara to Halol, SH150 connects Halol to Savli. The proposed Delhi Mumbai Industrial Corridor is located at 35 kms from Halol, which is connected to the corridor through SH87. Air Port Ahmedabad International Airport is located at a distance of 135 kms from Halol. The nearest airport is Vadodara Domestic Airport located at 35 kms from Halol. Closest ports are Dahej cargo port and Hazira port at a distance of 185 kms and 200 kms, respectively. Mumbai JNPT is 400 kms from Halol. Other accessible ports include Mundra and Kandla. Utility Water Power Gujarat has a state-wide water supply grid spread across 1,20,769 km that aims to serve 75% of Gujarat s population. Gujarat Industrial Development Corporation (GIDC) is responsible for ensuring consistent water supply in industrial areas Gujarat boasts of 24 hour 3 - phase uninterrupted power supply Source: Page 9

10 Key Players Leading Players Planned investments (as on June 2016) Company Investment (INR billion) Location MRF Ltd. 40 Bharuch Maxxis Group 26 Sanand Key existing facilities Company Investment (INR billion) Area (Acres) Location CEAT Tyres Ltd. ~ Halol Apollo Tyres Ltd. ~20 - Limda Balkrishna Industries ~ Bhuj Govind Rubber Ltd (GRL) ~8 64 Dahej Alliance Tire Group (ATG) ~ Dahej The major plant and machinery / equipment required to manufacture tyre include Banbury Mixers Extrusion machines Feeding conveyors Calendering machines Chopping machine/ pork chop Fabric cord manufacturing machine Bead and belt steel cord manufacturer Tyre building machine (TBM) Curing machine Drums/rollers/cutters/slitters/chippers Moulding machines SCADA system Human Machine Interface Pneumatic Valve Correction System Laser Mark Jointless Belt Array Mooney Viscometer/Rheometer Chilled water plant for cooling Dosing pumps Source: list?p_p_id=projectlist_war_projectportlet&p_p_lifecycle=0&p_p_state=normal&p_p_mode=view&p_p_col_id=column- 1&p_p_col_count=1&_projectlist_WAR_Projectportlet_jspPage=%2Fhtml%2Fprojectlist%2Fview.jsp&_projectlist_WAR_Projectportlet_searchType=S ub+sector&_projectlist_war_projectportlet_id=45&_projectlist_war_projectportlet_projecttypeeids=&_projectlist_war_projectportlet_delta=20&_p rojectlist_war_projectportlet_keywords=&_projectlist_war_projectportlet_advancedsearch=false&_projectlist_war_projectportlet_andoperator=tr ue&_projectlist_war_projectportlet_orderbytype=asc&_projectlist_war_projectportlet_resetcur=false&_projectlist_war_projectportlet_cur=2 Page 10

11 Project Financials Estimated Project Cost and Means of Finance* Project cost: The estimated project cost is INR 20 billion, including land (approximate investment done by the Tyre manufacturers in the region). This is basis the two manufacturing units built by CEAT and Apollo Tyres around Halol. Cost segmentation: The tyre-manufacturing industry is highly raw material-intensive, with raw material accounting for around 65% of total production costs. Within the raw material segmentation, natural rubber accounts for nearly 44% of costs in the tyre industry. Manufacturing cost segmentation Industry raw material mix Raw materials, 65-67% Production equipment and other expenses, 22-24% Selling and administration, 8-10% Employees, 5-7% Carbon black 12% Synthetic rubber 14% Rubber Others chemicals 6% 5% Nylon tyre cord fabric, 19% Natural rubber 44% Means of finance: Majority of the funds are expected to be contributed by the private players. Area: About Spread over a total of 150 acres (40 acres built-up area; 35 acres green belt and 75 acres open area) Installed capacity: 5 7 million per annum Manpower requirement: An average of 1200 employees required in a tyre manufacturing plant Breakeven: Reached in nearly 3-5 years at about 65 75% with a capacity of tonnes per day *The time required for getting various government clearances is about 3 4 months. The proposed project would have implementation period of about 8 10 months Page 11

12 Project Financials S. No Cost parameters Cost/ Area Total investment including land (INR billion) 20 1 Land (Acre) Average land price in Halol** per sq meter as per GIDC, INR Total land cost in INR Cr (Area 150) X average land price (1250)) Investments on plant, machinery, building, civil work, raw material etc, INR billion (Total investment (2,000) land cost(60)) Raw material Plant and production equipment expenses 4.27 Selling, administration, employees and other costs 1.55 Employees 0.97 **Assuming the land is purchased, not rented (in Halol); allotment price of GIDC estates w.e.f 1 September 2016 Source: Tire Market in India , June 2013, Technavio Insights via ISI Emerging Markets WCBowAA&url=http%3A%2F%2Fwww.invest.mp.gov.in%2Fruledownload.action%3FFILE_NAME%3DAUTO_COMPONENETS_TYRES&usg=AFQ jcnecxmiqqqkrribgtyqdb1pfyuugtw&sig2=sfkei04hkub0yjrussuera&bvm=bv ,d.dgo _1.html Page 12

13 Approvals / Incentives Gujarat Industrial Policy 2015 Government of Gujarat has announced an ambitious Industrial Policy, in January 2015, with the objective of creating a healthy and conducive climate for conducting business and augmenting the industrial development of the state. Quantum of incentives The incentives under this policy will be available to all the Talukas listed in Government Resolution dated 25/7/2016 except municipal corporation areas. Category of Project Location (Taluka) % of eligible fixed capital investment entitled for Incentive % of Net VAT reimbursement to the unit % of Net VAT to be paid to Government Incentive period (no. of years) Net VAT incentives Net VAT incentive will be reimbursed to the industrial undertaking in one financial year will not exceed one-tenth of the total amount of eligible incentive. Classification of the Project Amount (in INR crore) Ultra Mega Industrial Unit 500 Mega lndustrial Unit 400 Large Industrial Unit 150 Micro, Small or Medium Industrial Unit 50 Industries in the Automobile Sector can opt for either the general incentives under the Gujarat Industrial Policy or the incentives under the scheme for Mega / Innovative Project as provided below: Mega projects have been defined under the policy as having an actual investment of atleast INR 1000 crores and projects which provide employment to atleast 2000 persons (both of these conditions must be met in order to be deemed a mega project. The assistance to such projects under the scheme are: Financial assistance to the Mega/Innovative Projects will be decided on merit on a case to case basis The State Government may make special dispensation for the land use and tenure conversion for Mega / Innovative Projects. If the Mega/Innovative require support of ancillary units and if such support is to be extended by MSME untis, GIDC would identify land for setting up of such MSME ancillary units GIDC would assist, if required, in identifying land for setting up of Mega/Innovative Projects as their anchor clients Page 13

14 Approvals / Incentives Incentives from Government of India for growth in tyre industry India has signed Free Trade Agreements (FTAs) and regional trading agreements (RTAs) with its neighbouring countries, including China, South Korea, Sri Lanka, Bangladesh, Bhutan and the Maldives. These enable the signatory countries to benefit from the preferential rate of customs duties in India. Union budget 2015 and 2016 provisions for the tyre industry: Reduction in basic custom duty on butadiene and EPDM, a key input material used in synthetic rubber manufacturing Proposal to provide 15% deduction as investment allowance to a manufacturing company that invests more than INR 250 million in any year in plant and machinery for a period of three years announced Proposal to provide additional depreciation of 20% against 10% on new plant and machinery installed by a manufacturing unit, if the asset is installed after 30 September 2015 Major policy initiative for road infrastructure that will indirectly impact the tyre industry; growing and improving road infrastructure in the country is likely to support growing radialization in the Indian tyre industry (increasing radialization is considered as an index of the status of road development in the country, technology development and overall economic growth). According to ATMA, although the basic custom duty on tyres is 10%, under the various trade agreements, the duty is actually lower which has resulted in a growing volume of tyre imports. The association has urged the government to reduce the custom duty on natural rubber to facilitate imports and increase the duty on tyre imports. Page 14

15 Approvals / Incentives Indicative List of Approvals Approvals/clearance required Incorporation of company Registration/Industrial license Allotment of land No objection certificate (NOC) under air and water pollution control acts Approval of construction and country planning Use and storage of explosives Finance Registration under state sales tax act and Central and State excise act Code number for export and import Environmental clearance Facilitation for setting up project Exiting business Department to be approached and consulted Registrar of companies Secretariat if industrial assistance (SIA) for large and medium scale industries State industrial development corporation State pollution control board Town and country planning Municipal and local authorities Chief inspector of factories Pollution control board Electricity board Chief controller of explosives For loans higher than INR 1.5 crore, all India financial institutions like Industrial Development Bank of India(IDBI), Industrial Credit and Investment Corporation of India(ICICI), Industrial Finance Corporation of India(IFCI) etc. Sales tax department Central and state excise department Regional office of director general of foreign trade Ministry of environment, forest and climate change after conducting environment impact assessment (EIA) for any project Industries Commissioner will facilitate for state clearances required to set up project. Ministry of corporate affairs GoG has introduced single window facilitation portal for investors with undermentioned benefits: Centralized system to monitor applications User friendly and simplified application process for investors System for authorities and investors to check the status of applications Increased departmental ownership The unit shall be facilitated through Investor Facilitation Portal for obtaining all the necessary state approvals/ clearances - Page 15

Industries & Mines Department www.imd-gujarat.gov.in Gujarat Industrial Development Corporation www.

16 Industries & Mines Department Gujarat Industrial Development Corporation Office of Industries Commissioner Industrial Extension Bureau This project profile is based on preliminary study to facilitate prospective entrepreneurs to assess a prima facie scope. It is, however, advisable to get a detailed feasibility study prepared before taking a final investment decision. Office of The Industries Commissionerate Block No. 1, 2nd Floor, Udyog Bhavan, Gandhinagar Gujarat Ph.: / ID: iccord@gujarat.gov.in

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