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

Transcription

1 A U TO M OT I V E I N D U S T RY October

2 AUTOMOTIVE INDUSTRY October 2007 Contents Profile of Indian Automotive Industry Growth Potential of Indian Automotive Industry India as a Manufacturing Hub

3 PROFILE OF INDIAN AUTOMOTIVE INDUSTRY

4 Evolution of the Indian automobile industry Pre Closed market Growth of market limited by supply Outdated models - Players Hindustan Motors Premier Telco Ashok Leyland Mahindra & Mahindra Japanisation - GoI- Suzuki joint venture to form Maruti Udyog Joint ventures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

5 Indian automobile industry crossed a historic landmark of 10 million vehicles in India s position in world production 2nd in two wheelers 11th in passenger cars 13th in commercial vehicles Indian auto industry sales grew to billion units in , exhibiting an impressive CAGR of 15.5% during the past 5 years Two wheelers have the maximum share in the industry by volume, followed by passenger vehicles, three wheelers and commercial vehicles Maximum growth has been witnessed in the commercial vehicles segment, followed by three-wheelers Automotive sales (domestic and exports ) Source: SIAM, IMaCS analysis Segment million units Share in total CAGR Two wheelers 76.2% 14.5% Passenger vehicles 14.2% 16.7% Three wheelers 4.9% 20.5% Commercial vehicles 4.7% 26.7% CAGR 15.5% 11.12

6 The OEM as well as the component industry is highly competitive GM Toyota Ford Hyundai Maruti Suzuki Honda Skoda Volvo Mercedes Delphi Visteon Bosch Denso Valeo Thyssen Krupp Global OEM Global Suppliers Indian OEM Indian Suppliers Tata Motors Mahindra & Mahindra Bajaj Auto TVS Motors Hero Honda Bajaj Tempo Ashok Leyland Bharat Gorge Sundram Fasteners Rane Group Shriram Pistons RICO Auto Sona Koyo Steering

7 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

8 Most automotive players are present in more than one segment Manufacturer Segments Manufacturer Segments Ashok Leyland LCVs, M&HCVs, buses Mahindra & Mahindra Three wheelers, cars, MUVs, LCVs Asian Motor Works M&HCVs 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, M&HCVs, 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, M&HCVSs, buses Ford India Cars and MUVs Tata Motors Cars, MUVs, LCVs,M&HCVs, buses General Motors India Cars & MUVs Tatra Vectra Motors M&HCVs 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 M&HCVs, 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; M&HCVs: Medium and heavy commercial vehicles

9 Two wheelers industry is dominated by motorcycles Domestic two wheeler industry Break up of the industry by segment Million units Source: SIAM, IMaCS Analysis CAGR 13% Motorcycles Mopeds 5% 12% 83% Scooters Scooter/Scooterette : Wheel size less than or equal to 12 inches Motorcycle: Wheel size more than 12 inches Mopeds: Engine capacity less than 75 cc with fixed transmission, wheel size more than 12 inches Electric Two Wheelers: Electrically Driven

10 Two wheelers industry is dominated by motorcycles Domestic two wheeler industry has steadily grown at a CAGR of 13% to reach 7.85 million units in 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% 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

11 While the motorcycles segment is growing, the scooter segment is shrinking Scooter segment as a whole has been shrinking, except for the A2 segment Bikes having engine capacity cc corner the major share of the two wheeler market Cost of ownership and economics of operation are most important criteria determining purchase Segment-wise analysis of two wheeler market Segment Description Share in A1 A2 A3 B2 B3 B4 Scooter with engine capacity less than 75 cc Scooter with engine capacity between cc Scooter with engine capacity between cc Motorcycle with engine capacity between cc Motorcycle with engine capacity between cc Motorcycle with engine capacity above 250 cc Share in CAGR 5% 0% -33.9% 5% 10% 32.9% 12% 1% -27.7% 62% 66% 14.9% 5% 17% 44.8% 1% 1% 5.7% C1 Mopeds 10% 5% -2.7%

12 The domestic two wheeler market is dominated by Indian as well as foreign players Hero Honda: Largest Two-wheeler manufacturer in the world Bajaj Auto: Second largest Two-wheeler manufacturer in India and the largest 3 wheeler manufacturer TVS Motor Co: Third largest Two-wheeler manufacturer in India. Established a manufacturing facility in Indonesia Honda Motors: Has recently entered the Indian market through its direct subsidiary (in addition to its joint venture Hero Honda) Suzuki: Has recently entered the Indian market through its direct subsidiary Market share of key players in % 9% 42% 19% 27% Hero Honda Motors Bajaj Auto Ltd TVS Motor Co, HMSIL Others Source: SIAM, IMaCS analysis

13 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 20 models launched in

14 Two wheelers exports have grown at an impressive CAGR of 42% Two wheeler exports from India Thousand units Market share of key players in exports % % CAGR 42.8% 46% % % Source :SIAM, IMaCS Analysis (in 000 units) Bajaj Auto TVS Motor Company Others Source: SIAM, IMaCS Analysis Hero Honda Motors Ltd Yamaha India

15 Two wheelers exports have grown at an impressive CAGR of 42% Exports of two wheelers have grown at over 42% CAGR in last 5 years Majority of exports are to Bangladesh, Sri Lanka, Bhutan and Nepal Highest growth (CAGR of 57.2%) witnessed in motorcycles segment, which constituted 88% of Two-wheeler market Most of the bikes exported were those with engine capacity below 125 cc, indicating preference for Indian made economy bikes Bajaj Auto is the market leader in exports with 46% share

16 Passenger vehicles segment in India is dominated by cars Domestic passenger vehicles industry thousand units Domestic passenger vehicles industry % CAGR 15.4% 78% Source: SIAM, IMaCS Analysis Passenger cars SUVs/MVs Source: SIAM, IMaCS Analysis

17 Passenger vehicles segment in India is dominated by cars The domestic Indian passenger vehicles market has grown at a CAGR of 15.4% over the last 5 years to reach 1.38 million units in Passenger cars, contributing to 78% of volumes, grew at a CAGR of 16% The remaining share is with utility vehicles and sports vehicles

18 All major global players in passenger vehicles segment have a presence in India Maruti Udyog: Largest passenger car manufacturer in the country, India considered as strategic market by Suzuki Tata Motors: Largest automotive player in the Indian industry; launching the Rs. 1 lakh (US$ 2,500) car Hyundai Motors: Third largest passenger car manufacturer in India, has established India as one of its manufacturing bases in the world Market shares of key players in % 13% 7% 46% 14% 16% Maruti Udyog Ltd. Tata Motors Ltd. Hyundai Motor India Ltd. Mahindra & Mahindra Toyota Others Source: SIAM, IMaCS Analysis

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

20 All major global players in passenger vehicles segment have a presence in India 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% market share, closely followed by Tata Motors and Hyundai Motors at 16% and 14% respectively

21 India is increasingly becoming a manufacturing hub for passenger cars Cars Exports from India Thousand units Market share of key players in Exports % % CAGR 30% 12% % % Source: SIAM, IMaCS Analysis Hyundai Motor India Ltd. Ford India Pvt Ltd. Others Source: SIAM, IMaCS Analysis Maruti Udyog Tata Motors

22 India is increasingly becoming a manufacturing hub for passenger cars Exports of cars from India have grown at a CAGR of 30% CAGR in the last 5 years to reach 198 thousand units in Hyundai Motors is the market leader in exports of cars with 68% 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

23 Commercial vehicles segment has witnessed the highest growth rate in the automotive industry Domestic CV Industry Breakup of the Industry by segment % 5% CAGR 26% % 53% M & HCV Goods M & HCV Passenger LCV Goods LCV Passenger

24 Commercial vehicles segment has witnessed the highest growth rate in the automotive industry Domestic CV industry sales reached thousand vehicles in , registering a CAGR of 26% over last 5 yrs Share of LCVs is gradually increasing, indicating the emergence of hub and spoke model of transportation While the passenger bus industry has seen only a moderate growth, goods industry grew 37% in FY Goods industry is dominated by multi axle vehicles, which account for nearly 50% of the market

25 CV industry is dominated by Indian players Tata Motors Ltd: Largest commercial vehicle manufacturer in the country, has acquired the Korean manufacturer Daewoo Gap Motors Ashok Leyland Ltd: Second largest player with considerable market share in M&HCV segment; has formed a JV to manufacture LCVs with Nissan Mahindra & Mahindra Ltd: Relatively new player in the segment; has formed JV with International Trucks to manufacture M&HCV trucks in India Eicher Motors Ltd: Leading player in the LCV trucks segment; has entered the M&HCV trucks segment 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 Market Shares of Key Players in % 6% 10% 16% 64% Tata Motors Ltd Ashok Leyland Ltd M&M Ltd Eicher Motors Ltd Others Source: SIAM, IMaCS Analysis

26 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 1 tonne segment All the players in the segment are in the process of enhancing the capacities and launching new products

27 Indian CV exports have witnessed a more impressive growth CV Exports from India Thousand units Market Share of Key Players in Exports % % CAGR 33.2% 12% 71% Source: SIAM, IMaCS Analysis Tata Motors M&M Ltd Ashok Leyland Others Source: SIAM, IMaCS Analysis

28 Indian CV exports have witnessed a more impressive growth Exports have grown at a fast pace of over 33% over the last 5 years Tata Motors accounts for more than 70% of the CV exports, with Ashok Leyland and Mahindra & Mahindra making up for a large portion of the balance LCV goods carriers accounted for 52% of the overall exports Major portion of the exports are to Sri Lanka, Gulf countries and Africa

29 Growth in three wheelers has been driven by the need for low cost last mile transportation system Domestic three wheeler Industry (units) Break-up of Industry by segment CAGR 15% % 59% Source: SIAM, IMaCS Analysis Passenger Goods Source: SIAM, IMaCS Analysis

30 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 0.4 Million registering a growth of 15% CAGR over the last 5 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 1 tonne segment in Goods accounted for 73% of the sales and Sub Four seater segment in passenger versions accounted for 97% of the sales

31 The three wheeler market is dominated by Bajaj Auto Bajaj Auto Ltd. : Market leader in the Three wheeler segment, in the process of revamping its product portfolio Piaggio Vehicles : The Italian manufacturer is one of the leading players with fast growing market share, in the process of making India as their global hub M&M Ltd: One of the leading players in the segment Atul Auto Ltd: Have introduced new products in the rear engine segment, and also is a manufacturer of Chakda a Three wheeler reengineered from Two 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 Market Share of Key players % 8% 45% 36% Bajaj Auto Piaggio Vehicles M&M Others Source: SIAM, IMaCS Analysis

32 The Three wheeler market is dominated by Bajaj Auto Bajaj Auto emerged the leader in Three Wheeler industry with 45% share, closely followed by Piaggio with 36% share Bajaj Auto lead the passenger carrier segment with 58% share, while Piaggio lead the goods segment with 40% market share

33 Exports of Three wheelers have been growing rapidly, with Bajaj Auto the clear market leader Exports of three wheelers touched a new high of thousand units, registering a robust growth of 56% CAGR over the last 5 years This has been contributed almost entirely by Bajaj Auto, which accounted for around 98% of exports in Bajaj Auto exports to Sri Lanka, Egypt, Nepal, Bangladesh among other countries Three wheeler exports and growth Thousand Units CAGR 56.2% Source: SIAM, IMaCS Analysis

34 Indian firms are increasingly partnering with foreign firms Indian OEM Foreign Partner Type of Partnership Maruti Suzuki Suzuki Motor Corporation- Japan Equity partner Mahindra Logan Renault Joint Venture Tata motors Fiat Tie-up for manufacturing and marketing in India KINETIC Group Sanyang Industry Co Ltd (SYM- Taiwan Italjet -Italy Technology Hero Honda- Japan Technology Hero Cycles Ultra Motor Company, U.K Technology Bajaj Auto Kawasaki Heavy Industries Ltd, Japan Engine Technology Kubota Corp, Japan Tie-up for manufacturing and distribution Engine Technology Technology Technology L&T Ltd Scania-Spain Tie-up for marketing in India Ashok Leyland Hino-Japan Engine Technology Irizar-Spain ZF-Germany Bus body Technology Gearbox Technology Tata Motors Marco Polo-Brazil Bus/Coach Technology Cummins-USA Engine Technology

35 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

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

37 Three major automotive clusters exist in India West Ashok Leyland Bajaj Auto FIAT Atul Auto Daimler Chrysler Force Motors Ludhian a Delhi-Gurgaon-Noida- Ghaziabad Haridwar GM Greaves Kinetic Piaggio M & M Premier Pitampur Jamshedpur Kolkata Skoda Tata Motors Chennai Bangalore Hosur

38 Three major automotive clusters exist in India South Ashok Leyland Ford Hindustan Motors Enfield Greaves Hyundai Ludhian a Delhi-Gurgaon-Noida- Ghaziabad Haridwar Mahindra & Mahindra Tatra Toyota Kirloskar Volvo TVS Motors Pitampur Jamshedpur Kolkata Chennai Bangalore Hosur

39 Indian Auto Policy is designed for supporting the growth of the industry In 2002, the Indian Government formulated an Auto Policy aimed at promoting an integrated, phased enduring and self-sustained growth of the industry Automatic Approval for Foreign equity investment up to 100% No Minimum Investment Criteria LOW ENTRY BARRIER Investment Incentives by the Local State Governments: Most States Customise incentives for Large Investments INVESTMENT INCENTIVES Indian Auto Policy 2002 CONCERN FOR EMISSIONS Government s intention on harmonizing the regulatory standards with the rest of world EMPHASIS ON R&D Weighted Tax Deduction up to 150% for in-house research and R&D activities Source: ARAI, IMaCS Analysis

40 Indian automotive regulations are in the process of being aligned with European regulations Indian automotive regulations are closely aligned to the ECE regulations. The diagram below depicts the level of alignment of the Indian regulations with the ECE regulations The key regulations that are likely to impact the auto industry and create the need for world class products in the future are crash related regulations and introduction of Bharat Stage IV norms Fully/ Partially Allign In Process of Being Aligned Items/ Regulations to be covered Source: ARAI, IMaCS Analysis

41 Safety and emission related regulations in India - Achievements and Plans Achievements Till Date Plan EURO - IV NCR and 10 Major Cities EURO - III NCR and 10 Major Cities Entire Country EURO - II NCR and 3 Major Metros NCR and 10 Major Cities Entire Country Emission Regulations EURO - I Entire Country Brakes Steering effort Gradeability Installation of mirror, Horn & Lighting devices Rear Under run Protective Devices (RUPD) Lateral Protective Devices (LPD) Safety belt Electro Magnetic Interference (EMI) Wiping system Rear View Mirror etc Source: ARAI, IMaCS Analysis Anti Brake Skid 2007 Truck cab occupant protection -Crash Super structure of bus. Airbags Electro Magnetic Compatibility (EMC) Front Under run protective Devices (FUPD) Safety Regulations

42 The Government of India has taken a strong initiative to strengthen automotive related R&D infrastructure Facilities of National Automotive Testing and R&D 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

43 The Government of India has taken a strong initiative to strengthen automotive related R&D infrastructure Facilities of National Automotive Testing and R&D Infrastructure Project (NATRIP) 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 Complete homologation services to all vehicle categories as per Indian or Global Standards Center of Excellence For Component Development, NVH Commissioning Schedule Phase-I : 2008; Phase-II : 2010

44 The Government of India has taken a strong initiative to strengthen automotive related R&D infrastructure Facilities of National Automotive Testing and R&D Infrastructure Project (NATRIP) Silchar Centre Hill area Driver Training Centre and Inspection & Maintainence Facilities Centre of Excellence For Driver Training Commissioning Schedule Phase-I : 2008; Phase-II : 2010 Indore -Proving Grounds Complete Testing Facilities to all vehicle categories as per Indian or Global Standards Centre of Excellence For Vehicle Dynamics, Tyre Development Commissioning Schedule Phase-I : 2009; Phase-II : 2010

45 The Government of India has taken a strong initiative to strengthen automotive related R&D infrastructure Facilities of National Automotive Testing and R&D Infrastructure Project (NATRIP) Chennai Centre Complete homologation services to all vehicle categories as per Indian or Global Standards Center of Excellence For Infotronics,EMC,Passive Safety Commissioning Schedule Phase-I : 2008; Phase-II : 2011

46 GROWTH POTENTIAL OF INDIAN AUTOMOTIVE INDUSTRY

47 GROWTH POTENTIAL OF INDIAN AUTOMOTIVE INDUSTRY Growth drivers for the Indian automotive industry - Overall economic growth - Lower duties and taxes Government Policies - Contemporary products - Shorter life cycle New products launches Indian Automotive Industry Increasing consumer demand - Growth in income levels - Easier financing Cost Competiveness - Export competitiveness - Reduced cost to consumer - India emerging as a manufacturing hub

48 GROWTH POTENTIAL OF INDIAN AUTOMOTIVE INDUSTRY Indian Automotive Mission Plan Vehicle sales expected to grow to 32 million by The size of the Indian automotive industry is expected to grow at 13% p.a over the next decade to reach around US$ billion by 2016 The total investments required to support the growth are estimated at around US$ billion The Two wheelers industry is expected to lead the growth, with an estimated sales of 27.8 million units by 2016 Total export in the automotive sector would be around US$ 30-5 billion, of which component exports would account for US$ billion and vehicle exports for the rest Potential vehicle sales in India ( ) million units Cars CVs Two wheelers Three Wheelers Total 0.64 Source: SIAM, ACMA, AMP Vision & IMaCS Analysis

49 INDIA AS A MANUFACTURING HUB

50 INDIA AS A MANUFACTURING HUB Automotive exports have grown at an impressive CAGR of 40% in the last 5 years Indian automotive exports have grown at a high CAGR of 40.5% over the last 5 years, with fastest growth in Three wheeler segment, followed by Two wheelers India is increasingly becoming a manufacturing hub of small cars for global majors Automotive Exports (thousand units) CAGR 40.5% Source: SIAM, IMaCS Analysis

51 INDIA AS A MANUFACTURING HUB Global auto companies are taking advantage of India s manufacturing base Hyundai Motors - 36% of its production is exported to 67 countries. Hyundai has shifted its entire production of the Atos Prime, its compact model, to its Chennai Plant. Similar plan is on the cards for Getz. Hyundai is planning to double the production capacity to 0.6 million cars, primarily to meet export demand Suzuki Motor Corp: It is investing US$ 2 billion in India, and plans to export 200,000 cars from India by 2010 Ford Motor Co: It exports 58% of the total production from India

52 INDIA AS A MANUFACTURING HUB Global auto companies are taking advantage of India s manufacturing base Tata Motors: The company plans to make its US$ 2,500 car available in other markets. It is setting up showrooms across Africa and has tied up with Italy s Fiat to use its South American sales network Nissan Motor: Has recently announced plans to make cars in India and export them to Europe Honda Motor: Has begun building a new plant for premium hatchbacks in western India Toyota: Has set us a transmission plant in India to meet its regional demand Source: Industry News

53 INDIA AS A MANUFACTURING HUB Several factors make India a favourite investment destination Proven product developmental capabilities - More than 125 Fortune 500 (including large auto companies) have R&D centres in India - Companies can leverage India s acknowledged leadership in the IT industry Stable economic policies - Continuity in economic reforms and policies related to investments Large and growing domestic demand - Demand growth of 14% CAGR makes India one of the fastest growing markets India as an Auto Hub Proximity to Markets - Proximity to other Asian economies - Proximity to the emerging markets like Africa - Shipments to Europe are cheaper than those from Brazil and Thailand High quality standards - 9 Indian component manufacturers have won the Deming Award for quality - Most leading component manufacturers are QS and ISO certified Competitive manufacturing cost - Skilled labour costs amongst the lowest in India Availability of Manpower million Engineering graduates pass out every year - 7 million enter workforce every year Export Potential - Total value of exports by 2015 expected to reach US$ 8 10 billion for vehicles and US$ billion for components

54 INDIA AS A MANUFACTURING HUB 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

55 INDIA AS A MANUFACTURING HUB 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

56 INDIA AS A MANUFACTURING HUB Tax structure in India vis-à-vis other countries The burden of direct and indirect taxes is higher in India than in other countries India Brazil China Thailand Thailand 16.36% VAT 12.5% 15% 17% 10% Other Taxes - 18%* - - Corporate Tax 34% 28% 33% 30% Exemptions Specific packages provided by states for large investments Tax incentives for companies in export processing zones Preferential corporate tax policies for Foreign Investment Enterprises Tax incentives for investments outside central zone Import duty on rubber Import duty on steel 13% 16% 8% Free 8% 4% 2% 10% *Refers to local taxes

57 INDIA AS A MANUFACTURING HUB Labour & Labour Productivity in India vis-a-vis other countries India compares favourably with other low cost countries in productivity adjusted labour cost Indian labour productivity in the manufacturing sector is on an increase with the application of production management techniques and many companies have doubled their productivity in last 5 years India Brazil China Thailand Labour cost (US$/hour) Labour cost (US$/day)* Productivity index** Productivity adjusted labour cost (US$/day) *Assuming 8 hour shift per day ** Gross value added per person employed when compared to India

58 INDIA AS A MANUFACTURING HUB Power Cost in India vis-à-vis other countries Power cost in India is the highest amongst the competing countries However, power cost accounts for around 3% of the overall cost structure, hence not a significant disadvantage Power costs in India varies by state and is as low as US$ 0.1 in states like Maharashtra With privatisation and competition in the emerging Indian power sector, cost of power is expected to come under control Interest rates in India are high as compared to competing countries, but expected to soften in the future Power costs Country Cost per kwh (US$) India 0.14 Brazil 0.05 China 0.03 Thailand 0.11 Interest costs Country Annual lending interest rate India 10-11% Brazil 14-16% China 5-6% Thailand 7-8%

59 INDIA AS A MANUFACTURING HUB Cost competitiveness - India versus China Indian manufacturers suffer from a cost disadvantage vis-à-vis Chinese manufacturers mainly because of higher level of taxes and their cascading impact, higher cost of labour (arising out of inflexible labour laws) and higher interest costs and power and fuel costs Cost breakup Cars CV Cost of vehicle of an Indian Company Less Taxes and Duties Net state level levies and cascading impact of taxes Import duty on raw materials % -5.4% -1.8% -1.6% Corporate taxes - - Total -6.6% -7.0% Industry costs Power & fuel -3.4% -3.6% Labour cost - - Cost of funds -0.8% -0.8% Total -4.2% -4.4% Cost disadvantage for India -10.8% -11.4% Economies of scale no diff no diff Total cost disadvantage for India -10.8% -11.4% Source: Government websites, discussions with leading automotive players, IMaCS analysis

60 INDIA AS A MANUFACTURING HUB Cost competitiveness - India versus Thailand Indian vehicle manufacturers have a cost disadvantage vis-à-vis Thai vehicle manufacturers, primarily due to higher level of taxes in India However, the large market potential of the Indian market more than makes up for this disadvantage Cost Break-up Cars CV Cost of vehicle of an Indian Company Less Taxes and Duties Net state level levies and cascading impact of taxes Import duty on raw materials % -5.86% -0.60% -0.20% Corporate taxes -0.20% -0.20% Total -6.41% -6.26% Industry costs Power & fuel -1.03% -1.11% Labour cost -1.28% -1.56% Cost of funds -0.36% -0.36% Total -2.67% -3.03% Cost disadvantage for India -9.08% -9.29% Economies of scale no diff no diff Total cost disadvantage for India -9.08% -9.29% Source: Government websites, discussions with leading automotive players, IMaCS Analysis

61 INDIA AS A MANUFACTURING HUB Cost Competitiveness - India versus Brazil India is competitively positioned vis-à-vis Brazil in cars as well as CV India enjoys greater scale advantage as compared to Brazil in the case of cars as capacity utilisation in India is better, despite Brazil having larger installed capacities Cost Break-up Cars CV Cost of vehicle of an Indian Company Less Taxes and Duties Net state level levies and cascading impact of taxes Import duty on raw materials % -3.9% - - Corporate taxes - 0.1% - 0.1% Total -3.2% -4.0% Industry costs Power & Fuel - 2.0% - 2.8% Labour cost 7.6% 16.2% Cost of funds 0.9% 1.6% Total 6.5% 15.0% Cost advantage for India 3.3% 11.0% Economies of scale 8.3% no diff Total cost advantage for India 11.6% 11.0% Source: Government websites, discussions with leading automotive players, IMaCS Analysis

62 INDIA AS A MANUFACTURING HUB 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

63 AUTOMOTIVE INDUSTRY October 2007 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

64 AUTOMOTIVE INDUSTRY October 2007 DISCLAIMER This presentation has been prepared jointly by the India Brand Equity Foundation ( IBEF ) and ICRA Management Consulting Services Limited, IMaCS ( Authors ). All rights reserved. All copyright in this presentation and related works is owned by IBEF and the Authors. The same may not be reproduced, wholly or in part in any material form (including photocopying or storing it in any medium by electronic means and whether or not transiently or incidentally to some other use of this presentation), modified or in any manner communicated to any third party except with the written approval of IBEF. This presentation is for information purposes only. While due care has been taken during the compilation of this presentation to ensure that the information is accurate to the best of the Author s and IBEF s knowledge and belief, the content is not to be construed in any manner whatsoever as a substitute for professional advice. The Author and IBEF neither recommend or endorse any specific products or services that may have been mentioned in this presentation and nor do they assume any liability or responsibility for the outcome of decisions taken as a result of any reliance placed in this presentation. Neither the Author nor IBEF shall be liable for any direct or indirect damages that may arise due to any act or omission on the part of the user due to any reliance placed or guidance taken from any portion of this presentation.