08-16-2017, 08:50 PM
INTRODUCTION OF THE PROJECT
The automobile industry in the country is one of the key sectors of the economy in
terms of the employment opportunities that it offers. The industry directly employs
close to around 0.2 million people and indirectly employs around 10 million people.
The prospects of the industry also has a bearing on the auto-component industry
which is also a major sector in the Indian economy directly employing 0.25 million
people.
All is not well with the automobile industry the world over currently with the
slowdown that has gripped most of the major economies of the world. The gap
between the manufacturing capacity volume and the assembly volume is growing by
the day and has worried the manufacturers. This state of affairs has triggered a lot of
cutthroat competition and consolidation in the industry. Cost reduction initiatives have
come to be the in thing in the global industry today. Towards this direction, many
automobile factories are being closed down.
The Indian automobile industry is a stark contrast to the global industry due to many
of the characteristics, which are peculiar to India. The Indian automobile industry is
very small in comparison to the global industry. Except for two wheelers and tractors
segments, the Indian industry cannot boast of big volumes vis- -vis global numbers
RESEARCH METHODOLOGY
The research involves plotting of graphs on the basis of calculation made in the excel
worksheets. On the basis of these calculations and charts further conclusions were
drawn.
The financial data of all the companies taken up for the project have been taken from
yahoofinance.com
Auto-component Industry in India
The auto component industry has come of age and now forms an important
component of the Indian economy. In recent years, it has grown more impressively,
fetch double digit growth. More interestingly, it has captured attention as well as
business from leading auto makers of the world. The industry plays a crucial role in
the automobile sector. Manufacturing vehicles typically involve assembling a large
number of components out-sourced from number of ancillaries or component
manufacturers. Competitiveness with quality as a theme has been the watchword for
the Indian industry and especially the auto component industry ever since the Indian
economy was opened up to the world in the early 1990s. While economic revival,
lower interest rates and better road infrastructure are driving domestic demand for
automobiles and, therefore, components, increasing outsourcing by global automobile
majors is creating a huge export opportunity for Indian component manufacturers.
Industry dynamics
The Indian auto components industry started out small in the 1940s supplying
components to Hindustan Motors and Premier Automobiles, two largest
manufacturers of automobiles in India at that time. In the 1950s, the arrival of Telco,
Bajaj, Mahindra & Mahindra led to steadily increasing production. A closed market
with high import tariffs characterized the Indian auto component industry pre 1985.
1985-91 saw significant JVs in the Indian auto component segment with Japanese
manufacturers. After 1991, the delicensing of the sector led to global auto
manufacturers initiating assembly operations in India. This subsequently led to global
Tier I players entering the Indian auto space and the recognition of the potential in the
Indian auto component segment.The Automotive Component Manufactures
Association (ACMA) classifies the auto ancillary
industry into the following product segments:
Engine and engine parts: Pistons, piston rings, piston pins, gaskets, carburetors, fuel
injection pumps, etc.
Drive transmission and steering parts: Transmission gears, steering gears, crown
wheels and pinions, axles, wheels, etc.
Suspension and braking parts: Leaf springs, shock absorbers, brake assemblies, etc.
Electricals: Spark plugs, starter motors, generators, distributors, voltage regulators,
flywheel magnetos, ignition coils, etc.
Equipment: Dashboard instruments, headlights, horns, wipers, etc.
Others: Fan belts, sheet metal parts, plastic mouldings, etc.
The major players in the auto ancillary industry can be classified between the ones
catering to the two wheeler industry and the four wheeler industry. MICO, Bharat
Forge, Sundaram Clayton, Sundaram Brakes, Rane Brakes, etc. mainly cater to
commercial vehicles/tractors. There are many companies like Ucal Fuel, Motherson
Sumi, PRICOL, Subros, etc. which supply mainly to car industry. Companies like
Munjal Showa, Lakshmi Auto, Omax Auto, etc. cater to two-wheelers.
Sectoral Performance
The auto-ancillary was the best performing sector among the intermediate goods.
Different segments of the sector such as bearing, casting, fasteners, batteries and tyres
have grown in a range of 25-40%.
During the June quarter, global automobile majors have announced major investment
& domestic automobile companies such as General Motors (GM) and Honda in
fragmented auto-ancillary sector. Global majors are in a very critical condition; they
are loosing their market share because major automobile companies are being
attracted by India, China, & Taiwan. During first quarter of FY07, exports of
automobile components grew around 25% compared to the previous quarter on a YoY
basis. And exports registered a growth at around Rs 2833 crore compared to around
Rs 3530 crore in the corresponding quarter of FY06. The main reason for boost in
export is that the nature of the customer base of overseas market has been undergoing
major change. Indian companies are transforming into principal suppliers for the
Original Equipment Manufacturers (OEMs) from the after sales market or
replacement market. During that quarter, production of autocomponents increased by
15% YoY. And the result came out so far in this quarter is, Shanthi Gears, witnessed a
jump in net profits for the quarter ending in September, 2006. During the quarter, the
company witnessed a jump in NP at 43.45%, Sales for the quarter rose 31.90%
compared with the corresponding quarter, a year ago. The company has facilities for
manufacturing patterns, centrifugal castings of phosphor bronze rings, ferrous
castings, aluminum castings, heat treatment, forging, fabrications and cutter
manufacturing in-house which constitute the major raw materials for gearboxes.
Automotive Axles reported marginal improvement in the net profits for the quarter
ended June 30, 2006. During the quarter, the company reported a 2.30% rise in profits
and Sales for the quarter rose 35.15% compared with the corresponding quarter, Y-o-
Y.
Future Outlook
Given the significant scale up of capacities by the domestic majors, and their
improving global cost effectiveness, the domestic auto ancillaries are well set to
sustainable scale up their share of the global auto component pie. The players are
aggressively focusing on new client acquisition, inorganic growth in developed
countries and cost reduction measures on fronts like quality, delivery, design and
management.
Growth in the domestic market would be driven by sustained growth in supplies to
OEMs as well as acceleration in the demand from replacement market. Moreover,
cars, utility vehicles and CVs made in India are increasingly getting acceptance in
foreign markets, thus driving the demand further. Even Indian two-wheeler majors are
targeting markets abroad. Simultaneously, foreign auto majors like Ford and Hyundai
are making India its manufacturing base for several models. Overall, the short to
medium term outlook for the domestic auto component producers is positive.
Automobile industry, which is a key driver of auto-component industry, is likely to
grow at 12-17%. Along with this some other key drivers including exports,
outsourcing, and replacement market are slowing down competitiveness in global
markets in turn boosting the productivity of Indian auto
components industry. Setting up a new plant by existing companies and out-sourcing
by the foreign vendors will result in domestic companies benefiting, either by
exporting from domestic facilities or setting up facilities in those locations. To meet
the emerging opportunities and challenges, Indian vendors are diversifying across
products, processes, clients and markets. Companies that have restricted themselves to
domestic business have seen modest growth and flat margins. A robust business
outlook is expected to drive strong revenue growth for the auto-component industry.
Steel is a major raw material in manufacturing of parts. Since mid January 2006, the
domestic steel prices have been increasing. Similarly, other inputs like non-ferrous
metal, fuel, and transport costs have also been increasing. However, the auto
ancillaries are not able to pass on the rise in costs, due to quality and price
consciousness of auto majors. Fortunately, healthy rise in volumes, players move up
the value chain, increasing exports together facilitated them to cushion the rise in
costs, and enabled them to maintain margins.
Hindustan Composites is planning break lining and clutch facing unit near the
proposed Tata Motor plant at Singur in Hooghly district of West Bengal. The company
has already started discussion with few tier 1 component manufacturer of Tata Motors
in this regard The company is planning to tie up with an outfit which is likely to be
entrusted with for the break assembly of small car. Tata Motors is overhauling its
outsourcing policy across all categories of cars. As part of this policy, which is aimed
at keeping costs under control, the company has taken a conscious decision to move
away from the multiple vendor models to a single vendor model.
Bharat Forge Ltd. (BFL), signed a Memorandum of Understanding (MoU) with the
Government of Maharashtra to jointly develop a multi-product Special Economic
Zone (SEZ) in Khed Taluka of Pune District. The SEZ is expected to attract
investments of about Rs. 25,000 crores and generate 120,000 new employment
opportunities. The project has received in-principle approval from the Board of
Approval, Ministry of Commerce, Government of India. The project would be
implemented through a Special Purpose Vehicle (SPV) to be jointly promoted by BFL
/ Kalyani Group and the Maharashtra Industrial Development Corporation (MIDC) in
which the two promoters would hold upto 74% and 26% of the equity capital
respectively. Land acquisition and other project related activities would commence
shortly.
The automobile industry in the country is one of the key sectors of the economy in
terms of the employment opportunities that it offers. The industry directly employs
close to around 0.2 million people and indirectly employs around 10 million people.
The prospects of the industry also has a bearing on the auto-component industry
which is also a major sector in the Indian economy directly employing 0.25 million
people.
All is not well with the automobile industry the world over currently with the
slowdown that has gripped most of the major economies of the world. The gap
between the manufacturing capacity volume and the assembly volume is growing by
the day and has worried the manufacturers. This state of affairs has triggered a lot of
cutthroat competition and consolidation in the industry. Cost reduction initiatives have
come to be the in thing in the global industry today. Towards this direction, many
automobile factories are being closed down.
The Indian automobile industry is a stark contrast to the global industry due to many
of the characteristics, which are peculiar to India. The Indian automobile industry is
very small in comparison to the global industry. Except for two wheelers and tractors
segments, the Indian industry cannot boast of big volumes vis- -vis global numbers
RESEARCH METHODOLOGY
The research involves plotting of graphs on the basis of calculation made in the excel
worksheets. On the basis of these calculations and charts further conclusions were
drawn.
The financial data of all the companies taken up for the project have been taken from
yahoofinance.com
Auto-component Industry in India
The auto component industry has come of age and now forms an important
component of the Indian economy. In recent years, it has grown more impressively,
fetch double digit growth. More interestingly, it has captured attention as well as
business from leading auto makers of the world. The industry plays a crucial role in
the automobile sector. Manufacturing vehicles typically involve assembling a large
number of components out-sourced from number of ancillaries or component
manufacturers. Competitiveness with quality as a theme has been the watchword for
the Indian industry and especially the auto component industry ever since the Indian
economy was opened up to the world in the early 1990s. While economic revival,
lower interest rates and better road infrastructure are driving domestic demand for
automobiles and, therefore, components, increasing outsourcing by global automobile
majors is creating a huge export opportunity for Indian component manufacturers.
Industry dynamics
The Indian auto components industry started out small in the 1940s supplying
components to Hindustan Motors and Premier Automobiles, two largest
manufacturers of automobiles in India at that time. In the 1950s, the arrival of Telco,
Bajaj, Mahindra & Mahindra led to steadily increasing production. A closed market
with high import tariffs characterized the Indian auto component industry pre 1985.
1985-91 saw significant JVs in the Indian auto component segment with Japanese
manufacturers. After 1991, the delicensing of the sector led to global auto
manufacturers initiating assembly operations in India. This subsequently led to global
Tier I players entering the Indian auto space and the recognition of the potential in the
Indian auto component segment.The Automotive Component Manufactures
Association (ACMA) classifies the auto ancillary
industry into the following product segments:
Engine and engine parts: Pistons, piston rings, piston pins, gaskets, carburetors, fuel
injection pumps, etc.
Drive transmission and steering parts: Transmission gears, steering gears, crown
wheels and pinions, axles, wheels, etc.
Suspension and braking parts: Leaf springs, shock absorbers, brake assemblies, etc.
Electricals: Spark plugs, starter motors, generators, distributors, voltage regulators,
flywheel magnetos, ignition coils, etc.
Equipment: Dashboard instruments, headlights, horns, wipers, etc.
Others: Fan belts, sheet metal parts, plastic mouldings, etc.
The major players in the auto ancillary industry can be classified between the ones
catering to the two wheeler industry and the four wheeler industry. MICO, Bharat
Forge, Sundaram Clayton, Sundaram Brakes, Rane Brakes, etc. mainly cater to
commercial vehicles/tractors. There are many companies like Ucal Fuel, Motherson
Sumi, PRICOL, Subros, etc. which supply mainly to car industry. Companies like
Munjal Showa, Lakshmi Auto, Omax Auto, etc. cater to two-wheelers.
Sectoral Performance
The auto-ancillary was the best performing sector among the intermediate goods.
Different segments of the sector such as bearing, casting, fasteners, batteries and tyres
have grown in a range of 25-40%.
During the June quarter, global automobile majors have announced major investment
& domestic automobile companies such as General Motors (GM) and Honda in
fragmented auto-ancillary sector. Global majors are in a very critical condition; they
are loosing their market share because major automobile companies are being
attracted by India, China, & Taiwan. During first quarter of FY07, exports of
automobile components grew around 25% compared to the previous quarter on a YoY
basis. And exports registered a growth at around Rs 2833 crore compared to around
Rs 3530 crore in the corresponding quarter of FY06. The main reason for boost in
export is that the nature of the customer base of overseas market has been undergoing
major change. Indian companies are transforming into principal suppliers for the
Original Equipment Manufacturers (OEMs) from the after sales market or
replacement market. During that quarter, production of autocomponents increased by
15% YoY. And the result came out so far in this quarter is, Shanthi Gears, witnessed a
jump in net profits for the quarter ending in September, 2006. During the quarter, the
company witnessed a jump in NP at 43.45%, Sales for the quarter rose 31.90%
compared with the corresponding quarter, a year ago. The company has facilities for
manufacturing patterns, centrifugal castings of phosphor bronze rings, ferrous
castings, aluminum castings, heat treatment, forging, fabrications and cutter
manufacturing in-house which constitute the major raw materials for gearboxes.
Automotive Axles reported marginal improvement in the net profits for the quarter
ended June 30, 2006. During the quarter, the company reported a 2.30% rise in profits
and Sales for the quarter rose 35.15% compared with the corresponding quarter, Y-o-
Y.
Future Outlook
Given the significant scale up of capacities by the domestic majors, and their
improving global cost effectiveness, the domestic auto ancillaries are well set to
sustainable scale up their share of the global auto component pie. The players are
aggressively focusing on new client acquisition, inorganic growth in developed
countries and cost reduction measures on fronts like quality, delivery, design and
management.
Growth in the domestic market would be driven by sustained growth in supplies to
OEMs as well as acceleration in the demand from replacement market. Moreover,
cars, utility vehicles and CVs made in India are increasingly getting acceptance in
foreign markets, thus driving the demand further. Even Indian two-wheeler majors are
targeting markets abroad. Simultaneously, foreign auto majors like Ford and Hyundai
are making India its manufacturing base for several models. Overall, the short to
medium term outlook for the domestic auto component producers is positive.
Automobile industry, which is a key driver of auto-component industry, is likely to
grow at 12-17%. Along with this some other key drivers including exports,
outsourcing, and replacement market are slowing down competitiveness in global
markets in turn boosting the productivity of Indian auto
components industry. Setting up a new plant by existing companies and out-sourcing
by the foreign vendors will result in domestic companies benefiting, either by
exporting from domestic facilities or setting up facilities in those locations. To meet
the emerging opportunities and challenges, Indian vendors are diversifying across
products, processes, clients and markets. Companies that have restricted themselves to
domestic business have seen modest growth and flat margins. A robust business
outlook is expected to drive strong revenue growth for the auto-component industry.
Steel is a major raw material in manufacturing of parts. Since mid January 2006, the
domestic steel prices have been increasing. Similarly, other inputs like non-ferrous
metal, fuel, and transport costs have also been increasing. However, the auto
ancillaries are not able to pass on the rise in costs, due to quality and price
consciousness of auto majors. Fortunately, healthy rise in volumes, players move up
the value chain, increasing exports together facilitated them to cushion the rise in
costs, and enabled them to maintain margins.
Hindustan Composites is planning break lining and clutch facing unit near the
proposed Tata Motor plant at Singur in Hooghly district of West Bengal. The company
has already started discussion with few tier 1 component manufacturer of Tata Motors
in this regard The company is planning to tie up with an outfit which is likely to be
entrusted with for the break assembly of small car. Tata Motors is overhauling its
outsourcing policy across all categories of cars. As part of this policy, which is aimed
at keeping costs under control, the company has taken a conscious decision to move
away from the multiple vendor models to a single vendor model.
Bharat Forge Ltd. (BFL), signed a Memorandum of Understanding (MoU) with the
Government of Maharashtra to jointly develop a multi-product Special Economic
Zone (SEZ) in Khed Taluka of Pune District. The SEZ is expected to attract
investments of about Rs. 25,000 crores and generate 120,000 new employment
opportunities. The project has received in-principle approval from the Board of
Approval, Ministry of Commerce, Government of India. The project would be
implemented through a Special Purpose Vehicle (SPV) to be jointly promoted by BFL
/ Kalyani Group and the Maharashtra Industrial Development Corporation (MIDC) in
which the two promoters would hold upto 74% and 26% of the equity capital
respectively. Land acquisition and other project related activities would commence
shortly.