Automobile Industry Outlook

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    Automobile Industry:

    Industry Overview:

    Automobile Overview:

    The Indian auto industry, worth US$ 34 billion in 2006, has grown at a CAGR of 14 per cent over the lastfive years with total sales of vehicles reaching around 9 million vehicles in 2005-06. That number islikely to see a significant boost, given that the first half of 2006-07 has already witnessed a staggeringgrowth rate of 17.12 per cent. Domestic car sales for the April-September 2006 period stood at animpressive 4.86 million vehicles, including cars, two-wheelers and commercial vehicles. According toindustry experts, if this trend continues, sales could touch 10 million by March 2007, clocking an annualgrowth rate of 20 per cent. In addition, the Governments announcement to cut excise duty on small carswill soon see India emerging as the world's largest manufacturing hub for small or compact cars.

    Destination India:

    India is on every major global automobile players roadmap, and it isnt hard to see why:

    India is the second largest two-wheeler market in the world. Fourth largest commercial vehicle market in the world.

    11th largest passenger car market in the world.

    Expected to be the seventh largest by 2016.

    Robust production

    Indias car production capacity is in for a US$ 2 billion boost. Auto majors have announced massiveinvestment plans which will push the countrys car production past the psychological 2 million mark by theend of fiscal 2006-07, up 70 per cent from 1.4 million units now. Even at 2 million, India, which stood atNo.11 among global car producing nations, will move two steps ahead, past UK (1.6 million) and Canada(1.35 million). It will be neck and neck with Brazils 2-million capacities at No.8.

    The automobile industry witnessed a growth of 19.35 percent in April-July 2006 when compared to April-July 2005, as is evident from this years production trends.

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    Automobile Production Trends

    Category 2004-05 2005-06 (In no.s)

    M&HCVs 214807 219297

    LCVs 138896 171781

    Total CVs 353703 391078

    Passenger Cars 960487 1045881

    Utility Vehicles 182018 196371

    MPVs 67371 66661

    Total Passenger vehicles 1209876 1308913

    Scooters 987498 1020013

    Motorcycles 5193894 6201214

    Mopeds 348437 379574

    Total Two Wheelers 6529829 7600801

    Three Wheelers 374445 434424

    Grand Total 8467853 9735216

    Source: Society of Indian Automobile Manufacturers (SIAM)

    Domestic Sales:

    Increased affluence, wider selection and the ready availability of car loans is driving the Indian car marketthrough the roof. During the last five years (2000-05), the production of passenger cars in India increasedby more than 100 per cent. India achieved the sales of 1.11 million vehicles last year (2005).

    Domestic sales have been growing at a clipping pace:

    Passenger car sales rose by 22.84 per cent during April-September 2006, compared to the

    corresponding period last year. The cumulative growth of overall sales of passenger vehicles during April-September of 2006-07

    was 20.73 percent. Utility Vehicle (UVs) sales grew at 12.85 per cent during the same period. Overall, the two wheeler market grew by 15.49 per cent during the April-September period

    of financial year 2006-07, over the same period last year.

    Motorcycles grew by 18.53 per cent, scooters at 0.12 percent and mopeds at about 6.53percent over April-September 2005.

    Three wheeler sales grew at 19.90 per cent. Goods carriers grew by 26.16 per cent andpassenger carriers grew at 15.78 per cent during the April-September 2006 period, over the sameperiod last year.

    Overall, the commercial vehicles segment grew at 36.96 per cent. Growth of Medium and HeavyCommercial Vehicles was 39.92 per cent. Light Commercial Vehicles also performed well with a

    growth of 32.86 percent.

    Automobile Domestic Sales Trend

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    Category 2004-05 2005-06 (In Nos.)

    M&HCVs 198506 207446

    LCVs 119924 143237

    Total CVs 318430 350683

    Passenger Cars 820179 882094

    Utility Vehicles 176360 194577

    MPVs 65033 66366

    Total Passenger Vehicles 1061572 1143037

    Scooters 922428 908159

    Motorcycles 4964753 5815417

    Mopeds 322584 332741

    Total Two Wheelers 6209765 7056317

    Three Wheelers 307862 360187

    Grand Total 7897629 8910224

    Source: Society of Indian Automobile Manufacturers (SIAM)

    Exports:

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    Overall automobile Exports registered 28.13 percent growth rate in April-August 2006 over the sameperiod last year. Passenger Vehicles Exports grew at 14 percent. Two Wheelers Exports grew by28.80 percent and Commercial Vehicles by 28.36 percent.

    Automobile Export Trends:

    Category 2004-05 2005-06 (In Nos.)

    M&HCVs 13474 14096

    LCVs 16466 26485

    Total CVs 29940 40581

    Passenger Cars 160670 170193

    Utility Vehicles 4505 4486

    MPVs 1227 1093

    166402 175772

    Scooters 60699 83873

    Motorcycles 277123 386202Mopeds 28585 43181

    Total Two Wheelers 366407 513256

    Three Wheelers 66795 76885

    Grand Total 629544 806494

    Investments:

    The Indian automobile sector has witnessed a slew of investments in the first half of 2006, dominated byplans for new plants and ramped up capacities. Here are some of the vehicle manufacturers dominatingthe headlines with their impressive plans:

    Punjab-based International Cars and Motors (ICML) will invest US$ 223.7 million in HimachalPradesh to set up a plant to manufacture diesel-operated multi utility vehicles (MUVs).

    Nissan is set to establish its manufacturing base in Gujarat. The company, along with Suzuki, isplanning to invest upto US$ 671.2 million for a 600,000 cars per annum plant.

    Toyota Kirloskar Motors is likely to set up its second plant near its existing facility in Bidadi,Karnataka.

    Hyundai Motor is set to invest an additional US$ 700 million into its Indian operations based inTamil Nadu, to expand the companys passenger car capacity to 600,000 units per annum fromthe present 300,000, as well as in a new engine and transmission unit.

    The Government is planning to set up three dedicated corridors for automobile companies exporting to

    the rest of the world. Dedicated rail corridors are proposed between Gurgaon and Mumbai port, Pune and

    Mumbai including JNPT and Jamshedpur and Kolkata. A dedicated highway for automobile movement is

    also being considered between Gurgaon and Delhi. The proposal also includes creating the last-mile,

    road-port connectivity at all the four ports.

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    Investment Opportunity:

    Establishing Research and Development Centres

    Establishing Engineering Centres

    Passenger Car Segment

    Two Wheeler Segment

    Heavy truck Segment

    Foreign players in India:

    Calendar 2006 has seen the entry of many high-end brands into the country. The Indian automobilemarket will see at least 30 new launches, spanning everything from affordable hatchbacks to mid-sizemodels to super luxury high-end cars and SUVs.

    Mercedes, BMW, Porsche, Audi, Bentley and Rolls Royce are already here. Now, the Italian

    marquee Lamborghini is also planning to enter the country. The Italian marquee plans to launchthe Gallardo.

    German luxury car maker Audi AG is preparing to drive into India a range of sporty, lifestyle carslike S8 and RS4 early next year. The year 2007 will also mark Audi's entry into merchandising inIndian car bazaar.

    General Motors launched Aveo this year. GM plans to bring in a sporty variant of the Chevy Optrato add to its existing line-up.

    Advantage India:

    India holds huge potential in the automobile sector including the automobile component sector owingto its technological, cost and manpower advantage. Further, India has a well-developed, globallycompetitive Auto Ancillary Industry and established automobile testing and R&D centres. The country

    enjoys natural advantage and is among the lowest cost producers of steel in the world. The Indianautomobile industry today boasts of being the Second largest two Wheelers manufacturers in theworld, World largest Motorcycle manufacturer is in India, Second Largest tractor manufacturer in theworld, Fifth largest commercial vehicle manufacturer in the world and Fourth largest Car market inAsia.

    TWO WEELER INDUSTRIES:

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    Riding on TopGear is what our two-wheeler update said for the first half of FY05,wherein the industry volumes had grown over 12% on back of good monsoons. Ifthat was anything to be happy about, the second half of FY05 has given the industryreasons to celebrate, with strong volume rise of nearly 16% (Apr-Feb) inmotorcycles, largely aided by faster growth in the entry level 100 cc segment.

    Though competition has been on the rise in the past year, with new models and

    variants being launched every alternate day, the overall market has been growingfast enough to accommodate all of these models.

    The most striking feature of the year gone by was the growing volumes in favour ofthe entry-level segment. Industry leaders Hero Honda and Bajaj Auto have onceagain kept the other players at bay, and increased their market share during theyear. Infact, Bajaj Auto has been outperforming the industry by a good margin forthe last few months, courtesy its new launches CT100 and the Discover. TVS Motoron the other hand has been reeling under pressure since the