THE INDIAN AUTO COMPONENTS INDUSTRY

“Is it geared enough for emerging as a global manufacturing hub”

ICICI Bank Ltd.Faculty guide: Prof. Rajiv ShahIndustry guide: Mrs. Arati Ramakrishnan

Submitted by: VIJAY BUDHDEOPGDM 2007-09TAPMI

PROJECT SCOPE

OUTLINE

• Transaction and commercial banking– Trade: LC,BG,Documents etc.– Treasury: Forex, Derivatives etc.– Working Capital: Line of credits, cash credit etc.

• Investment Banking– Advisory– M&A funding

• Corporate Banking– Capex: Project evaluation

OUTLINE

Average growth rate = 20.78%

INDUSTRY FRAMEWORK

Depends on-1.Expansion plans2.Competition3.Cost constraints4.Outsourcing needs

Depends on-1.Replacement cycles2.Age and population

Depends on-1.Demand for exports2.Cost advantage3.Productivity4.Technology

PRODUCTION DISTRIBUTION

• END USER SEGMENTS • COMPONENT SEGMENTS

RISING INVESTMENT

Investments in Rs billion

Growth

FY2005 168 16%

FY2006 195 16%

FY2007 240 23%

OUTLINE

SEGMENTWISE VEHICLE POPULATION

PASSENGER VEHICLE PRODUTION (‘000 Nos)

• 2/3 WHEELER MARKET

• Commercial Vehicles Market

DEMAND PROJECTIONS• Projections (2007-08 till 2011-12)

Status March 06

No. of Projects Project Cost (Rs billion)

No. of Projects Project Cost (Rs billion)

Announcement 40 24 98 106

Proposed 25 24 23 25

Under implementation

29 13 37 13

OUTLINE

GLOBAL AUTO COMPONENTS MARKET 2015

OVER 40% OF TOTAL AUTO COMPONENTS MARKET CAN BE ADDRESSED BY LCCs

INDIA’S MARKET SHARE

TARGET MARKET SEGMENT

Propensity to offshoreHIGH

LOW

Market Sophistication HIGH

LOW

INDIA Vs CHINA• Size of the economy

• Exports

• Labor efficiency

• Cost of capital

• Cost of raw materials

• Power and Infrastructure

• General management

• SEZ Policy

OUTSOURCING-EMERGING ADVANTAGE

OUTLINE

IMPACT ON THE AUTO COMPONENTS INDUSTRY

• Increased regulations to boost replacement

market demand

• Excise duty on auto components reduced

• VAT eliminated cascading impact of prices

• Export benefits to intermediate suppliers

TYPICAL SUPPLY CHAIN

OEM Manufacturer

Tier 2/3 SuppliersTier 2/3

Suppliers

Tier I SupplierTier I Supplier

Subcontractors from various industriesSubcontractors from various industries

RAW MATERIAL COSTS

• Largest contributor to the total cost structure

RAW MATERIAL PRICES

EXPANSION IN STEEL PRODUCTION

ALUMINIUM PRICES

CURRENCY APPRECIATION• Gradual appreciation will lead to better

absorption.• Input costs serve as a hedging tool.• Shift in the composition of exports.• Change in type of liabilities.

BHARAT FORGE-DE RISKING MODEL

ENDURANCE TECHNOLOGIES LTD.

• Products – Suspensions, brake systems,

transmissions, die alloys, alloy wheels

• Aluminium casting – No.1 in India

• Turnover – 2600 Cr

• Recent acquisitions – Fondalmec, Amman

Druck Guss, Pioli Spa

PRODUCTION STRATEGY

• Procuring components from Tier II suppliers• Strong Vendor Base – Global Sourcing dept• Vendor upgradation – Collaboration• Suppliers given 1 yr contracts• Price rise: Domestic Absorbing Exports Not absorbing• Diversification – Mfg. of Antenna towers Cell phone casting

RISK MITIGATING STRATEGIES

• Borrowings in foreign currency• Converting liabilities into $• Interest rate swaps• Imports Forward contracts• If imports are in $ Buyer’s credit• Opening of Letter of Credit– Helps suppliers service orders

RECOMMENDATIONS FOR THE AUTO COMPONENT INDUSTRY

AVAILABLE STRATEGIC POSTURES

RECOMMENDED INITIATIVES

CONCLUSION