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