Project on Off Road Vehicle Industry

Motherson Sumi System Limited

TABLE OF CONTENT

EXECUTIVE SUMMARY...........................................................................................................4

RESEARCH OBJECTIVES.........................................................................................................5

COMPANY PROFILE..................................................................................................................6

INDUSTRY ANALYSIS.............................................................................................................10

OVERVIEW OF AUTO COMPONENT INDUSTRY...........................................................................................10

STRUCTURE OF INDUSTRY...............................................................................................................................11

SEGMENTATION OF THE INDUSTRY...............................................................................................................12

GROWTH OF THE INDUSTRY............................................................................................................................14

REGULATORY POLICY........................................................................................................................................15

TECHNOLOGY.......................................................................................................................................................16

QUALITY STANDARDS.......................................................................................................................................18

PRODUCT DIFFERENTIATION...........................................................................................................................18

EXISTENCE OF MONOPOLY...............................................................................................................................19

PATENTS IN THE INDUSTRY:............................................................................................................................19

BARRIERS TO ENTRY..........................................................................................................................................20

FOREIGN TRADE POLICY...................................................................................................................................20

ECONOMIC ENVIRONMENT..............................................................................................................................21

RATIO ANALYSIS.................................................................................................................................................25

LIQUIDITY RATIO................................................................................................................................................25

Current Ratio........................................................................................................................................25

Cash Position Ratio..............................................................................................................................26

Quick Ratio..........................................................................................................................................27

LEVERAGE RATIO................................................................................................................................................28

Debt-Equity Ratio................................................................................................................................28

Debt ratio.............................................................................................................................................29

Interest coverage ratio..........................................................................................................................30

PROFITABILITY RATIO.......................................................................................................................................31

Gross Profit Margin.............................................................................................................................31

Return on Equity..................................................................................................................................32

Net Profit Margin.................................................................................................................................33


ACTIVITY RATIO..................................................................................................................................................34

Inventory Turnover Ratio....................................................................................................................34

Debtors’ Turnover Ratio......................................................................................................................35

Total Asset Turnover Ratio..................................................................................................................36

RESEARCH PROJECT.............................................................................................................37

PROJECT DESCRIPTION......................................................................................................................................37

BACKGROUND OF THE STUDY.........................................................................................................................37

PROBLEM STATEMENT......................................................................................................................................37

RESEARCH OBJECTIVE.......................................................................................................................................38

SCOPE OF THE STUDY........................................................................................................................................38

RESEARCH METHODOLOGY.............................................................................................................................38

Nature of Research:..............................................................................................................................38

Sampling design...................................................................................................................................38

Research design...................................................................................................................................38

Data collection technique.....................................................................................................................39

Data collection method........................................................................................................................39

LIMITATIONS OF THE PROJECT........................................................................................................................39

OFF ROAD VEHICLES INDUSTRY SCENARIO................................................................................................40

MARKET SIZE........................................................................................................................................................41

SEGMENTATION OF THE INDUSTRY...............................................................................................................42

STRUCTURE OF INDUSTRY...............................................................................................................................43

MAJOR PLAYERS..................................................................................................................................................48

PROFILE OF KEY PLAYERS................................................................................................................................50

JCB India.............................................................................................................................................50

Bharat Earth Movers Ltd. (BEML)......................................................................................................52

L&T Case, L&T Komatsu...................................................................................................................54

Action Construction Equipment Ltd. (ACE).......................................................................................57

PORTER’S FIVE FORCE ANALYSIS OF OFF ROAD VEHICLE INDUSTRY.................................................59

KEY GROWTH DRIVERS FOR THE INDUSTRY..............................................................................................60

CONSTRUCTION INVESTMENT....................................................................................................................60

MINING INVESTMENT....................................................................................................................................61

URBAN INFRASTRUCTURE INVESTMENT.................................................................................................61

MAJOR THREAT TO THE INSDUTRY...............................................................................................................61


GOVERNMENT POLICIES....................................................................................................................................62

KEY EMERGING AREAS......................................................................................................................................63

CONCLUSION............................................................................................................................66

RECOMMENDATIONS............................................................................................................67

KEY LEARNINGS......................................................................................................................68

ANNEXURE.................................................................................................................................69

INTERVIEW QUESTIONS.....................................................................................................................................69

BALANCE SHEET AND PROFIT & LOSS STATEMENT..................................................................................71

REFRENCES...............................................................................................................................87


EXECUTIVE SUMMARY

The objective if this study is to study the off road vehicle industry as MSSL is planning to enter in the off road vehicle industry as the potential supplier to the industry as MSSL had sensed the importance of off road vehicle industry because our economy is a developing economy and for a developing economy infrastructure development is also very necessary and we can see that in present time how potentially the infrastructure of our country is growing and with the growth in infrastructure demand for off road vehicle. So this study is conducted to provide an aid to the company in harnessing the potential of off road vehicle industry.

During the study emphasis was given only few key Original Equipment Manufacturers (OEM’s).As they holds the maximum or most of the market share in the industry. Industry’s market structure was also analyzed in the study.

Specifically the objectives of the study are:

To find the key players in the off road vehicle industry To find the market share of the key players in the industry To make a database of the prospective OEM’s for converting them in to potential clients

for increasing the business of the MSSL

Primary and Secondary data was used in the study. Primary data was collected through the sales executives. Secondary data was collected through OEM’s websites, company’s sources, financial reports and newsletters, all were analyzed to understand the industry trends and product profile of the key players in the market.

Porter’s five forces analysis of the industry was also done in the study.

MSSL a subsidiary of Motherson group who manufactures and supply various auto component products supervised this study and this study will provide them valuable data about the off road vehicle industry and potential OEM’s of the industry.


RESEARCH OBJECTIVESThe objectives of the study are:

To study the potential of the off road vehicle industry.

To identify the key growth drivers of the industry.

To study the key players in the industry and their respective market share.

To identify the structure of the industry.

To identify the production and sales trends of the various players of the industry.

To identify the major challenges that the industry is facing.

To identify the future of the industry


COMPANY PROFILEMotherson Sumi Systems Limited (MSSL) is the flagship company of the Samvardhana Motherson Group and was established in 1986. It is a joint venture between Samvardhana Motherson Group and Sumitomo Wiring Systems (Japan). MSSL is a focused, dynamic and progressive company providing customers with innovative and value-added products.

The Company is listed at the stock exchanges since 1993. The recent acquisition of mirror business from Visiocorp (now renamed as Samvardhana Motherson Reflectec) has helped MSSL evolve as one of the world’s leading automotive mirror manufacturer. The Company is India’s largest manufacturer of automotive wiring harnesses and mirrors for passenger cars. It is also a leading supplier of plastic components and modules to the automotive industry.

MISSION

Ensure Customer Delight Involve employees as partners in progress Set new standards in corporate citizenship Enhance shareholders value

VISION

To be globally preferred solution provider

PRODUCT RANGE

It has been MSSL’s endeavor to constantly add new products in its product line with the objective of emerging as a single-service interface for multiple customer needs. MSSL has 9 JV partners with over 14 collaborations. The Company has collaborated with technology leaders in their respective fields to bring relevant technologies for the products required by its customers. MSSL’s diversity of product range coupled with the depth within each product portfolio, has helped the company garner leadership in its area of operations.

The product range of the company along with its subsidiaries and joint ventures includes:

Automotive Rear View Mirrors

Wiring Harnesses

Wires Seals


Grommets Tubes Fuse Boxes

Injection Molded Products

Blow Molded Products

Liquid Silicone Rubber Molded Components

Injection Molding Tools

Extruded Rubber Products

Precision Machined Metal Components

Modules

IP/ Cockpit Door Trims Bumpers Air intake manifolds Air filter systems HVAC Systems

Waste Recycling System

COMPOSITION OF BUSINESSS

MSSL’s wiring harness division accounts for majority of its revenue (61%). The polymer and mirror divisions contribute to 17% and 14% respectively and the rubber and metal components business accounts for the rest. Nonetheless, due to its recent acquisition of Visiocorp, the mirrors business is expected to contribute substantially to revenue going forward.

Source: www.motherson.com


MSSL has developed a network of manufacturing bases, design centers, logistics centers, marketing support and sourcing hubs across a diversified geographical base. MSSL has presence in 21 countries which includes India (Noida , Gurgaon, Manesar, Faridabad , Pune, Bengaluru, Chennai, Kandla, Lucknow & Puducherry), UAE., Sri Lanka, Singapore, China, South Korea, Japan, Germany, UK., Czech Republic, Austria, Hungary, Italy, Spain, France, Ireland, U.S.A, Mexico, South Africa, Australia & Mauritius to provide timely and quality delivery its customers worldwide. MSSL has manufacturing bases across five continents - Asia, Europe, North America, Africa & Australia to support its customers. MSSL’s diverse global customer base comprises of almost all leading automobile manufacturers globally.



INDUSTRY ANALYSIS

OVERVIEW OF AUTO COMPONENT INDUSTRYThe 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.

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.


STRUCTURE OF INDUSTRYIndian auto component industry is highly fragmented. There are about 600 organized players’ accounts for 77 per cent of the value added in the sector.While unorganized players are mainly replacement market players or tier-3/tier-4 component manufacturers.The Automotive Component Manufacturers Association of India (ACMA) represents the auto component industry in India and has around 595 registered members.Geographically most of the players in the Indian auto component manufacturers have their operations in the three major auto hubs namely, Chennai (Tamil Nadu), Pune-Mumbai (Maharashtra) and the National Capital Region (NCR).

Industry structure value added by players

The major players in auto component industry are:

Bosch Exide Industries Motherson Sumi Amtek Auto Amara Raja Butt WABCO-TVS Amtek India Banco Products Federal-Mogul Sundaram Clayto

About 600

organized players

Over 6,300 unorganized players

77 %

23 %


The market capitalization and sales turnover of top players of auto component industry are:

Bosch

Exide I

ndustries

Motherson Su

mi

Amtek Auto

Amara Raja

Batt

WABCO-TV

S

Amtek In

dia

Banco

Products

Federa

l-Mogu

l

Sundara

m Clayto

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

MARKET CAP(Rs. cr)SALES TURNOVER

SEGMENTATION OF THE INDUSTRYThe auto component industry can be divided into three parts on the basis of market type:

Exports OE components After market


44%

38%

18%

Break up by Market Type

ExportsOE ComponentsAfter market

PRODUCTS RANGE OF AUTO COMPONENET INDUSTRY:

The auto componrnt industry products range includes, engine parts,drive transmission,body/chassis,suspension&braking,equipment,electrical,others and the products wise break-up of auto component market are as follow:

31%

19%12%

9%

12%

10%

7%

Break up by component type

Engine parts Drive Transmission & Steering Parts Suspension & Brake Parts Electrical Parts Body and chassis Equipments Others


GROWTH OF THE INDUSTRYThe Indian automotive industry has witnessed a strong growth and riding high on this growth, the Indian auto component industry has reached a turnover size of US$ 18.7 billion in 2008–09. The auto parts industry has emerged as one of India’s fastest growing manufacturing sectors, growing at a compound annual growth rate (CAGR) of 29 per cent in value terms between 2002-03 and 2006-07 and from 2006-07 to 2008-09 it is growing at a compound annual growth rate (CAGR) of 11.65 per cent in value terms due to inflationary pressure and it is estimated that it can reach to 40 billion till 2015.

The industry has adopted a three pronged strategy of product portfolio enhancement, market expansion and efficiency improvement to achieve this status. Enhanced capacities and higher capacity utilization have contributed significantly to its growth.

The turnover of the auto component industry in last 8 years can be graphically showed as with the estimated projection of turnover in 2015-16

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2015-16*

TURNOVER

5.4 6.7 8.7 12 15 17.8 18.7 40

2.512.522.532.542.5

TURNOVER

US $

BILL

ION

In volume terms, nearly 34 per cent of the market is contributed by auto components for two/three wheelers. Passenger cars contributed nearly 33 per cent of the total component market, driven by the buoyant car market in India. Commercial vehicle (CV) components currently account for around 24 per cent of the market, emerging as the most lucrative segment. CV sales have recorded the highest growth in the Indian automobile market. CV sales grew at a CAGR of 26 per cent in 2001-02. During 2006-07 CV sales led at a CAGR 26 per cent and the CV sales grew at a CAGR of 26 per cent between 2001-02 and 2006- 07 and the CV components industry


has registered the same growth rate. The CAGR achieved by components for two wheelers and cars were 14 per cent and 15.6 per cent respectively during the same period.

The auto component productions in last ten years are as follow:

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

AUTO COMPONENT PRODUCTION

3894 3965 4470 5430 6730 8700 12000 15000 18000 19100

1,000 3,000 5,000 7,000 9,000

11,000 13,000 15,000 17,000 19,000

AUTO COMPONENT PRODUCTION

US $

BILL

ION

As it is evident from the above figure the auto component production in india is growing year on year in last ten years which shows the potential of the auto component industry.

REGULATORY POLICYThe Department of Heavy Industry (DHI), in the Ministry of Heavy Industries and Public Enterprises, is the nodal authority in India for promoting the development and growth of the in auto component sector.

Auto Mission Plan 2016: Government of India has launched the Ten Year Plan for the Indian auto industry, the Automotive Mission Plan 2006-2016 covering all aspects of the industry to make India a global automotive hub.

The Automotive Mission Plan (AMP) envisages increase in production of automotive industry from the current level of Rs.169000 crore to reach Rs. 600000 crore by 2016.


The National Standards for Automotive Industry are prepared by Bureau of Indian Standards (BIS).

Incentives- Duty Regime:

The reduction in the Customs Duty on Steel and Aluminum Scrap from 5% to 0% Reduction of Excise Duty on Small Cars, Two/Three Wheelers, Buses, Hybrid and

Electric Vehicles which will also benefit the auto components and ancillary units as the demand from the replacement market would increase.

Reduction in Central Sales Tax from 3% to 2%. 125% Weighted Income Tax Deduction on expenses incurred on outsourced R&D which

helps to promote automotive R&D.

Since the late1980s, the auto industry has seen various measures such as delicensing, tariff reduction and encouragement of FDI. In the recent years, there have been major efforts by the Government of India, such as establishment of NATRIP facilities, implementation of emission norms and release of the Automotive Mission Plan. Implementation of the recommendations of this policy document could transform India into a global auto hub.

There are many inter-state differences in terms of tax policies, incentives and emission norms. These could be minimized in order to smoothen the inter-state movements of goods and relocation of industries. Since the Indian auto industry is geographically widespread, this would strengthen the supply chain and its competitiveness.

Firms make their decision to invest in certain states because of the incentives and subsidies offered. However, investment decisions should be based on real factors such as infrastructure and human resources that would ensure their sustainability in the long run.

TECHNOLOGY

Technology that most of the firms in the industry uses are: 5-S Six Sigma Kaizen TQM TPM Lean Manufacturing

However the auto component industry is facing problems in implementing technology like Supply Chain Management (SCM), Enterprise Resource Planning (ERP), etc


Different firms appear to be devising differing strategies for IT adoption and size of the firm seems to be defining the trajectory that a firm will adopt for IT adoption. Firms are at very different levels of IT implementation and the IT strategy of many firms is not based on a judicious process improvement strategy.

Supply Chain Management (SCM) has been ranked as the most critical challenge by Business Unit (BU) heads. Some of the other challenges include fluctuations in raw material costs, meeting customer demands for product quality & timelines and procurement of raw materials, reiterating the importance of the supply chain.

The three most critical business processes identified by the firms are: Order receipt and demand management Production planning Order processing

Quick access to reliable business information is a key bottleneck as the auto component firms possess disparate systems including manual paper based processes that lead to disconnect amongst the supply chain constituents. This has two major impacts – firstly, it impedes real-time decision making and secondly, it results in creation of ad-hoc sources of information which further exacerbate the problem of availability of accurate data

Most of the firms expect IT to play an important role in addressing their business challenges. The key expectations of the BU heads from IT are meeting customer requirements for timely delivery and product quality, tracking production costs and quick access to business information.

Broadly, large firms are ahead of small and medium firms in the adoption of all application systems and Enterprise Resource Planning (ERP) is the most widely adopted IT application among auto component firms. However, very few firms adopt a clutch of applications to maximize the potential of efficiency gains and this obviously has an adverse effect on the efficacy of IT adoption. In the adoption of networking and groupware systems also, large firms are generally ahead of the small and medium firms.

QUALITY STANDARDSThe quality consciousness of the Indian auto component industry has led to more and more exports being directed to the international OEMs and Tier 1 companies. The Indian auto


component industry has perhaps the highest number of QS-9000 & TS 16949 companies in any industry sector in the country. Currently, the component industry boasts of 487 companies with ISO-9000, 157 companies with ISO 14001, over 332 companies with TS-16949, 87 companies with QS 9000 and 42 companies with OHSAS 18001. In addition, 9 auto-component companies have won the Deming Prize for Quality; with 4 companies have won JIPM and 1 company having also won the Japan Quality Medal.

PRODUCT DIFFERENTIATION

MSSL is the largest manufacturer of integrated wiring harnesses in India, the Samvardhana Motherson group holds over 65% share of the Indian passenger car wiring harness market.

The group manufactures wiring harnesses for the entire cross-section of the automotive industry from passenger cars to commercial vehicles, two wheelers and three wheelers, multi utility vehicles, farm, material handling equipment and off-the-road vehicles. The group also manufactures specialized wiring harnesses for white goods, office automation, medical diagnostic equipment, electrical and electronic equipment.

Designing and developing wiring harnesses from first principle concepts on latest design software, the group provides total solutions in wiring harness manufacturing.

The group has complete backward integration for manufacturing critical wiring harness components.

In-house capability for design and manufacturing of applicators, jigs, assembly boards and circuit checking boards enable process design control and flexibility.

As the group manufactures wiring harness not only for the automobile industry but it also supply harnesses to other sectors because of its flexibility and backward integration in production

The engineering capabilities of MSSL makes them an undoubtedly market leader in wiring harness segment.

Engineering capabilities includes:

Process Design & Development

In-house capability of process design and validation Designing & manufacturing of Jigs & Fixtures Applicator design & manufacturing Design & manufacturing of circuit checking & assembly boards

Tooling design for wiring harness process equipment, testing & assembly equipment


As it is evident from the MSSL’s market share in wiring harness segment which clearly signifies the product quality and recognition in the market. MSSL caters the wiring harness requirement of big automobile giants like:

Maruti Suzuki Hyundai Toyota Honda Tata Yamaha Ashok Leyland Caterpillar General Motors Mahindra & Mahindra JCB

EXISTENCE OF MONOPOLYIn the auto component industry there is as such no existence of monopoly as in the industry there are only few recognized players are present who holds the maximum market share. Although most of the players manufactures all the auto components but they specializes only in one or two components like BOSCH specializes in Spark Plugs, MSSL specializes in wiring harness and rear view mirror, Exide specializes in batteries, Sundaram Clayton specializes in clutch housing, Bharat forge specializes in chassis components etc. so there is no such existence of monopoly in the market but auto component industry can be termed as oligopolistic industry as the industry is dominated by few large companies and each firm produces branded products.

PATENTS IN THE INDUSTRY:From last five years Indian auto component Industry have filed many patent applications and using the same technologies in their product line to overwhelm the market competitions.

The Bosch has developed and patented the gasoline systems, brakes and auto electrical parts for the world's most economical car – TATA Nano.

The DTSi (digital twin spark ignition) [Patent No. 195904], 'SNS' [Patent No. 234044] and 'ExhausTEC' [Patent No. 231498] technologies of Bajaj Auto are the latest examples of revolutionary growth of a company through R&D efforts. Years back, Bajaj auto was considered as King of Indian Scooter industry with no direct link to Motorcycle manufacturing.


Clutch auto had 13 designs and 11 trademarks registered in India

In last five years: Clutch Auto has filed 3 patent applications in India. Exide Industries has filed 3 patent applications in India. Minda Industries has filed 4 patent applications in India. Motherson Sumi has filed one patent application in India.

BARRIERS TO ENTRYThe characteristics, which create entry barrier for new entities are:

The need for technological upgrades (particularly in the wiring harness segment) acts as an entry barrier.

Further, backward integration for key inputs is another hurdle for new players. OEMs prefer one-window solutions and thus it is important to hone the ability to develop

new products, which provides a competitive advantage. Further, diversified presence of existing companies, which enables proximity to

customers, is another hurdle for new players. The ability to provide end-to-end solutions, encompassing designing, prototyping,

tooling, molding assembly, and integrated modules, discourages entry of new players. OEMs prefer vendors with high capacity and multiple quality certifications; so those with

small capacities would not be able to enter the market.

FOREIGN TRADE POLICYGovernment of India, under the EXIM policy, has designated auto components as a “Thrust Sector”, allowing automatic approval of foreign equity participation up to 100 percent for manufacture of auto components.

Government of India allows the import of new vehicles by auto component manufacturers for R&D purpose without homologation to make it easier for R&D labs to access the latest technology

ECONOMIC ENVIRONMENTIndia, an emerging economy, has witnessed unprecedented levels of economic expansion, along with countries like China, Russia, Mexico and Brazil. India, being a cost effective and labor intensive economy, has benefited immensely from outsourcing of work from developed countries, and a strong manufacturing and export oriented industrial framework. With the economic pace picking up, global commodity prices have staged a comeback from their lows and global trade has also seen healthy growth over the last two years.


The global economy seems to be recovering after the recent economic shock. The Indian economy, however, was hit in the latter part of the global recession and the real economic growth witnessed a sharp fall, followed by lower exports, lower capital outflow and corporate restructuring. It is expected that the global economies will continue to sustain in the short-term, as the effect of stimulus programs is yet to bear fruit and tax cuts are working their way through the system in 2010. Due to the strong position of liquidity in the market, large corporations now have access to capital in the corporate credit markets

Source: Economic Survey 2008-09 & RBI Bulletin

In 90’s Indian economy is considered as the agriculture dominated economy and most of the India’s GDP composition is constituted by agricultural sector but now with increase in literacy and cheap source of skilled labor and liberal government policies which allows the MNC’s to set up their work in India, India’s GDP composition is dominated by the service sector and now Indian economy is considered as the services economy

52%

27%

21%

COMPOSITION OF GDPSERVICES MANUFACTURING AGRICULTURE




In Indian economy manufacturing sector is the second largest sector in terms of GDP contribution and from this it can also be concluded that in future manufacturing sector will boom and long with this a rapidly growing middle class, rising per capita incomes and relatively easier availability of finance have been driving the vehicle demand in India.The auto sector is one of the main drivers of the economy. Every commercial vehicle manufactured, creates 13.31 jobs, while every passenger car creates 5.31 jobs and every two-wheeler creates 0.49 jobs in the country. Besides, the automobile industry has an output multiplier of 2.24, i.e. for every additional rupee of output in the auto industry, the overall output of the Indian economy increases by Rs. 2.24. Realizing this, successive governments have taken various measures to provide the much-required push to the auto sector.


2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Passenger Vehi-cles

902096 1061572 1143076 1379979 1549882 1552703 1949776

Commercial Ve-hicles

260114 318430 351041 467765 490494 384194 531395

Three Wheelers 284078 307862 359920 403910 364781 349727 440368

Two Wheelers 5364249 6209765 7052391 7872334 7249278 7437619 9371231

500,0001,500,0002,500,0003,500,0004,500,0005,500,0006,500,0007,500,0008,500,0009,500,000

AUTOMOBILE DOMESTIC SALES TRENDSN

O. O

F VE

HICL

ES

Source: Society of Indian automobile manufacturers

The road infrastructure, in particular, had been given special importance by the previous government of NDA with the 'Golden Quadrilateral' project and the 'North-South" and "East-West" corridor projects. This momentum has been maintained by the present Congress-led United Progressive Alliance (UPA) government with its continued support to road infrastructure development. The excise and customs duties on cars and auto-components have been continuously declining over the past five years. All these factors have contributed in providing the impetus to the auto sector.

The major advantage of the Indian economy is educated and skilled workforce with knowledge of English. Our disadvantages include poor infrastructure, complicated tax structure, inflexible labor laws, inter-state policy differences and inconsistencies. The drivers of Chinese economic growth are FDI, labor productivity growth, which was 1.5 times higher than that in India in the last decade, and domestic demand. Fiscal pressure is mounting on the Chinese government, while India is in a better state. Based on comparisons of cost composition to pinpoint the areas in which the Indian auto industry is at a disadvantage, thus it should be recommended a VAT


regime, speedy procedures, imports duty cuts on raw materials, common testing and design facility, labor reforms, upgradation of design and engineering capabilities and brand building.

Thus with the advancement in automobile industry auto component industry is directly gets benefited but still a very long path ahead of success for the industry as the Indian auto component industry is very small as compared globally, India contributes 0.4 % of total market share globally.

Secondly India has to face a strong competition with the Chinese market as China produces about 1 million cars per annum while India produces about 0.65 million. We must caution that China’s auto sector is growing at a scorching pace (>50% per annum) and hence three years down the lane the difference could be high and India may find it difficult to catch up unless we act now. All South East Asian nations including China have less than 2% of world trade in auto components sector. Thus In future, competition for leadership is essentially going to be between China and India. In terms of quality and engineering strength, we currently lead China and we need to be capitalizing on this. Hence an auto component is still largely a virgin territory in terms of supply to OEMs . . . like software services in the last decade and is an opportunity we cannot afford to miss.

RATIO ANALYSIS

LIQUIDITY RATIOA class of financial metrics that is used to determine a company's ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts.

Liquidity ratio includes:

Current ratio Cash position ratio


Quick ratio

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations.

The Current Ratio formula is:

Current Assets

Current Liabilities

Also known as "liquidity ratio", "cash asset ratio" and "cash ratio".

Current ratio of MSSL and BOSCH are:

COMPANY 2009 2008 2007MSSL 1.14 1.60 1.62BOSCH 1.62 1.68 1.69

Source: Annual reports of companies

Interpretation

For MSSL current ratio is continuously decreasing from FY07 to FY09 as current liabilities of the MSSL is continuously increasing from FY07 to FY09 because of the increase in sundry creditors and customer’s advance year on year, which indicates the firm’s decreasing ability to meet its short term obligations.

For BOSCH current ratio is decreasing from FY07 to FY09 as the current assets of the company is decreasing from FY07 to FY09 because of the decrease in the inventories of the company indicating the firm’s decreasing ability to meet its short term obligations however as compared to MSSL BOSCH has the ability to meet its short term obligation is more than MSSL.

Cash Position Ratio

The ratio of a company's total cash and cash equivalents to its current liabilities. The cash ratio is most commonly used as a measure of company liquidity. It can therefore determine if, and how quickly, the company can repay its short-term debt. A strong cash ratio is useful to creditors when deciding how much debt, if any, they would be willing to extend to the asking party.

Very few companies will have enough cash and cash equivalents to fully cover current liabilities, which isn’t necessarily a bad thing, so don’t focus on this ratio being above 1:1.

The Cash Position Ratio formula is:


Cash + Marketable security

Current Liabilities



Interpretation

For MSSL cash position ratio is decreasing which indicates that companies cash reserves are decreasing year by year which indicates that the company’s liquidity is decreasing it may also be possible that the company is better utilizing the cash by investing in some other activity rather than maintaining the high level of cash.

For BOSCH cash position ratio decreases from FY07 to FY08 but again increases in FY09 as the company’s cash reserves increases in FY09 and cash position ratio goes to the same level as in the FY07 which indicates that company’s liquidity is improving and maintaining a static level. However in three consecutive years BOSCH has better cash position ratio as compared to MSSL indicating the fact that BOSCH is sounder in liquidity as compared to MSSL

Quick Ratio

An indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company.

The quick ratio is calculated as:

Current Assets – Inventories – Pre-paid Expenses

Current liabilities


Also known as the "acid-test ratio" or the "quick assets ratio".



Interpretation:

For MSSL quick ratio is continuously decreasing from FY07 to FY09 because of the increase in the raw materials and company has purchased the fixed assets resulting in to decrease in the cash reserves due to which company’s ability to meet its short term obligations with their most liquid assets is decreasing.

For BOSCH quick ratio has increased in FY 09 because of the increase in cash reserves of the company after a dip in FY 08, indicating that company’s ability to meet its short term obligation with its most current assets is improving after a dip. However as compared to BOSCH for FY 08 and 07 MSSL has the more ability to meet its short term obligations with their most liquid assets.

LEVERAGE RATIOFinancial leverage refers to the use of debt finance. Leverage ratio helps in assessing the risk arising from the use of debt capital.

Leverage ratio includes:

Debt-equity

Debt ratio


Interest coverage ratio

Debt-Equity Ratio

Debt-equity ratio is a measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets.

A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense.

The formula for debt equity ratio is:

Total Liabilities

Shareholders’ Equity



Interpretation

For MSSL, debt equity ratio is decreasing from FY07 to FY08 then after a dip in FY08 debt-equity ratio increases in FY09 which indicates that company is improving its financing activities by growing their debts.

For BOSCH, debt-equity ratio increases from FY07 to FY08 but in FY09 it again reaches to 0.43 as in FY07 which indicates that company is hesitant in financing their activities by growing their debts. However MSSL debt-equity ratio is high as compared to BOSCH which indicates that MSSL is more aggressive in financing their activities by growing their debts as compared to BOSCH.

Debt ratio

Debt ratio that indicates what proportion of debt a company has relative to its assets. The measure gives an idea to the leverage of the company along with the potential risks the company faces in terms of its debt load.

A debt ratio of greater than 1 indicates that a company has more debt than assets; meanwhile, a debt ratio of less than 1 indicates that a company has more assets than debt. Used in conjunction


with other measures of financial health, the debt ratio can help investors determine a company's level of risk.

The formula for Debt ratio is:

Total Debt

Total Assets



Interpretation

For MSSL, debt ratio is less than 1 and almost remains the same for three years which indicates that company don’t have more debt than assets.

For BOSCH also the debt ratio is less than 1 and it is continuously decreasing from FY07 to FY09 which indicates that company is continuously decreasing their liabilities. However BOSCH debt ratio is less than MSSL which indicates that BOSCH has fewer liabilities than MSSL.

Interest coverage ratio

Interest coverage ratio is used to determine how easily a company can pay interest on outstanding debt. The interest coverage ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) of one period by the company's interest expenses of the same period.


The lower the ratio, the more the company is burdened by debt expense. When a company's interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be questionable. An interest coverage ratio below 1 indicates the company is not generating sufficient revenues to satisfy interest expenses.

The formula for interest coverage ratio is:

EBIT

Interest

COMPANY 2009 2008 2007MSSL 3.92 8.5 8.96BOSCH -0.81 0.61 3.4


Interpretation

For MSSL, interest coverage ratio is high and but it is continuously decreasing in the three consecutive years. In FY08 it decreases due to increase in the excise duty and manufacturing expenses while in FY09 it dips due decrease in the sales volume of the company. So Year on Years Company’s ability to meet its interest expenses decreases which is not a good sign for the company.

For BOSCH, interest coverage ratio is continuously decreases in three consecutive years and goes to negative in FY09 this continuous decline is due to decrease in the sales revenue and increase in the interest component. As the values of ratio are less than 1 so this signifies that company is not generating enough revenues to satisfy their interest expenses. While regarding inter firm comparison MSSL enjoys better position.

PROFITABILITY RATIOA class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well.

Profitability ratio includes:

Gross profit margin


Return on equity

Net profit margin

Gross Profit Margin

A financial metric used to assess a firm's financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold. Gross profit margin serves as the source for paying additional expenses and future savings.

The formula for gross profit margin is:

Sales – Cost of goods sold

Sales



Interpretation

For MSSL, gross profit margin is almost remains the same with some ups and downs which indicates that the company is maintaining their capability to pay additional expenses and future savings.

For BOSCH, gross profit margin is decreasing which may be due to decrease in the sales revenue of the company. So this indicates that BOSCH capability to meet additional expenses and future savings is decreasing. While as compared to BOSCH, MSSL has the more gross profit margin in three years.

Return on Equity

The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.

The formula for return on Equity is:

Net Income (PAT)

Shareholders’ equity


COMPANY 2009 2008 2007MSSL 0.16 0.31 0.37BOSCH - 0.52 0.016 0.114


Interpretation

For MSSL, return on equity is continuously decreasing from FY07 to FY09 which may be due to decrease in the net income because of the increase in the expenses like depreciation and interest this indicates that the company is not utilizing the shareholders equity properly.

For BOSCH, return on equity is continuously decreasing and becomes negative in FY09 because of the decrease in net income and increase in other expenses like administrative expenses and research & development cost. While comparing both the companies, MSSL are providing more worth to their shareholders than BOSCH.

Net Profit Margin

This number is an indication of how effective a company is at cost control. The higher the net profit margin is, the more effective the company is at converting revenue into actual profit. The net profit margin is a good way of comparing companies in the same industry, since such companies are generally subject to similar business conditions. However, the net profit margins are also a good way to compare companies in different industries in order to gauge which industries are relatively more profitable. also called net margin.

The formula for net profit margin is:


Net Profit

Net Sales

COMPANY 2009 2008 2007MSSL 0.053 0.098 0.10BOSCH - 0.04 0.013 0.099


Interpretation

For MSSL, net profit margin is decreasing from FY07 to FY09 from 10% to 5% which indicates that the company is least effective in converting their revenues in to actual profit because of the increase in expenses like depreciation and interest.

For BOSCH, net profit margin is continuously decreasing from 9% in FY07 to -4% in FY09 which may be due to increase in administrative expenses and research & development cost. However MSSL holds better position than BOSCH as MSSL has more percentage of net profit margin so they are more effective in converting their revenues in to actual profit as compared to BOSCH.

ACTIVITY RATIOActivity ratios measure company sales per another asset account—the most common asset accounts used are accounts receivable, inventory, and total assets. Activity ratios measure the efficiency of the company in using its resources. Since most companies invest heavily in accounts receivable or inventory, these accounts are used in the denominator of the most popular activity ratios.

Activity ratio includes:

Inventory turnover ratio

Debtors’ turnover ratio


Total asset turnover ratio

Inventory Turnover Ratio

A ratio showing how many times a company's inventory is sold and replaced over a period.

A low turnover implies poor sales and, therefore, excess inventory. A high ratio implies either strong sales or ineffective buying. High inventory levels are unhealthy because they represent an investment with a rate of return of zero. It also opens the company up to trouble should prices begin to fall.

The formula for inventory turnover ratio is:

Cost of Goods Sold

Average Inventory



Interpretation

For both the companies inventory turnover ratio is declining which indicates that their inventories are increasing because of the poor sales which results in to their poor inventory management but comparatively MSSL has better inventory management than BOSCH.

Debtors’ Turnover Ratio

This ratio shows how many times sundry debtors turnover during the years.

The formula for debtors’ turnover ratio is:

Net credit sale*

Average Sundry debtors

COMPANY 2009 2008 2007


MSSL 6.8 6.9 8.06BOSCH Nil Nil Nil


*While calculating this ratio net sales has been taken instead of net credit sale because in the balance sheet there is no credit sale.

Interpretation

For MSSL, debtors’ turnover ratio is decreasing continuously in the three consecutive years which indicates that the debtors of the company is decreasing year on year.

For BOSCH, this ratio can’t be calculated as they don’t have any debtors.

Total Asset Turnover Ratio

Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue - the higher the number the better. It also indicates pricing strategy: companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover.

The formula for total asset turnover ratio is:

Net sales

Average total assets




Interpretation

For MSSL, asset turnover ratio is increases from FY07 to FY08 but decreases in FY09 which is due the decrease in net sales in FY09 this decline in asset turnover ratio indicates that the company is not utilizing their assets in generating their sales volumes.

For BOSCH, asset turnover ratio is continuously decreasing in three consecutive years which is due to the continuous dip in the sales volume of the firm this indicates that BOSCH is also not utilizing their assets properly. While comparing between both the companies, MSSL is utilizing their assets properly as compared to BOSCH.

RESEARCH PROJECT

PROJECT DESCRIPTIONThe study is divided in to 4 components

Understand the marketing department working of the MSSL Initially the task assigned during the internship is to understand the marketing function of the company to know about that how the marketing department functions which includes:


· How does the purchase order is taken· How does the purchase order is supplies etc.

Determining the structure of the off road vehicle industry

After studying the marketing function the project is assigned to study the off road vehicle

Industry so as to know the potential of the industry

Identifying the key players in the market

Study the key players

BACKGROUND OF THE STUDYOff Road Vehicle includes various vehicles like Backhoes, loaders, excavators etc which are used for various purposes during the construction of bridges, buildings, flyovers etc.

Earlier there are very few players present in the market but after the government’s stress on the infrastructure development this industry arises as the potential revenue generating industry for the OEM’s which promotes the entry of foreign players in the market through their joint venture with various indigenous OEM’s due to this reason, this industry becomes the key industry to each who directly or indirectly related with this industry.

PROBLEM STATEMENTMotherson Sumi Systems Limited has recently entered in supplying the components to this industry but their penetration in this industry is not up to their expectation.

RESEARCH OBJECTIVE To study the potential of the off road vehicle industry.

To identify the key growth drivers of the industry.

To study the key players in the industry and their respective market share.

To identify the structure of the industry.

To identify the production and sales trends of the various players of the industry.

To identify the major challenges that the industry is facing.

To identify the future of the industry.


SCOPE OF THE STUDYThis study is close to comprehension but not equivalently versatile, as this study is done to

understand the off road vehicle industry but there are so many facts are unrevealed. Analysis

results are approximate and sample is chosen from few players of the industry.

RESEARCH METHODOLOGY

Nature of Research: Qualitative Research

Sampling design

I. Target Sample: Major OEM’s present in the Delhi & NCR region

II. Type Of Sample: Non- random sampling was used

III. Sample Size: A sample of 5 OEM’s were taken

Research design

Strengths: In this era of cut throat competition it is very difficult to convince people to reveal

internal information about their company. Most importantly all key players are identified.

Weakness: Data collection was done from the employees of OEM’s, no other source was used so

total dependence can also biased the data probability is high. It is also possible that they have not

revealed the actual information due to loyalty with their company.

Data collection technique

Primary data: Primary data was collected through interview process, these interview were taken

in person and telephonic. OEM’s who holds the maximum market share were the target sample.

Secondary data: many facts and figures about the key OEM’s and the industry are collected

through internet

Data collection method


In person structured interview and telephonic interview were used for primary data collection

while secondary data was collected through internet.

LIMITATIONS OF THE PROJECT

Some of the limitations of the projects are listed below:

It was difficult to break the ice with employees of various OEM’s initially. It was a daunting task to convince them to convince them to reveal the information about their company.

To convince the people for a proper interviewing process is also difficult

Compilation of data on key players in the industry was difficult due to non-availability of correct and exhaustive information.

This study is limited to few players in the industry who holds maximum market share in the industry.

OFF ROAD VEHICLES INDUSTRY SCENARIO

India’s rise in recent years is a most prominent development in the world economy. India has re-emerged as one of the fastest growing economies in the world. India’s growth, particularly in manufacturing and services, has boosted the sentiments, both within country and abroad. With an upsurge in investment and robust macroeconomic fundamentals, the future outlook for India is distinctly upbeat. According to many commentators, India could unleash its full potentials, provided it improves the infrastructure facilities, which are at present not sufficient to meet the growing demand of the economy. Failing to improve the country’s infrastructure will slow down


India’s growth process. Therefore, Indian government’s first priority is rising to the challenge of maintaining and managing high growth through investment in infrastructure sector, among others.The provision of quality and efficient infrastructure services is essential to realize the full potential of the growth impulses surging through the economy. India, while stepping up public investment in infrastructure, has been actively engaged in involving private sector to meet the growing demand. The demand for infrastructure investment duringThe 11th Five Year Plan (2007-2011) has been estimated to be US$ 492.5 billion (Planning Commission, 2007). To meet this growing demand, Government of India has planned to raise the investment in infrastructure from the present 4.7 percent of GDP to around 7.5 to 8 percent of GDP in the 11th Five Year Plan. In general, efforts towards infrastructure development is continued to focus on the key areas of physical and social infrastructure.

For the infrastructural development government of India is stressing on the development of Roads Railways Ports

While Private sector is also witnessing a continuous Development in Real estate sector in recent years and with the development of real estate sector it will also directly contribute to the growth of off road vehicle industry as with high growth in real estate demand for construction equipment also increases which promotes the growth of off road vehicle industry.

The prime driver for earthmoving equipment is mining activities and construction industry. Within these industries, the key demand drivers going forward are likely to be road construction, urban infrastructure, irrigation, real estate. Prior to the 1960s, domestic requirements of mining and construction equipment were entirely met by imports.Domestic production began in 1964 with the setting up of Bharat Earthmovers Ltd. (BEML), a public sector unit of the Ministry of Defense, at Kolar in South India to manufacture dozers, dumpers, graders, scrapers, etc. for defense requirements under license from LeTorneau Westinghouse, USA and Komatsu, Japan. In the private sector, the Hindustan Motors’ Earthmoving Equipment Division was established in 1969 at Tiruvallur, near Chennai with technical collaboration from Terex, UK for manufacture of wheel loaders, dozers & dumpers. This factory has since been taken over by Caterpillar for their Indian operations. The machines manufactured by, Caterpillar in the Tiruvallur factory are marketed by TIL and GMMCO.

The Indian off road vehicle industry was severely hit by the economic slowdown, weak sentiments across user industries and tight liquidity conditions in 2008-09, resulting in a sharp 15-30% drop in demand across product segments.


However Indian OFR vehicle industry started picking up in November 2009 and maintained a healthy growth for the next four months. The IIP index April-February 2010 posted a growth of 10.1% as against 3.0% in the corresponding period of the previous year.

MARKET SIZEThe Indian off road vehicles sector has a market size of US$ 6.5 – 7 billion for the year 2009-10. The industry has been growing due to the large investments made by the Government and the private sector infrastructure developments. The prospects of the off road vehicles industry look attractive with a projected investment of US$ 320 billion in the infrastructure sector over the next few years. The Indian market is catered by about 200 domestic manufacturers (small, medium & large). Though the Indian Off road vehicles industry is a fraction of the global market, whose size is over US$ 75 billion. India is one among the top 10 markets for off road vehicles and is one of the key international markets. The growth in this industry is expected to be primarily due to investments in infrastructure, investments by the Government in the form of external borrowings and internal accruals by Public-Private-Partnerships (PPP) model. Indian Firms are strengthening their existing operations for catering to the growing domestic demand and are also planning to expand to tap overseas markets. At the same time international majors have ambitious plans for India.

2006-07 2007-08 2008-09 2009-10 2014-15 (EST)0

4

8

12

GROWTH OF THE INDUSTRY

US $

BILL

ION

SEGMENTATION OF THE INDUSTRYIndia produces the entire range of off road vehicles for different applications. The industry can be broadly classified under following category:

Earth moving equipments Construction vehicles Material handling equipment Construction equipment

OFF ROAD VEHICLES

EARTH MOVING EQUIPMENT

CONSTRUCTION VEHICLES

MATERIAL HANDELING EQUIPMENT

CONSTRUCTION EQUIPMENT

EXCAVATORS BACKHOEDUMPERS CRANES

ROAD ROLLERS


STRUCTURE OF INDUSTRY

71% of the sector comprises of public limited companies including PSU’s and 29% private limited, or joint ventures including closely held private limited companies.

75% of the companies manufacturing in India were involved in the entire range of activities like design and engineering, manufacturing, erection, servicing and commissioning. There are only a few companies who act as selling agents for international players. There are others who manufacture and also import complete equipment or in SKD condition from their principals abroad and market them.

Since each piece of the equipment in this product category has substantial value, a number of companies have a turnover of over 100 crores and the larger ones have a turnover above Rs.1000 crores. The technology barriers have made the industry less fragmented in the mining machinery

EXCAVATORS BACKHOEDUMPERS CRANES

TUNNELING & HANDELING EQUIPMENT

ROAD ROLLERS


sector whereas it is fragmented in the road construction equipment and the material-handling segments.

In terms of size, earthmoving equipment constitutes the biggest segment, accounting for nearly 57 per cent of the overall equipment market. Material Handling equipment and tunneling and drilling equipment follow with 13 per cent and 12 per cent respectively.

STRUCTURE OF OFF ROAD VEHICLE INDUSTRY

EARTH MOVING EQUIPMENT 57%

MATERIAL HANDLING EQUIOMENT

13%

TUNNELING & DRILLING FOR MINIING

12%

ROAD CONSTRUCTION EQUIPMENT

7%

CONCRETE EQUIPMENT 6%

CONCRETE PREPARATION 5%

EARTHMOVING SEGMENT

In the off road vehicle industry earthmoving segment constitutes the highest market share. Earthmoving

equipment constitutes about 57% market share. The earthmoving equipment market in India is estimated at about US$ 1.4 billion. The earthmoving equipment segment includes excavators, which account for just over half the market. Backhoes account for 26 per cent and loaders for another 5 per cent share.


51%

26%

5%

18%

EARTHMOVING EQUIPMENT SEGMENT

EXCAVATORSBACKHOESLOADERSOTHERS

EXCAVATORSThe excavator market in India was around US$ 733 million in FY’09 with a total of about 4455 units being sold. There is a sizeable market for used equipment as well. Excavators have registered a 30 per cent CAGR (Compounded Annual Growth Rate) for the past four years. Given the long term nature of India’s infrastructure development plans, similar growth rate is expected in future as well.High end excavators incorporating modern technology are witnessing faster growth compared to the traditional low end excavators. In terms of tonnage, 6–18 tonne excavators have grown at a CAGR of 9 per cent while 18–22 tonne excavators have registered a growth of 23 per cent CAGR during the period of FY’01-06. The 22-50 tonnes excavators have seen a CAGR of 35 per cent and over 50 tonnes have registered 19 per cent CAGR in the same period. Increase in the sales of smaller sized excavators is largely driven by irrigation projects. Increased privatization of mining and capacity augmentation in cement industry has propelled the growth for larger excavators. The key players in this sector are Telcon, L&T - Komatsu, Volvo, CAT and JCB. Telcon is the market leader with about 50 per cent of the market.

BACKHOEIndia is the second largest market for backhoe loaders in the world with a market size of approximately US$ 358 million. The market has been growing at a rate of close to 37 per cent CAGR over last four years. Going ahead growth is likely to be at least 11 per cent CAGR over the next few years. Most industry players however expect much faster growth (around 30-40 per cent) in the near term.


JCB India is the leader in this segment with a share of over 70 per cent. Other players include Telcon, L&T, Caterpillar and Terex. While technology plays a key role especially for lowering operating costs by making the machine more fuel efficient, it is not perceived to be as important for backhoes as it is for excavators. With more players and increased competition, price competition may increase.The drivers for this market have been the housing and urban construction. Backhoes are used for all construction applications and hence have a very high utilization for renters. Backhoes are perhaps the only market in India amongst construction equipment that have reached a stage of maturity and scale where exports could be considered.

LOADERSThe total market for wheeled loaders was approximately US$ 64 million in FY’06 with a total of about 1321 units being sold and has been growing at a CAGR of about 41 per cent over the last 4 years. The growth is expected to continue at 10 per cent CAGR over the next few years. As in the case of backhoes, faster growth of about 20-30 per cent is expected in the near term. Unlike excavators, the growth in loaders is greater in the lower capacity categories (<10T). The Key players in the Loaders market are Caterpillar (~50 per cent share), JCB and Telcon with L&T Komatsu and Volvo being players with a relatively smaller presence. In the high capacity loaders market (>15T), Volvo is a significant player.Most of the customers for loaders are first time buyers and this is the reason for huge sales of lower end loaders. Just as it is for excavators, a complete range of products and comprehensive maintenance and service support are becoming the critical success factors for players in the industry. The demand of loaders is from increased global demand for iron ore mining activities in the country.

SECTOR COMPOSTION AND SIZE

Product consumption constitutes the bulk of the segment with around 56 per cent while the unorganized sector contributes to around 15 per cent. Unorganized players are more prevalent in the relatively less technology intensive material handling, material preparation and concrete equipment segments.


56%

21%

15% 6%2%

OFR VEHICLE INDUSTRY

Products Spare Parts Unorganised SectorServices Exports

The imports market is estimated around US$ 375 million. Of these, the earthmoving, excavation and hauling equipment categories command around 25 per cent.

Imported used equipments, which include high-end hydraulic mobile cranes, excavators, motor graders, vibratory compactors comprise a negligible 0.4 per cent of the total industry.The exports of Indian off road vehicle industry were estimated at US$ 90 million in 2008-09. The potential exports market for construction equipment from India is projected to be around US$ 100-120 million by 2010. Spare parts revenues range anywhere from 20–29 per cent of the total sales for representative companies and are predominant in tunneling and drilling equipments. Services revenues have been higher for global players at around 11–20 per cent in comparison to 2–8 per cent of Indian players.The off road vehicle industry in India has more than 200 players; however, the top 6 players occupy about 50 per cent of the market.

The following are players and their contribution to the Indian off road vehicle industry:

COMPANY REVENUE MARKET SHARE


(US$ MILLION)

JCB India 329 13.2%

BEML 307 12.3%

TELCON 283 11.3%

L&T Case/Komatsu 156 6.3%

Caterpillar India 143 5.7%

Ingersoll Rand 105 4.2%

Volvo 99 3.9%

ECEL 61 2.4%

Greaves Cotton 37 1.5%

ACE Ltd. 36 1.5%

Others 944 37.7%

TOTAL 2500 100%

MAJOR PLAYERSThe major players in the industry are:

JCB India

Bharat Earth Movers Limited (BEML)

L & T Case and L & T Komatsu


Ingersoll-Rand India Limited

Tractors India Ltd. (TIL)

Voltas

Caterpillar India

Greaves cotton

Telco Construction Equipment Company Limited

Godrej & Boyce Mfg. Co. Ltd

Escorts Construction Equipment Limited (ECEL)

Action Construction Equipment Limited (ACE)

Ashok Leyland Ltd.

GMMCO Ltd.

Mahindra & Mahindra Ltd.

Schwing Stetter India Pvt. Ltd.

Tata Trucks India Ltd.

TIL Ltd

Voltas Ltd.

Volvo India Pvt. Ltd.

Wirtgen India Pvt. Ltd.

Other prominent players are:

Appollo Earthmovers

Apollo Industrial Products

Braithwaite & Co. Ltd.


Elecon Engineering Co. Ltd.

Godrej & Boyce Mfg. Co. Ltd.

Gujarat Appollo Equipment Ltd.

Heavy Engineering Corporation Ltd.

Hyderabad Industries Ltd.

International Combustion (India) Ltd.

Jessop & Co. Ltd.

Macneil Engineering

Mukand Ltd.

Shethia Erection & Material Handlers

TRF Ltd.

WMI Cranes

PROFILE OF KEY PLAYERS

JCB India

JCB came to India in 1979 The company has a turnover of US$ 335 million


The company is growing by 25-30% annually JCB India is a subsidiary of JC Bamford Excavators Ltd. (JCB) The product range of JCB includes

Backhoe Loaders Compact Excavators ( Mini / Midi ) Agricultural Telescopic Handlers Articulated Dump Trucks Fastrac tractors Tracked Excavators Skid Steer Loaders Telescopic Handlers Teletruks Wheeled Loaders Wheeled Excavators Vibratory Single Drum Compactors Vibratory Tandem Rollers Rapid Blow Tampers Tow-Type Vibratory Compactors Rough Terrain Forklifts Agricultural Telescopic Handlers Agricultural Wheeled Loaders Dumpsters

JCB India is market leader in the backhoe loader. It constitutes about 70 % market share in backhoe loader segment

JCB India has 13% market share in overall off road vehicle industry in India. JCB India has manufacturing facilities at Ballabgarh in Haryana and Pune in Maharashtra It has 38 dealers and 206 outlets It has a dedicated parts centre in Ballabgarh and parts distribution depots in Chennai,

Pune and Kolkata

PRODUCTION TRENDSIn last five years the production of JCB India is


From 2005 to 2009 the production volume of JCB India is continuously increasing

SALES TRENDS

2005-06

2006-07

2007-08

2008-09

2009-10

4171

4495

5037

6019

5857

JCB SALES VOLUME

With respect to production JCB India’s sales volume is also continuosly increasing in last 5 years

Bharat Earth Movers Ltd. (BEML)

BEML is public limited company established in 1964

2005-06

2006-07

2007-08

2008-09

2009-10

4392

4731

5293

6012

6156

JCB PRODUCTION VOLUME


BEML is its largest player in earthmoving equipment sector The Company turnover is around US$ 484 million The mining and construction equipment segment is around US$ 306.6 million; defense

segment is about US$ 154.2 million; and railways around US$ 23 million The company is the largest public sector undertaking in this industry Some of its customers are Delhi Metro Rail Corporation, Coal India and Jessop Co. Ltd.

(Railways) The product range of BEML includes

Crawler dozers Wheel dozers Excavators Dump trucks Loaders Backhoe loaders Pipe layers Walking dragline Rope shovel Sprinklers Graders

BEML has eight manufacturing units spread over four locations:o Kolar Gold Fields (KGF) Complex (around 100 Km from Bangalore)

Earth Moving Division Rail Coach Unit II Heavy Fabrication Unit Hydraulic & Powerline Division

o Mysore Complex (around 130 Km from Bangalore) Truck Division Engine Division

o Bangalore Complex - Rail & Metro Divisiono Vignyan Industries, a subsidiary located at Tarikere (around 300 km from

Bangalore) - Steel Castings It has a 70% market share in the domestic earthmover industry and 12% in the overall off

road vehicle industry It has 33 marketing offices and has a strong foothold in the government sector

PRODUCTION TRENDS:


2005-06

2006-07

2007-08

2008-09

2009-10

1924

2247

2550

3017

2849

BEML PRODUCTION VOLUME

BEML production volume is continuosly incrasing year by year

SALES TRENDS:

2005-06

2006-07

2007-08

2008-09

2009-10

1887

2193

2506

2955

2786

BEML SALES VOLUME

BEML sales volume is also increasing in accordance with the production volume.

L&T Case, L&T Komatsu


The companies together have a turnover of US$ 156 million, with majority coming from L&T Komatsu. Both these companies are subsidiaries of L&T Ltd.

They are joint ventures with CNH American LLC and Komatsu Asia Pacific Pvt. Ltd., Singapore, respectively

L&T Case manufactures loaders backhoes and vibratory compactors; while L&T Komatsu manufactures hydraulic excavators

L&T Case hold 21% market share in vibratory compactors L&T Komatsu holds 20% market share in excavators and it is the second largest player in

excavator segment after TELCON L&T Case has its facilities in Pithampur, Madhya Pradesh L&T Komatsu has it operations in Bellary Road in Karnataka

PRODUCTION TRENDS:

2005-06

2006-07

2007-08

2008-09

2009-10

8329

8667

9125

8858

8116

L & T PRODUCTION VOLUME

SALES TRENDS:


2005-06

2006-07

2007-08

2008-09

2009-10

7919

8232

8548

8413

7711

L & T SALES VOLUME

Telco Construction Equipment Company Ltd. (Telcon)

The company is a market leader in excavators

It has collaborations with Hitachi Construction Machinery Company, Japan, for hydraulic

excavators and cranes; John Deere, USA, for backhoe loader technology; CESAN,

Turkey, for asphalt plants

It is a subsidiary of Tata Motors and has a turnover of US$ 283 million

Its major products are

Excavator

Loaders

Mechanical shovels

High tonnage crawler cranes etc.

It has a 50% market share in the excavator segment and an overall market share in the

construction equipment segment of 11%

Tata group of companies, government enterprises, and contractors are its major

customers.

It has facilities installed at Jamshedpur in Jharkhand and Dharwad in Karnataka


Its marketing network spans across 30 Indian states and 3 international locations

PRODUCTION TRENDS:

2005-06

2006-07

2007-08

2008-09

2009-10

4396

5702

6462

6509

5199

TELCON PRODUCTION VOLUME

SALES TRENDS:

2005-06

2006-07

2007-08

2008-09

2009-10

4699

5415

6183

6191

4937

TELCON SALES VOLUME

Action Construction Equipment Ltd. (ACE)

Action Construction equipment ltd. is a public limited company

The public limited company has a turnover of US$ 36.3 million


Its product range includes

Hydraulic mobile pick-n-move cranes

Forklift trucks

Loaders

Tower cranes

Aerial work platforms

Lifts

Lorry loaders/truck mounted cranes, etc.

It has a 41% share in Pick & Carry cranes segment

It has facilities installed in Faridabad in Haryana

There are 8 ACE offices and 33 dealer locations

The turnover of the company has grown at a CAGR of approximately 96% in the last 4

years.

The company has plans of diversifying its product portfolio to include truck mounted

cranes, forklifts and backhoes.

PRODUCTION TRENDS

2005-06

2006-07

2007-08

2008-09

2009-10

3344

4137

4009

4109

4019

ACE PRODUCTION VOLUME

SALES TRENDS


2005-06

2006-07

2007-08

2008-09

2009-10

3321

3947

4125

3842

3731

ACE SALES VOLUME

PORTER’S FIVE FORCE ANALYSIS OF OFF ROAD VEHICLE INDUSTRY

THREAT OF NEW ENTRANT


The threat of new entrant is high as the off road vehicle indutry is:

Highly fragmented

Dominated by few large players

High potential growth in the indutsry

New will only need the right technology and product to penetrate the market

BARGAINING POWER OF SUPPLIER

The supplier power is high in the industry as:

some of the players in the industry also imports some critical components

Volatality of steel prices impacting production costs

Inadequate supplier base to meet the demand

BARGAINING POWER OF BUYER

The customer power is medium in the industry as:

Off road vehicles are strong in demand

Market is price sensitive

Customer lacks in knowhow of technology

COMPETITIVE RIVALRY

Competitive rivalry is high in the industry as:

The price and service are the main differentiators in the industry.

There is lack in sharp differentiation which leads to competition in price.

Huge demand for construction equipment in future


THREAT OF SUBSTITUTES

Threat of substitutes is very low in the industry as:

The products that the industry manufactures are very specialized products and high in technology and the work done by these products cannot be substititued by any other products in near future but replacement and enhancement of the products are possible.

KEY GROWTH DRIVERS FOR THE INDUSTRYThe key growth drivers in the industry are the investment in

Construction

Mining

Urban Infrastructure

CONSTRUCTION INVESTMENT

The Indian construction industry is worth US$ 145 billion. The sector represents the second largest economic activity after agriculture and employs around 18 million people. Construction investments account for 11 per cent of GDP and around 50 per cent of the gross fixed capital formation, and are expected to grow to the tune of US$ 182 billion at a CAGR of 8 per cent over the years of FY 08-09.Construction equipment accounts for around 5–24 per cent of the total cost incurred in any construction project. The construction industry is a primary demand driver for earthmoving and road construction equipment. Increasing mechanization of industry and construction facilitates greater penetration of construction equipment. Recent Government policies around tax benefits for infrastructure ventures have boosted equipment usage.Construction investment is composed of three components - infrastructure investment, real estate construction investment and industrial construction investment.

MINING INVESTMENT

There are about 355 opencast mechanized mines in India. Further 73 proposals for FDI having a total investment of US$ 830 million and 163 reconnaissance permits for an area of 2,19,000 square kilometers had been approved till 2008. Outsourcing of mining blocks for captive use has


increased the scope for contract mining leading to potential increase in open-cast as well as underground mining activity.The mining sector attracts significant demand for earthmoving equipment. The mining investments can be categorized as follows.

Coal mining investment Iron ore mining investment

URBAN INFRASTRUCTURE INVESTMENT

Development of urban infrastructure has been a priority area for the Government of India, and the Government has been encouraging private participation in this segment. Investment in urban infrastructure is expected to double from US$ 5.4 billion in 2005 to nearly US$ 10.9 billion in 2010. The Central Public Health and Environmental Engineering Organization (CPHEEO) have estimated the requirement of funds for 100 per cent coverage of the urban population under safe water supply and sanitation services by the year 2021 at US$ 41.2 billon. Estimates by Rail India Technical and Economic Services (RITES) indicate that the amount required for urban transport infrastructure investment in cities with population 100,000 or more during the next 20 years would be of the order of US$ 49.3 billion. To catalyze development of urban infrastructure, 100 per cent FDI under the automatic route has been permitted in housing and urban infrastructure projects.An estimated US$ 13.8 billion of investments is expected in the next 5 years in mass road transport systems, drinking water supply, sewage treatments, etc. There would be a need for removing huge infrastructure bottlenecks that impact the growth of large Indian cities. The investments are expected through Government and private participation. The estimated CAGR over the next 3 years is 12.9 per cent.These investments would lead to demand for backhoe loaders, excavators and cranes.

MAJOR THREAT TO THE INSDUTRYThe indian off road vehicle industry had a major threat from chinese industry as China has a huge domestic market for off road vehicles. The Chinese loader market alone stands at over 125,000 as against 1,800-2,000 wheeled loaders sold in India per annum. With such economies of scale, the Chinese equipment has the competitive advantage of being significantly cheaper than the Indian equipment. A number of Chinese companies - crane manufacturers Zoomlin & Weihai Huata and wheel loader & motor grader manufacturer Xiamen, Sany and Liugong, to name a few, have established their presence in India through a combination of manufacturing facilities, sales offices or marketing tie-ups with Indian companies for selling their products in India. It is estimated that the Chinese companies currently hold over 12% in the wheeled loader


segment, around 13% of the dozer segment and enjoy a strong presence in concrete mixers, with the potential to expand their presence in the Indian markets. The challenges for the Chinese products in India stem largely from warranty support and availability of spares/ after-sales support. Some Chinese manufacturers have started addressing these concerns through tie-ups with local established OEMs like Escorts Construction Equipment Limited (ECEL). While the current approach of domestic buyers towards Chinese equipment remains cautious on concerns related to quality and availability of long-term after-sales service, the future trends could be largely determined by the success of local tie-ups in addressing these concerns. Further, the resale value of the Chinese equipment currently remains low, restricting availability of finance. However, the Indian OEMs will continue to face competitive pressures to lower costs, thus requiring higher localization; improving value through greater customization to meet local needs besides strong service and spares support to beat competition. Imports into India also originate from other countries too, either because of non-availability of such products in India (higher tonnage cranes and mining equipment for instance) or owing to a cost advantage (on used equipment). This trend is more pronounced in material handling equipment; where over 10-15% of the equipment in the country is currently imported. Developing nations like India are key destinations for used cranes from countries like Australia.

GOVERNMENT POLICIESThe Government of India’s focus on infrastructure development is the single biggest driver for the construction equipment industry. Policies that encourage manufacturing and retail activity also have a positive impact on the equipment market. Apart from these, some of the policies that are aimed at attracting investment in the sector include the following:

All agencies and ministries of union and state government will work united with a shared vision for success.

100 per cent FDI is allowed for manufacturing purposes. Exemption from obtaining an industrial license to manufacture. Manufacturers are free to select the location of the project. Import duties reduced to encourage imports. Encourage exports from Export Oriented Units (EOUs), Special Economic Zones and

Export Processing Units (EPUs). Locations with high growth potential to be supported by Government to bridge

technology and productivity gaps, skill up-gradation, physical infrastructure, environmental mitigations facilities to be provided by Government in selected areas of intervention.

Schemes similar to SEZs can be developed for export oriented units with capital investment in plant and machinery over US$ 6 million.


KEY EMERGING AREAS

Following are the key emwerging in the areas that presents good growth potential for the future

Rentals Currently, equipment rentals contribute to just about 2% of the market This is expected to grow to about 25% by 2011

Leasing Equipment leasing expected to grow from about 2% to around 8% by 2011

Financing and end-to-end services Some of the large players are looking at providing end-to-end services to the users

throughout the equipment lifecycle – financing, user training, maintenance and buy-back of used equipment

Exports Exports of Construction Equipment (CE) from India grew by 30% CAGR over 2006-09

and are expected to sustain this growth in the future

FINDINGS

The study reveals various facts and finding about the industry are:

The industry is dominated by the earthmoving segment viz. Backhoes, Loaders, Excavators.


The key players in the industry are JCB India, BEML, L&T, TELCON and ACE.

JCB India has the maximum market share in the industry and BEML has the second largest market share in the indutry.

TELCON is the market leader in the backhoe loaders holds about 50% market share.

JCB India is the market leader in the excavators holds about 70% market share.

The indian government is continuosly emphasizing on the infrastructural development which acts as the one of the key growth driver for the industry.

Component supplier’s power is high in the industry as there are very few organized supplier are present in the industry who provides timely delivery.

Backhoes are perhaps the only market in India amongst construction equipment that have reached a stage of maturity and scale where exports could be considered.

Caterpillar India is the market leader in loader segment holds about 50% market share.

India is following the international trend of consolidation in the industry; most Indian manufacturers are associating with international majors on the technological front.

The barriers of entry are low, as there is huge demand for the future.

The bargaining power of suppliers is high, so manufacturers can import components to completely manufacture construction equipment and cater to growing demand.

The industry is facing major threat from chinese market as chinese supply cheap component and chinese are also started making their presence in the market through ventures with the indian companies.

The future market for off road vehicle industry is lucrative as government of india is promoting infrastructure development in india on large scale which is one of the biggest driver for the growth of the industry which incrases the demand for the vehicles in near future.


CONCLUSION

The Indian construction equipment industry is a key segment of the manufacturing sector and is poised for excellent growth in the coming years, based on India’s overall manufacturing sector and infrastructure growth.The overall industry has been growing at 30 per cent CAGR and is projected to grow at 15 to 20 per cent over the next few years. Earthmoving equipment, material handling equipment and road


construction equipment are key segments expected to contribute to the bulk of the growth, driven by construction activity in the parent sectors.To leverage this opportunity, MSSL need to focus on developing individual and pooled capabilities to develop global competitiveness across the sector as most of the players in the off road vehicle industry are shifting towards importing the components because of the bargaining power of suppliers in the industry is high and suppliers also not provides timely delivery to OEM’s this is the most critical factor that has to be considered.

RECOMMENDATIONS

MSSL has to focus on the areas listed below to penetrate the off road vehicle industry

Service: OEM’s would prefer those suppliers who provide prompt and efficient service.

Price: Product pricing is the prime factor in decision making by the buyers. OEM’s in today time decide on the basis of value they are getting from their suppliers. Even higher


price is paid for getting higher value from the product. It is must to give best expected value to the customer.

Quality: Quality of the product is directly dependent on brand image, product performance, timely delivery and prompt service.

Lead time for delivery: Supplier should meet the delivery commitments with buyers as per the requirement or as agreed upon. Company tends to lose their market share on default on delivery front and they switch the different supplier easily.

Client satisfaction: Client satisfaction leads to continuous business, if a customer is not satisfied he will switch to other manufacturer or supplier. One satisfied client brings ten more clients.

KEY LEARNINGS

During the eight weeks of internship I gained a lot of business and practical knowledge in Motherson Sumi Systems Limited as part of my corporate training which had been a fruitful learning for me. I got to know a lot about the corporate culture and etiquettes and how actually


theories are applied at work. I also converted my theoretical knowledge into practical aspects. Apart from this my main Learnings are:

How to convince:

During the phase of data collection I had to go to the OEM’s and it is very tough task to convince them for providing the information about their company.

Corporate Communication:

During the phase of internship I had learned how communication goes in the corporate.

How to prepare questions for an interview:

In the report for data collection a structured questions for interview is prepared with the help of personnels of MSSL.

As this internship can be said a trailer for my future job, so I think that the skills which I got here in these 8 weeks would be helpful for me towards my whole career.

ANNEXURE

INTERVIEW QUESTIONS


Q.1. How many types of off road vehicle did your company manufactures

Q.2. Which one is the most sellable model

Q.3 In which vehicle do you consider yourself as the market leader

Q.4. How many manufacturing facility do you have in India

Q.5. Where these facilities are located

Q.6. Who is your major customers

Q.7. Who is your major competitor in the market

Q.8. How many dealers do you have across India

Q.9. What is the current production capacity of your plant

Q.10. By how much percent does the production capacity of the plant increases in last 5 years

Q.11. What do you consider the major threat for the your organization and off road vehicle industry

Q.12. What is your major strength which makes you a brand name in the market


Q.13. Are you planning to launch a new off road vehicle in the market in future

Q.14. If yes, in which segment

Q.15. What is your current market share in the off road vehicle industry

BALANCE SHEET AND PROFIT & LOSS STATEMENT


REFRENCES

BibliographyChandra, Prassanna, financial management, New Delhi, Tata McGraw-Hill Publishing Company Limited.2008Philip Kotler and Keller, Marketing Management, (XII Edition), Prentice Hall of India (New Delhi: 2006).Management; Stoner, James A.F, Freeman, R. Edward, Gilbert Jr., Daniel R, Pearson Education India

Websiteswww.motherson.comwww.acmainfo.comwww.ibef.orgwww.aem.orgwww.bosch.comwww.mospi.gov.in

http://www.mospi.gov.in/

http://www.bosch.com/

http://www.aem.org/

http://www.ibef.org/

http://www.acmainfo.com/

http://www.motherson.com/

Project on Off Road Vehicle Industry

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Transcript of Project on Off Road Vehicle Industry