Project-Report-on-comparative-analysis-of-auto-component-industry-in-India.doc

7/27/2019 Project-Report-on-comparative-analysis-of-auto-component-industry-in-India.doc

1/56

NATIONAL INSTITUTE OF

TECHNOLOGY

KURUKSHETRA(DEEMED UNIVERSITY)

AProject Report

OnComparative analysis

Of

Auto-component industryIn India

Submitted to Submitted byMrs. Neenu Yogesh thakker


2/56

CONTENTS

1. Preface

2. Acknowledgement

3. Certificate

4. Project Description

Auto-component Industry in India

Big players go high-tech

Government Initiatives

FDI Scenario

Domestic Sales--How is Indian market performing

Exports

Indian Component Industry is fast emerging as an

Attractive OEM/Tier 1 Supplier

Company Profile

Auto Components-Major players

Data Analysis and Interpretation

5. Conclusion

6. Bibliography


3/56

PREFACE

Master of Business Administration is a course, which combines both theory and itsapplications as its contents of study in the field of management. As part and parcel ofthis course, every aspirant has to undergo summer training in an organization. The

purpose of this training is to expose the student of management sciences to real lifesituations existing in the organization and to provide an insight into the variousfunctions, who can visualize things, what they have been taught in classrooms.Actually, it is the life force of management. It is in practical training that theeffectiveness of management itself is realized.

This report is a continuation of that tradition. It is an attempt to present an account ofpractical knowledge and observations gathered during the analysis.This report includes the information about the premiere companies in auto-

component industry

Yogesh ThakkerDepartment of Business administration

National Institute of TechnologyKurukshetra


4/56

ACKNOWLEDGEMENT

I hereby acknowledge the courtesy and prompt response of all those who were

requested to contribute their views, readily grant the necessary permission to

contact them at inconvenient hours despite the pressure of work. The projectreport would not have been possible without unstinting support of all the

executives of Clutch Auto Ltd.

I would like to express my sincere gratitude towards Mr. forgiving me thisopportunity to experience a whole new dimension in my study curriculum

which has not only enriched my knowledge but has also helped me by giving a

practical exposure to the corporate world. His invaluable and constructive

criticism and continuous encouragement throughout the project helped me to

get insight of the working of Clutch Auto Ltd.

I am grateful to Mr. Giriraj, Mr. B.S.Panigrahi and all the officers in the

organization who were very co-operative and were there whenever I needed

them.

I would like to express my sincere thanks to Mrs. Aarti Deveshwar and Mr.

Vinod Kumar of NATIONAL INSTITUTE OF TECHNOLOGY

KURUKSHETRA for guiding me through the project, without her help it would

have been difficult for me to complete this project.

The training experience will go down as one of the most cherished memories in

my life. The officers at Clutch Auto limited and my guide at the college havemade me a better person today. I am humbled and feel too small to accept the

respect showered on me.

(Yogesh Thakker)


5/56

CERTIFICATE


6/56

INTRODUCTION OF THE PROJECT

The automobile industry in the country is one of the key sectors of the economy in

terms of the employment opportunities that it offers. The industry directly employsclose to around 0.2 million people and indirectly employs around 10 million people.The prospects of the industry also has a bearing on the auto-component industrywhich is also a major sector in the Indian economy directly employing 0.25 million

people.

All is not well with the automobile industry the world over currently with theslowdown that has gripped most of the major economies of the world. The gap

between the manufacturing capacity volume and the assembly volume is growing bythe day and has worried the manufacturers. This state of affairs has triggered a lot ofcutthroat competition and consolidation in the industry. Cost reduction initiatives

have come to be the in thing in the global industry today. Towards this direction,many automobile factories are being closed down.

The Indian automobile industry is a stark contrast to the global industry due to manyof the characteristics, which are peculiar to India. The Indian automobile industry isvery small in comparison to the global industry. Except for two wheelers and tractorssegments, the Indian industry cannot boast of big volumes vis--vis global numbers


7/56

SCOPE OF PROJECTThe scope of project is to identify the premiere players in auto-component industryand to make a comparative analysis of their financial positions as well as future

prospects.


8/56

OBJECTIVES OF PROJECT1. To do comparative analysis of the premiere players of auto-component

market


9/56

RESEARCH METHODOLOGYRESEARCH METHODOLOGY

The research involves plotting of graphs on the basis of calculation made in the excelworksheets. On the basis of these calculations and charts further conclusions weredrawn.

The financial data of all the companies taken up for the project have been taken fromwww.yahoofinance.com


10/56

Auto-component Industry in India

The auto component industry has come of age and now forms an importantcomponent 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 inthe automobile sector. Manufacturing vehicles typically involve assembling a largenumber of components out-sourced from number of ancillaries or componentmanufacturers. Competitiveness with quality as a theme has been the watchword forthe Indian industry and especially the auto component industry ever since the Indianeconomy was opened up to the world in the early 1990s. While economic revival,lower interest rates and better road infrastructure are driving domestic demand forautomobiles and, therefore, components, increasing outsourcing by globalautomobile majors is creating a huge export opportunity for Indian componentmanufacturers.

Industry dynamicsThe Indian auto components industry started out small in the 1940s supplyingcomponents to Hindustan Motors and Premier Automobiles, two largestmanufacturers of automobiles in India at that time. In the 1950s, the arrival of Telco,Bajaj, Mahindra & Mahindra led to steadily increasing production. A closed marketwith high import tariffs characterized the Indian auto component industry pre 1985.1985-91 saw significant JVs in the Indian auto component segment with Japanesemanufacturers. After 1991, the delicensing of the sector led to global automanufacturers initiating assembly operations in India. This subsequently led toglobal Tier I players entering the Indian auto space and the recognition of the

potential in the Indian auto component segment.The Automotive Component

Manufactures Association (ACMA) classifies the auto ancillaryindustry into the following product segments: Engine and engine parts: Pistons, piston rings, piston pins, gaskets, carburetors,fuel injection pumps, etc. Drive transmission and steering parts: Transmission gears, steering gears, crownwheels and pinions, axles, wheels, etc. Suspension and braking parts: Leaf springs, shock absorbers, brake assemblies, etc. Electricals: Spark plugs, starter motors, generators, distributors, voltage regulators,flywheel magnetos, ignition coils, etc. Equipment: Dashboard instruments, headlights, horns, wipers, etc. Others: Fan belts, sheet metal parts, plastic mouldings, etc.

The major players in the auto ancillary industry can be classified between the onescatering to the two wheeler industry and the four wheeler industry. MICO, BharatForge, Sundaram Clayton, Sundaram Brakes, Rane Brakes, etc. mainly cater tocommercial vehicles/tractors. There are many companies like Ucal Fuel, MothersonSumi, PRICOL, Subros, etc. which supply mainly to car industry. Companies likeMunjal Showa, Lakshmi Auto, Omax Auto, etc. cater to two-wheelers.


11/56

Sectoral PerformanceThe auto-ancillary was the best performing sector among the intermediate goods.Different segments of the sector such as bearing, casting, fasteners, batteries andtyres have grown in a range of 25-40%.During the June quarter, global automobile majors have announced major investment& domestic automobile companies such as General Motors (GM) and Honda in

fragmented auto-ancillary sector. Global majors are in a very critical condition; theyare loosing their market share because major automobile companies are beingattracted by India, China, & Taiwan. During first quarter of FY07, exports ofautomobile components grew around 25% compared to the previous quarter on aYoY basis. And exports registered a growth at around Rs 2833 crore compared toaround Rs 3530 crore in the corresponding quarter of FY06. The main reason for

boost in export is that the nature of the customer base of overseas market has beenundergoing major change. Indian companies are transforming into principal suppliersfor the Original Equipment Manufacturers (OEMs) from the after sales market orreplacement market. During that quarter, production of autocomponents increased by15% YoY. And the result came out so far in this quarter is, Shanthi Gears, witnessed

a jump in net profits for the quarter ending in September, 2006. During the quarter,the company witnessed a jump in NP at 43.45%, Sales for the quarter rose 31.90%compared with the corresponding quarter, a year ago. The company has facilities formanufacturing patterns, centrifugal castings of phosphor bronze rings, ferrouscastings, aluminum castings, heat treatment, forging, fabrications and cuttermanufacturing in-house which constitute the major raw materials for gearboxes.Automotive Axles reported marginal improvement in the net profits for the quarterended June 30, 2006. During the quarter, the company reported a 2.30% rise in

profits and Sales for the quarter rose 35.15% compared with the correspondingquarter, Y-o-Y.

Future Outlook

Given the significant scale up of capacities by the domestic majors, and theirimproving global cost effectiveness, the domestic auto ancillaries are well set tosustainable scale up their share of the global auto component pie. The players areaggressively focusing on new client acquisition, inorganic growth in developedcountries and cost reduction measures on fronts like quality, delivery, design andmanagement.Growth in the domestic market would be driven by sustained growth in supplies toOEMs as well as acceleration in the demand from replacement market. Moreover,

cars, utility vehicles and CVs made in India are increasingly getting acceptance inforeign markets, thus driving the demand further. Even Indian two-wheeler majorsare targeting markets abroad. Simultaneously, foreign auto majors like Ford andHyundai are making India its manufacturing base for several models. Overall, theshort to medium term outlook for the domestic auto component producers is positive.Automobile industry, which is a key driver of auto-component industry, is likely togrow at 12-17%. Along with this some other key drivers including exports,outsourcing, and replacement market are slowing down competitiveness in globalmarkets in turn boosting the productivity of Indian autocomponents industry. Setting up a new plant by existing companies and out-sourcing

by the foreign vendors will result in domestic companies benefiting, either byexporting from domestic facilities or setting up facilities in those locations. To meetthe emerging opportunities and challenges, Indian vendors are diversifying across

products, processes, clients and markets. Companies that have restricted themselves


12/56

to domestic business have seen modest growth and flat margins. A robust businessoutlook is expected to drive strong revenue growth for the auto-component industry.Steel is a major raw material in manufacturing of parts. Since mid January 2006, thedomestic steel prices have been increasing. Similarly, other inputs like non-ferrousmetal, fuel, and transport costs have also been increasing. However, the autoancillaries are not able to pass on the rise in costs, due to quality and price

consciousness of auto majors. Fortunately, healthy rise in volumes, players move upthe value chain, increasing exports together facilitated them to cushion the rise incosts, and enabled them to maintain margins.

Hindustan Composites is planning break lining and clutch facing unit near theproposed Tata Motor plant at Singur in Hooghly district of West Bengal. Thecompany has already started discussion with few tier 1 component manufacturer ofTata Motors in this regard The company is planning to tie up with an outfit which islikely to be entrusted with for the break assembly of small car. Tata Motors isoverhauling its outsourcing policy across all categories of cars. As part of this policy,which is aimed at keeping costs under control, the company has taken a conscious

decision to move away from the multiple vendor models to a single vendor model.

Bharat Forge Ltd. (BFL), signed a Memorandum of Understanding (MoU) with theGovernment of Maharashtra to jointly develop a multi-product Special EconomicZone (SEZ) in Khed Taluka of Pune District. The SEZ is expected to attractinvestments of about Rs. 25,000 crores and generate 120,000 new employmentopportunities. The project has received in-principle approval from the Board ofApproval, Ministry of Commerce, Government of India. The project would beimplemented through a Special Purpose Vehicle (SPV) to be jointly promoted byBFL / Kalyani Group and the Maharashtra Industrial Development Corporation(MIDC) in which the two promoters would hold upto 74% and 26% of the equity

capital respectively. Land acquisition and other project related activities wouldcommence shortly.


13/56

Indian auto component industry likely to be $ 40bn in 2015

26

134

38

34

164

45

45

212

58

61

246

72

83

276

101

0

50

100

150

200

250

300

350

400

450

500

(Rs. bn)

FY02 FY03 FY04 FY05 FY06

Replacement

OEM

Exports

116

309

116

162

346

134

296

419

168

500

507

207

915

650

275

0

500

1000

1500

2000

(Rs. bn)

FY07 FY08 FY09 FY10 FY11

Replacement

OEM

Exports


14/56

The world's top car makers turn to India for the nuts and bolts of their vehicles.Riding this success, and capitalizing on the spiraling demand of domestic autocompanies, the Indian automobile components industry has emerged as one of India'sfastest growing manufacturing sectors, and a globally competitive one. A number ofthem source critical components from India, with engine parts making up

nearly a third of all exports:

10%11%

33%13%

13%

20%

Electrical Parts

Equipments

Engine Parts

Suspension & BrakingParts

Body And Chasis

Drive Transmission &

Steering Parts


15/56

The India Advantage:

Steered here by the country's high engineering skills, established production lines, athriving domestic automobile industry and competitive costs, global auto majors arerapidly ramping up the value of components they source from India. The industry is

poised to jump from exports of Rs. 61 billion in 2005-06 to Rs. 296 billion in 2011-12.According to the Automotive Component Manufacturers Association of India, morethan a third (36 per cent) of Indian auto component exports head for Europe, with

North America a close second at 26 per cent.

Major Export Markets

North

America

36%

Europe

26%

Others

38%North America

Europe

Others

In 2006, components worth Rs.83billion were exported by Indian companies, 75 percent of which were bought directly by car companies. The original equipmentmanufacturers(OEMs) include firms like General Motors, Ford Motor Company,Cummins International, Bosch, Volkswagen, BMW, MAN (trucks) and JCB(earthmoving equipment) amongst others.


16/56

Economic Survey 2006-07 says:

The turnover of the auto component sector has grown from $ 3.1 billion to $ 10

billion between 1997-98 and 2005-06. In 2005-06, the sector's exports grew by 28

per cent to reach $ 1.8 billion. The major destinations of export for this sector

are US and Europe, which belong to the category of high Accepted Quality

Level (AQL).

Over 20 OEMs have set up their International Purchase Offices (IPOs) in India to thecomponents. This number is expected to double by the year 2010.India enjoys a cost advantage with regard to castings and forgings. Themanufacturing costs in India are 25 to 30 percent lower than its western counterparts.India's competitive advantage does not come from costs alone, but from its fullservice supply capability.

Destination India

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

India is the second largest two-wheeler market in the world Fourth largest commercial vehicle market in the world 11th largest passenger car market in the world Expected to be the seventh largest by 2016

Investments

Global auto majors and domestic giants are pulling out their purses and putting theirmoney where the production lines are.

Auto parts makerRobert Bosch of Germany will invest $ 201.4 million in itsIndian subsidiaries over two years. Bulk of the investment will be in MotorIndustries Co Ltd (Mico) -- the Bosch flagship in India.

Japanese electronic major, Hitachi Ltd. is planning to start auto componentmanufacturing in India when its OEMs-Isuzu Motor and Nissan Motor--start manufacturing their cars in India.

Dubai-based auto ancillary majorParts International Company has plans toinvest approximately $ 3.6 million in India over three years. This includessetting up a manufacturing facility meant to service exports to CIS andSAARC countries.

Fiat India is taking baby steps in becoming a global sourcing hub forcomponents. Fiat has exported components worth $ 8.3 million last year toits operations in South Africa.

General Motors has decided to increase sourcing of components fromIndian suppliers and intends to ship parts worth $ 1000.7 million to its global

production units by 2010.


17/56

Big players go high-tech

The smaller scale of operations of most Indian auto component companies has meantthat the size of global orders currently awarded to them is less than $50m. Inorder to rapidly acquire scale, leading Indian auto component manufacturersare making huge Investments in creating capacity as well as upgradingtechnology. Besides the Greenfield investments, companies are also acquiringcapacities closer to global OEMs to gain ready access to a global customer

base.

Capex Plans

(Rs. mn) FY05 FY06 FY07 FY08 FY09E

Bharat Forge 5587 8714 2750 2650 3000

Amtek Auto 4192 10120 3500 4000 4000

Rico Auto 945 1324 1300 850 850

Omax Auto 755 520 600 1100 800

Sono Koyo 261 351 660 1300 1300

Sundaram Fasteners 1259 861 1000 900 500

MICO 1001 3637 3200 3000 2500

Appolo Tyres 1911 1558 1800 3300 1000Balkrishna Industries 857 1183 1100 1000 400

Total of above 16768 28268 15910 18100 14350


18/56

GOVERNMENT INITATIVES

The opening up of the sector over the last decade has caught the attention of globalauto majors as the only market rivaling China in terms of potential market size and

growth opportunity. As the automobile industry has grown and matured, the Indianauto components industry has also grown tremendously, and is rapidly achievingglobal competitiveness both in terms of cost and quality. Infact, industry observersthink that while Indian automobile market will grow at a measured pace, the autocomponents industry is poised for a take-off and is one of the handfuls of industrieswhere India has a distinct competitive advantage.

In the 1990s, economic liberalization allowed foreign automakers such as Hyundai,Ford, Toyota and GM set up base in India. The local component manufacturers didnot have the requisite size, technology or quality to meet the needs of these

international carmakers. On the other hand, the high import tariffs and pricesensitiveness of the Indian car buyer made it unviable for these companies to importcomponents from their global suppliers. Therefore, the carmakers had to persuadetheir overseas components suppliers to set up local manufacturing base in India. Forexample, Delphi followed after General Motors opened its plant in the state ofGujarat in 1995 and Visteon followed Ford in 1998. As these companies developedand stabilized their Indian operations, they realized the cost advantage ofmanufacturing components in India typically lower by about 30%. They began toexplore the possibility of exporting back these low cost, high quality components totheir global factories and thus reduce their overall costs.


19/56

FDI SCENARIO

The Government of India allows automatic approval for foreign equity investment upto 100 per cent for the manufacture of auto components. Manufacturing and importsin this sector is free from licensing and approvals. There is no local content

regulation in the auto industry. The engineering export promotion council under theaegis of Ministry of Commerce and Industry, Government of India, over the yearshas been engaged in promoting exports of engineering goods including auto parts.Among other initiatives that have been affected in 2006-07 are:

Reduction in the duty of raw material to 5-7.5 per cent from the earlier 10 percent.

Setting up of the National Automotive Testing and R&D InfrastructureProject (NATRIP) at a total cost of 290.85 million for enabling the industryto usher in global standards of vehicular safety, emission and performancestandards.

Finalization of the Automotive Mission Plan (AMP) 2006-2016 for makingIndia a preferred destination for design and manufacture of automobile andautomotive components.

Robust production

Indias car production capacity is in for a US$ 2 billion boost. Auto majors have

announced massive investment plans which will push the countrys car productionpast the psychological 2 million mark by the end of fiscal 2006-07, up 70 per centfrom 1.4 million units now. Even at 2 million, India, which stood at No.11 amongglobal car producing nations, will move two steps ahead, past UK (1.6 million) andCanada (1.35 million). It will be neck and neck with Brazils 2-million capacity at

No.8. The automobile industry witnessed a growth of 19.35 percent in April-July2006 when compared to April-July 2005, as is evident from this years productiontrends.

Automobile Export Trends

0100000200000300000400000500000600000700000800000900000

M&HCV's

TotalCv's

utiltiy

vehicles

total

passenger

m

otorcycles

totaltwo

wheelers

grandtotal

2001-02

2002-03

2003-04

2004-05

2005-06


20/56

Domestic Sales--How is Indian market performing?

Increased affluence, wider selection and the ready availability of car loans is drivingthe Indian car market through the roof. During the last six years (200-06), the

production of passenger cars in India increased by more than 100 per cent. Indiaachieved the sales of 1.11 million vehicles last year (2005). Domestic sales have

been growing at a clipping pace: Passenger car sales rose by 22.84 per cent during April-September 2006,compared to the corresponding period last year.

The cumulative growth of overall sales of passenger vehicles during April-September of 2006-07 was 20.73 percent.

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

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

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

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

Overall, the commercial vehicles segment grew at 36.96 per cent. Growth ofMedium and Heavy Commercial Vehicles was 39.92 per cent. LightCommercial Vehicles also performed well with a growth of 32.86 percent.

0

2000000

4000000

6000000

8000000

10000000

Automobile Production and Sales

Production

Domestic Sale

Exports

Production 5410468 6248838 7290456 8527173 9716718

Domestic Sales 5225788 5941535 6810537 7897629 8910224

Exports 184680 307303 479919 629544 806494

2001-02 2002-03 2003-04 2004-05 2005-06


21/56

Exports

India is fast emerging as a manufacturing base for car exports. According to the

Society of Indian Automobile Manufacturers (SIAM), a total of 89,338 vehicles wereexported in September 2006, a 58.07 per cent jump as compared to the same monthlast year. While passenger vehicle exports grew at 13.15 per cent, two-wheelers andcommercial vehicle exports grew at 27.80 per cent.

Vehcile Exports are Rising

(Qty in 000 Nos)

180

265

367

513

72129

166 176

11 17 3041

0

100

200

300

400

500

600

2002-03 2003-04 2004-05 2005-06

2 wheelers

Cars &MUV'sCVs


22/56

significant growth in auto component industry in both domestic and

export market

3.9 4.4 5.4

6.7

8.710

0

2

4

6

8

10

12

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

production

value

($b

0.62 0.57

0.76

1

1.4

1.6

0

0.2

0.4

0.6

0.81

1.2

1.4

1.6

1.8

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

Production

Val

Foreign players in India

Calendar 2006 has seen the entry of many high-end brands into the country. TheIndian automobile market will see at least 30 new launches, spanning everythingfrom affordable hatchbacks to mid-size models to super luxury high-end cars andSUVs.

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

Now, the Italian marquee Lamborghini is also planning to enter the country.The Italian marquee plans to launch the Gallardo.

German luxury car maker Audi AG is preparing to drive into India a range of

sporty, lifestyle cars like S8 and RS4 early next year.

The year 2007 will also mark Audi's entry into merchandising in Indian car

bazaar.

General Motors launched Aveo this year. GM plans to bring in a sporty

variant of the Chevy Optra to add to its existing line-up.


23/56

Following India's growing openness, the arrival of new and existing models, easyavailability of finance at relatively low rate of interest and price discounts offered bythe dealers and manufacturers all have stirred the demand for vehicles and a stronggrowth of the Indian automobile industry.

The data obtained from ministry of commerce and industry, shows high growthobtained since 2001- 02 in automobile production continuing in the first threequarters of the 2006-07. Annual growth was 16.0 per cent in April-December, 2006;

the growth rate in 2005-06 was 15.1 per cent, the automobile industry grew at acompound annual growth rate (CAGR) of 22 per cent between 2000 and 2006.

With investment exceeding Rs. 50,000 crore, the turnover of the automobile industryexceeded Rs. 59,518 crore in 2002-03. Including turnover of the auto-componentsector, the automotive industry's turnover, which was above Rs. 84,000 crore in2002-03, is estimated to have exceeded Rs.1,00,000 crore ( USD 22. 74 billion) in2003-04.

Major Manufacturers of Automobiles in India

Maruti Udyog Ltd. General Motors India Ford India Ltd. Eicher Motors Daewoo Motors India Hindustan Motors Hyundai Motor India Ltd. Telco TVS Motors Swaraj Mazda Ltd


24/56

TATA motors

Government has liberalized the norms for foreign investment and import of

technology and that appears to have benefited the automobile sector. Theproduction of total vehicles increased from 4.2 million in 1998- 99 to 7.3 million in

2003-04.The industry has adopted the global standards and this was manifested in theincreasing exports of the sector. After a temporary slump during 1998- 99 and 1999-00, such exports registered robust growth rates of well over 50 per cent in 2002-03and 2003-04 each to exceed two and- a-half times the export figure for 2001-02.

EVEN GROWTH

Opposing the belief that the growth in automobile industry has catered only to thetop income-stratum of society, Growth of exports of 32.8 % in the first three quarters

of2004-05, the fastest growth in volumes has come from commercial vehicles asagainst passenger cars.

Between 1998-99and 2003-04, output of commercial vehicles has grown 2.8 timescompared to the 2.2 times increase in passenger cars. Furthermore, two-wheeleroutput continues to dominate the volume statistics of the sector. In 2003-04, forevery passenger car turned out by the sector, there were 7 two-wheelers produced. Inthe two wheeler segment, there is a greater preference for motorcycles followed byscooters, with both production and domestic sales of motorcycles increasing at fasterrates than for scooters in the current and previous years. However, mopeds haveregistered low or negative growth. Export growth rates have been high both for

motorcycles and scooters.
http://void%280%29/http://void%280%29/http://void%280%29/http://void%280%29/http://void%280%29/http://void%280%29/http://void%280%29/http://void%280%29/http://void%280%29/http://void%280%29/http://void%280%29/


25/56

The road ahead

Exciting times lie ahead for the Indian automotive component industry. Besides theburgeoning demand from global auto majors, there is also the domestic car industry,which is growing at a spanking rate of over 16 per cent, driven by a rising consumer

base and affordable loans

The opening up of the sector over the last decade has caught the attention of globalauto majors as the only market rivaling China in terms of potential market size andgrowth opportunity. As the automobile industry has grown and matured, the Indianauto components industry has also grown tremendously, and is rapidly achievingglobal competitiveness both in terms of cost and quality. Infact, industry observersthink that while Indian automobile market will grow at a measured pace, the autocomponents industry is poised for a take-off and is one of the handfuls of industries

where India has a distinct competitive advantage.

The Future Automotive Growth Potential is Huge

The indian passenger ar makret is far from being saturatedper capita car penetration in 1000

500 480 480 440

180130 122 90

27 13 12 10 10 7

147

0

100

200

300

400

500600

Ger

many

USA

UK

Japan

S.Korea

Malaysia

M

exico

Singa

pore

Brazil

Th

ailand

SriL

anka

Indo

nesia

Philip

pines

China

India

Indian auto industry has established one of the largest export hubs for most of theglobal players. Several global automotive players have moved their R&D to Indiaoutsourcing research and design elements of the automotive products. R&D expensesas a percentage of net sales was 0.78 per cent in auto components in 2004-05. AlsoIndia scores over other countries like China and Thailand and has gained acceptanceof global OEMs on account of its quality, design and engineering capabilities andlarge pool of low cost, technically skilled and English speaking engineers. ManyIndian firms are working on at least $300-million worth of automotive engineering

design services (AEDS) projects and expected to be a-billion industry by 2010.


26/56

Four different types of players are offering these services:

Captive Centers of global OEMs (GM, Ford, Bosch, Delphi, etc.)

IT Services companies (Infosys, Wipro, TCS, Satyam, etc.)

Design Houses (Dilip Chhabria Designs, Geometric Software, InfensionTechnologies, Neilsoft, etc.)

Subsidiary of Indian Auto Companies (Mahindra & Mahindra, Eicher, TVS,etc.)

The nature of projects is limited largely to CAD/CAM and modeling and analysis buteventually Indian companies could design the entire concept with sketches anddetailed depiction of all vehicle features. The changing scenario of the Indian autoindustry in the context of facing challenges and availing of opportunities in theglobal markets concerted efforts are needed to create a significance place in theincreased integrated value chain across the geographical reasons.

The auto industry urgently is to be expanded in regard to increase investment and

local resources to match potential. Significant capital is required for capacityexpansion and fuelling acquisitions. Investments should be made in both OEM andauto components businesses so as to create a low cost model capital and operations

profitable at low scale. Technology and Branding are important for the Indian autoIndustry.

There is a significant gap between Indian firms and leading global OEMs. One of thekey imperatives for Indian auto companies would be to increase spending on R&Dand Brand building to remain competitive on a global basis. This is driven by shorter

product life cycles and increasing number of variants combined with the need tostrengthen brands in the highly competitive overseas markets. The Indian autoindustry, worth US$ 34 billion in 2006, has grown at a CAGR of 14 per cent over thelast five years with total sales of vehicles reaching around 9 million vehicles in 2005-06. That number is likely to see a significant boost, given that the first half of 2006-07 has already witnessed a staggering growth rate of 17.12 per cent. Domestic carsales for the April-September 2006 period stood at an impressive 4.86 millionvehicles, including cars, two-wheelers and commercial vehicles.

According to industry experts, if this trend continues, sales could touch 10 million byMarch 2007, clocking an annual growth rate of 20 per cent. In addition, theGovernments announcement to cut excise duty on small cars will soon see auto

India emerging as the world's largest manufacturing hub for small or compact cars.


27/56

Indian Component Industry is fast emerging as anAttractive OEM/Tier 1 Supplier

Composition of

Exports in 2006

10

26

16

36

10 1.5

0.5

Africa

America

Asia

Europe

Middle East

Oceania

Others


28/56

2006

OEM/ Tier 1

75%

Aftermarket

25%

Acquisitions & JV Abroad

Indian companies' overseas acquisitions have been driven by their desire to be amongthe largest and least-cost producers, their quest for technology and a search for new

markets. In July 2006, in order to establish a presence in mainland Europe, AmtekAuto, a manufacturer of automotive components such as engines, transmission andsuspension parts, assemblies and systems, bought 70 per cent stake in Zelter GmbH,

1990

OEM/ Tier 1

35%

Aftermarket

65%


29/56

one of the three largest manufacturers of turbochargers housing in the world, for anenterprise value of euro 28 million.Following the acquisition of South Koreas Daewoo Commercial Vehicle Co. in

March 2004 by Tata Motors for $102 million and Bharat Forges acquisition ofGerman firm Carl Dan Pedinghaus GmbH for euro 29 million, Mahindra &Mahindra, through its subsidiary agreed to acquire 67.9 per cent stake in Jeco

Holding AG, one of the top five forging companies in Germany, for euro 140 millionand subsidiary of Scholz AG. Jeco Holding AG, which focuses on the truck, bus andtrailer market, makes gearboxes, engine and axle pans, hubs,

Global AcquisitionsAcquired By Target Value (Rs. cr)

Bharat Forge Imatra Kilsta AB, Sweden 261

Bharat Forge federal forge, US 41

Bharat Forge CDP Aluminiumtechnik 35.4

Bharat Forge Carl Dan Peddighous 157.5

Sundaram Fasteners

76% JV with Bleisthal Produktions GmbH,

Germany 20Sundaram Fasteners Precision Forging Unit of Fana Spicer, UK 11.9

Sundaram Fasteners Unit of Textron Deutshland Beteilingungs NA

Amtek Group Zelter, Germany 157.5

Amtek Group Sigma Cast, UK NA

Amtek Group GWK, UK 42

Tata Auto Component Wundsch Weidirge, Germany NA

UCAL Fuel Systems Amtec Precision Products Inc, USA 126

Sona Koyo SteeringSystems 21% in Fuji Autotech France 27.7


30/56

Clutch Auto (CAL) was incorporated in May 1971 in New Delhi, promoted by VijayKrishna Mehta, a technocrat entrepreneur. The company manufactures clutches,components and spares for the automotive sector. The Company is working regularon modernization and expansion programs and to improve the productivity andquality of its products. Its clientele includes TELCO, Ashok Leyland, Maruti Udyog,DCM Toyota, Escorts Tractors, BEML and state transport undertakings. The

company is concentrating on increasing its capacity for the existing range ofvehicles. Products are upgraded with imported equipment like induction hardening,press tempering and semi-automatic reveling machines. During the year 2002-03 theCompany got patent for EZ N LITE for heavy commercial vehicles in US and thiswill give an edge over competitors and is expected to result in substantial businessincrease in the years to come.

Clutch Auto Ltd (CAL) is the largest supplier of clutches to the commercial vehicleand tractor segment in India. It also caters to the passenger vehicle and

replacement demand and its clientele includes Tata Motors, Ashok Leyland,Maruti Udyog, TAFE, Toyota, BEML, Escort Tractors and State Transport

Undertakings, among others.

Clutch is a technology intensive business dominated by 6 players in the world, alloperating either as joint ventures or as technology partners or license arrangements.CAL is the only standalone clutch company in the world, which is testimony to itstechnology capability.CAL has been associated with production of clutch plates and clutch assemblies andother related components

Products offered

Diaphragm organic clutch assembly

Cover organic clutch assembly

Cover ceramic clutch assembly

Range is 160-352 mm

CAL is present in OEM as well as Replacement market, in addition to export

market.

CAL has at present following OEMs purchasers MARUTI UDYOG LIMITED

TATA MOTORS

ASHOK LEYLAND MAHINDRA & MAHINDRA

PUNJAB TRACTORS LIMITED

INTERNATIONAL TRACTORS LIMITED

EICHER TRACTORS

CAL is also present in replacement market and is catering to the

following companys vehicle Maruti800, alto, baleno, esteem, gypsy, omni, wagon-R and Zen (old model)


31/56

TATA indica, indigo, spacio, sumo victa, commercial vehciles

Ashok Leyland, commercial vehicles

M&M tractors, ITL-Sonalika

Eicher-tractors, Hyundai-santro

Volvo buses, Toyota- qualis

Chevrolet- tavera

Military tanks

The company has ventured into the US truck market through the aftermarketroute making it the only offshore company to be able to do so. It plans to be aniche player in the low volume, high value added heavy-duty clutch segment forclass 7 and 8 trucks. This is because, the replacement demand for trucks in US,with a population of nearly 4.5-5mn units, is nearly as high (250,000 units pa) asthe demand for new trucks. CAL invested in technology, research and filed for patents and trademarks for anumber of products that it developed.Currently it has 11 patents in USA market, either approved or pending; similarly

it has 31 patents in domestic market

Patents Approved Pending Under FilingOverseas

USA 1 5 5Mexico 1Australia 1

1 7 5

Domestic 15 7 9

Trade Marks

USA 4 9 2

India 11 2 4

Today, the company is the only independent component company from Indiawith an independent patents and trademarks portfolio.

It has built many innovative products like the Cool Clutch, Whisper and EZN Lite offering interchangeability unit-to-unit, component-to component withthe same serviceability norms and tools. While the domestic market will ensuresteady revenues to the company; high growth is expected to come from theexport initiatives taken by the company. Presently, 25% of its revenues are onaccount of exports.

This proportion is expected to rise and contribute to around 50% of revenues inthe next 3-4 years. The Company increased its capacity for clutch discs andclutch cover assemblies by 122% and 200% respectively in FY05 to meet thegrowing demand for its products.

The company has set up a strong distribution network along with product liabilitycover for overseas market. It already received orders from Fleet Pride, a leadingheavy-duty class parts distributor in the US.


32/56

CAL is the number one company in production of clutch plates and clutch

assemblies

Only company to possess an indigenous know-how of clutch plate

production

Obtained approval of TATA motors for the entire range of current and

future products Exports to 40 countries

56.41% YOY growth in sales revenue

81% YOY growth in domestic market

71% YOY growth in bottom line

Three year expansion plans:

Company has following expansion plan

To triple its production capacity to 4 million units by FY10 from currentcapacity of 1.4 million units

Expansion cost to be Rs. 30 crore which will be funded through internal

accruals

Operating margins @ 16% for April December06

To triple revenues to Rs. 650 crores by the end of FY09-10

Export contribution to rise 50% from current one third at present


33/56

Auto Components-Major players

Auto Components Market

Gearing upStrong growth in the domestic automobile industry and astable 10-15% future growth outlook over the next two yearswould drive demand for auto components both in the domesticOEM and the aftermarket. Exports too are in a scale up modefor leading players like Bharat Forge, Amtek Auto and MICO.We believe, a slowdown in key global markets and the fragilefinancial health of global OEMs as also Tier-I vendors wouldlead to higher outsourcing by these players to low cost autocomponent players in the long term. We expect 15% revenueCAGR and 22% earnings CAGR for our auto componentuniverse over FY07-09 led by strong revenue and earningsgrowth for Bharat Forge, MICO and Balkrishna Industries overthe same period.

Domestic growth on a firm footing, exports looking up:It is expected that domestic revenue for auto component

companies will remain strong given a stable 10-15% volume growthoutlook for various auto segments. Exports for leading players, tooappear to be scaling up and a slowdown in key global markets and fragilefinancial health of global OEMs and Tier-I vendors will only accelerate thepace of outsourcing to leading auto component players in Low CostCountries like India. Amtek Auto has successfully implemented the

strategy of acquiring customer base overseas and outsources the laborintensive operations to its low cost Indian facilities.

Building capacity to acquire scale:Lack of scale has prevented Indian auto component players from

winning outsourcing deals exceeding US $50m. Companies are thereforeinvesting aggressively in capacity build-up and technology upgradation.Major companies are expected to invest Rs32bn over FY08-09 increasingnew capacity.Expect strong earnings momentum for leading players:

The expected revenue CAGR is 15% and earnings CAGR is 22% forauto component market over FY07-09 led by strong growth for Bharat

Forge, MICO and Balkrishna Industries

The major players in Auto-component market are

Amtek Auto Apollo Tyres Balkrishna Industries Bharat Forge MICO Omax Autos Rico Auto Industries Sona Koyo Sundram Fasteners


34/56

Clutch AutoStrong growth outlook for domestic auto OEMs to boost demand

While auto component companies retain focus on enhancing their overseasrevenues, their domestic businesses too appear on a firm footing with buoyantgrowth outlook for the domestic auto OEMs. Favorable demographics (rising income

levels and an increasingly younger population), along with very low vehiclepenetration indicate strong long-term demand prospects for cars and two-wheelers.Strong growth in industrial production, emergence of new growth drivers likeorganized retail, and the ongoing pace of investments and infrastructure developmentin the country would drive demand for commercial vehicles. While factors likehigher interest rates and a higher base could check growth rates in the near term, theindustrys prospects nevertheless remain strong.

FY05 FY06 FY07 FY08 FY09 CAGR

FY07-09E(%)

Car Sales 981 1052 1269 1427 1618 13

UV Sales 247 269 309 341 394 13

PV Sales 1228 1321 1578 1768 2012 13

MHCVs 212 221 294 329 363 11

LCVs 136 170 223 255 291 14

CVs 348 391 517 584 654 12

Motorcycl

es

5222 6213 7089 7818 8587 10

Scooters 984 992 976 1078 1202 11

Mopeds 350 376 1078 432 484 11

Twowheelers

6556 7581 9143 9328 10273 10

Domestic Autombile industry is on a firm footing

figures in $ bn


35/56

Amtek Auto

Amtek Auto (Amtek) has the twin advantage of presence in both forgings and

castings, two key segments in the global outsourcing space. Given Indian

companies edge over other low cost regions owing to their superior engineering& designing skills and given Amteks aggressive capacity expansion plans,

expect sustained growth momentum in its revenues and earnings in the coming

period.

At Current Market Price (CMP), the stock trades at 11.4x FY09E consolidated

earnings and 5.7x EV/EBIDTA.

Presence in two key areas of forgings and castings: Amteks product portfolioincludes a mix of both forgings and castings products (82:18). Indian companieshave an edge over other low cost manufacturers in the forgings and castings spaceowing to their superior engineering and design skills. Further, these processes are

highly labour intensive and are being increasingly outsourced by global majors tolow cost countries.

Exploiting synergies from overseas acquisitions: Amtek has successfullyimplemented the model of acquiring front-end capacities in proximity to globalOEMs in key markets like USA and Europe, and then outsourcing the labourintensive operations to India to reduce the overall cost of production. The companyexpects to increase the share of exports to overseas group companies to 65% in FY07against 60% in FY06.

Expect strong 18% earnings growth over FY06-09: Amtek continues to pursue itsgrowth strategy of a mix of organic and inorganic growth. The expected consolidatedrevenue CAGR is 24% for Amtek over FY06-09, leading to an 18% consolidatedearnings CAGR over the same period.


36/56

Shareholding Pattern

Promoters

32%

Foreign

46%

Non promoter

corporate

holding

2%

Public & others

3%

Institutions

17%

Key financials (consolidated)*Year to June 30 FY05 FY06 FY07E FY08E FY09E

Net sales (Rs m) 16605 26451 40242 45499 51011

Adj. net profit (Rs m) 1475 2564 3940 4310 4762

Shares in issue (m) 101 122 138 138 138

Adj. EPS (Rs) 14.6 21 28.6 31.3 34.6

% growth 60.8 44.1 36.1 9.4 10.5

PER (x) 26.9 18.7 13.7 12.5 11.4

Price/Book (x) 4.5 2.7 2.5 2 1.7

EV/EBITDA (x) 14.7 11 7.7 6.7 5.7

RoE (%) 23.6 19.3 19.9 17.8 16.4

RoCE (%) 17.5 13.7 15.7 15.3 15.1

Apollo TyresApollo Tyres (Apollo), with its leadership position in the truck and bus (T&B)

replacement tyre market, is likely to be a key beneficiary of the expected surge

in this segment. The Dunlop SA acquisition offers significant synergies to be

reaped in terms of access to T&B radial tyre technology, a wider product

portfolio and easy entry in new geographies. Apollo is betting big on

radialisation picking up pace in the T&B segment and plans to set up a

Greenfield plant targeted at T&B radials. Though the companys profitability

has improved significantly over the last two quarters on the back of softening

rubber prices, it nevertheless remains vulnerable to rubber price fluctuations.

Well poised to benefit from higher replacement demand:

Replacement demand for tyres in the CV space is likely to witness a surgeowing to a strong 24% 5-year CAGR in domestic MHCV sales. Further, replacementdemand for tyres is also likely to jump as growth in new truck sales moderates overthe next two years. Apollo, the leader in this space with a share of 35%, is likely to

be a key beneficiary of the expected surge in demand in this segment.


37/56

Dunlop SA acquisition offers significant synergies to be reaped:

The Dunlop SA acquisition provides Apollo with ready access to radial tyretechnology, especially T&B radial technology. This assumes significance in thewake of Apollos proposed T&B radial tyre greenfield facility. The acquisition also

provides it with benefits of an extended product line and access to key European

markets where the company has negligible presence.


Promoters

32%

Public & others9%

Foreign

26%

Institutions

27%

Non Promoter

Corporate

Holding

4%

Govt Holding

2%

Key financials (consolidated)*Year to March 31 FY05 FY06 FY07E FY08E FY09E

Net sales (Rs m) 22,255 26,255 32,923 37,483 41,559

Adj. net profit (Rs m) 676 724 1,134 1,440 1,551Shares in issue (m) 38 38 46 50 50

Adj. EPS (Rs) 17.6 18.9 24.4 28.6 30.8

% growth -3.9 7 29.4 16.9 7.8

PER (x) 20.4 19.1 14.7 12.6 11.7

Price/Book (x) 2.4 2.2 1.7 1.5 1.4

EV/EBITDA (x) 11 8.5 6.4 6.4 5.5

RoE (%) 11.8 12 14.1 13.2 12.2

RoCE (%) 9.4 11.1 14.6 14.8 14

Balkrishna IndustriesBalkrishna Industries (BIL) is the largest exporter of tyresfrom India and among the top 10 manufacturers of off-highway tyres globally. BILs strong product developmentability and competitive product pricing (arising from low cost


38/56

advantage) has yielded strong revenue growth (28.8% CAGRfor FY02- 06), superior margins (19.2% for 9MFY07) and highreturn ratios (RoE of 33.2% for FY06). We expect BIL to deliverrevenue and earnings CAGR of 23% and 31% respectively overFY07-09. Given strong fundamentals and compellingvaluations (4.0x EV/EBIDTA and PER of 7.0x FY09 estimates),


39/56

BIL the global OTR player: BIL is among the top 10 manufacturers ofOTR tyres globally. The low volume and diverse product varieties as alsolow capacity utilization levels typical of the segment have triggered exitof large players, much to the advantage of BIL. The companyscompetitive strength lies in offering a wide range of tyres at competitiveprices lower on the back of its strong product development ability and

lower labour costs in India.

Superior margins and return ratios: BILs margins are expected toexpand primarily owing to a recent softening in rubber prices and aplanned scale up in the high margin tractor radial tyre segment. BIL hasalso hiked the prices of its products by 2-3% wef April 2007. Also, BILplans to spin off the paperboard and textile processing divisions into fullyowned subsidiaries so as to focus on each business and improve returnratios in the core tyre business.

Reiterate Outperformer: BIL has a strong product line up that gives it ajumpstart vis--vis new entrants in the OTR tyre segment. Further, afavorable demand-supply scenario in key global markets


40/56


Promoters

54%

Public & others

9%

Foreign

24%

Institutions

12%

Non Promoter

Corporate

Holding

1%

Key financials

(consolidated)*

Year to March 31 FY05 FY06 FY07E FY08E FY09E

Net sales (Rs m) 4,880 6,358 8,427 10,663 12,830

Adj. net profit (Rs m) 575 740 814 1,128 1,445

Shares in issue (m) 18.6 19.3 19.3 20.1 20.1

Adj. EPS (Rs) 31 38.3 42.1 56.2 72

% growth 98.1 23.7 10 33.6 28.1PER (x) 16.3 13.2 12 9 7

Price/Book (x) 5.9 3.4 2.8 1.9 1.6

EV/EBITDA (x) 9.8 8.3 7.1 5.2 4

RoE (%) 43.1 33.2 25.8 26.1 25.2

RoCE (%) 29 23.7 19.7 23.2 25.3

Bharat ForgeBharat Forge (BFL) has emerged the leader in the Indian auto component spacewith an extensive global footprint. Besides the revenue scale up expected fromenhanced capacities, BFL is likely to benefit from enhanced focus on new and

more specialized segments. In addition to a diversified revenue mix, these

efforts would also lead to margin expansion for BFL. We expect 15% revenue

CAGR and 29% earnings CAGR for the consolidated entity over FY07-09.


41/56

Capacity utilization to improve significantly:

BFL currently is in the ramp up phase of its enhanced capacity and a sharpjump in utilization levels over the next two quarters is expected. Besides increasedtonnage, product mix too would improve with a higher proportion of machinedcomponents.

Focus on diversifying revenue sources:

BFL has significantly enhanced its focus on heavy-duty forged componentsused in non-automotive industries like railways, construction equipment, oil & gasand others. These are high value added, high margin components with tremendousgrowth potential owing to increasing investments in these sectors. BFL expects theshare of non-automotive business to increase to ~25% in 3-4 years from 17%currently.

Expect strong growth momentum:

We expect a CAGR of 15% in BFLs consolidated revenues over FY07-09

aided by a 21% CAGR in standalone revenues. Higher revenue contribution from thestandalone entity (vis--vis FY07 levels) is likely to lead to margin expansion forBFL going forward.


Promoters

39%

Public & others

19%

Foreign

19%

Institutions

13%

Non Promoter

Corporate

Holding

10%

Key financials (consolidated)*

Year to March 31 FY05 FY06 FY07E FY08E FY09E

Net sales (Rs m) 19,934 30,189 41,783 48,418 54,783

Adj. net profit (Rs m) 2,011 2,505 3,027 4,119 5,041

Shares in issue (m) 198 222 235 235 235

Adj. EPS (Rs) 10.2 11.3 12.9 17.5 21.4

% growth 48.5 10.8 14.2 36.1 22.4PER (x) 33.7 30.4 26.6 19.6 16

Price/Book (x) 11.9 5.6 4 3.4 2.9

EV/EBITDA (x) 17.3 15.7 12.6 9.7 7.9

RoE (%) 46.5 26.1 17.9 18.9 19.9

RoCE (%) 38.9 21.4 17.1 20.4 22.2


42/56

MICOMICO is ideally positioned to benefit from the renewed focusof leading Indian OEMs on diesel cars based on the CommonRail (CR) platform. MICO is also gaining prominence as Boschsglobal R&D centre and outsourcing hub for many components.

Expected 18% revenue CAGR and 29% earnings CAGR for MICOover CY06-08 led by a surge in both domestic and exportrevenues. Also, Boschs has made an open offer for anadditional 20% stake in MICO (at Rs 4,000 per share) tofacilitate further transfer of critical technology and processes

Leveraging on Boschs leadership in CRDI systems:CRDI-based diesel systems for passenger vehicles are gaining

popularity in India. We believe MICO, with Robert Boschs globalleadership in CRDI systems, is well placed to capitalize on thisopportunity. MICO currently supplies CRDI systems to leading OEMs like

(Maruti Udyog and M&M) and is likely to cater to Tata Motors CRDIplatforms based on Fiats diesel technology (globally, Fiat uses BoschsCRDI systems).

Gaining prominence in Boschs global plans:MICO is emerging as a global R&D and competence centre for

Bosch Group worldwide as also a manufacturing hub for manycomponents. Already, a number of production lines for components likeinjectors, nozzles, single cylinder pumps, regulators, etc have beentransferred from Boschs overseas locations to MICO. Thus, besides thegrowth potential in the domestic market, MICO stands to benefit fromBoschs global plans.

Strong growth prospects:MICOs growth prospects appear promising in the domestic market

in view of increasing focus of Indian OEMs on CR systems-based dieselcars.


43/56


Foreign

8%

Institutions

20%

Promoters

61%

Public & others

9%

Non Promoter

Corporate

Holding

2%


Year to DEC 31 FY05 FY06 FY07E FY08E FY09E Net sales (Rs m) 24,169 30,892 39,098 46,323 54,391

Adj. net profit (Rs m) 3,670 3,350 3,921 5,257 6,531

Shares in issue (m) 32.1 32.1 32.1 32.1 32.1

Adj. EPS (Rs) 114.3 104.5 122.1 163.8 203.4

% growth 44.1 -8.6 16.9 34.1 24.2

PER (x) 33.7 36.9 31.6 23.6 19

Price/Book (x) 9.9 8 6.1 5 4EV/EBITDA (x) 19 17.5 13.6 10.6 8.5

RoE (%) 33.8 23.9 21.8 23.1 23.4

RoCE (%) 42.2 29.3 28.7 29.4 30.1

Omax AutoOmax Auto (Omax) is working on reducing its exposure toHero Honda, which accounts for ~62% of its revenues.

Commencing December 2007, Omax plans to undertakechassis manufacturing for Tata Motors MHCVs. The project, atfull potential, would generate annual revenues of Rs2.4bnbesides higher margins vis--vis Omaxs current margins.Omax has lowered its operating cost base in the last fewquarters and going forward, it expects to derive cost benefitson steel purchases from Omax Steel. Omax also stands tobenefit from higher capacity utilization of its two new plants.


44/56

Diversifying the revenue base:Omax is setting up a new chassis manufacturing unit for Tata

Motors at the latters Lucknow plant. The first phase of the project, likelyto go on stream by December 2007, offers an annual revenue potential ofRs1.2bn (Rs2.4bn on completion by FY10). Omaxs supplies to non-HeroHonda clients like TVS, Sundaram Clayton and Mitsubishi are expected toscale up, which along with higher exports from the Binola plant, would

diversify the revenue base.

Cost reduction measures paying off:Omax has reduced its operating costs by pruning the excess

temporary labour and switching over to more economical power sources.these measures are expected to have yielded net savings of 70bp inFY07. Further, Omax expects to save 5% on its steel procurement fromthe newly set up steel plant Omax Steel (one-third of the production to besourced by Omax).

Expect strong growth momentum:Omaxs diversification strategy is likely to bring stability in revenues aswell as margins owing to reduced dependence on a single client HeroHonda (~62% of revenues in FY07).


Public & others

24%

Foreign

8%

Institutions

4%

Promoters

52%

Non Promoter

Corporate

Holding

12%

Key financials

(consolidated)*Year to March 31 FY05 FY06 FY07E FY08E FY09E

Net sales (Rs m) 5,298 5,786 6,954 8,501 9,844Adj. net profit (Rs m) 203 201 238 302 345

Shares in issue (m) 21 21 21 21 21

Adj. EPS (Rs) 9.5 9.4 11.1 14.1 16.1

% growth -1.2 -1.1 18.6 26.7 14.3

PER (x) 8.8 8.9 7.5 5.9 5.2

Price/Book (x) 1.8 1.6 1.4 1.2 1

EV/EBITDA (x) 5.1 5.5 4.3 4.1 3.8

RoE (%) 23.6 19 19.6 21.3 20.8

RoCE (%) 16.1 13.3 15.7 16.7 16.7


45/56

RICO AutoRico Auto (Rico), deriving ~60% of revenues from Hero Honda,would likely be impacted by a slowdown in the domestic two-wheeler industry due to a high inventory build up. FCC Rico(Ricos 50:50 JV) would, however, benefit from higher off take

from HMSI (~40% of FCC Ricos revenues) as volumes surge(up 30% yoy in April 2007) post the launch ofShine and thenew Honda Unicorn. While we expect Rico to face marginpressure from Hero Honda, higher contribution from FCC Rico(high-margin business) could offer some respite.

Likely slowdown in off-take from two-wheeler players:Ricos domestic business would be impacted due to sluggish

outlook for the two-wheeler industry, particularly for Hero Honda (60% ofRicos revenues). However, FCC Rico (Ricos 50:50 JV) is likely to witnessa revival in offtake from HMSI (~40% of FCC Ricos revenues) after the

launch ofShine

and the new HondaUnicorn

.

Passenger car components foray a new revenue stream:Rico, by way of a licensing and technological assistance agreement

with Teksid Aluminium of Italy, plans to foray into Aluminium EngineBlocks and Engine Heads business for passenger cars. Rico would supplyengine blocks and cylinder heads for Tata Motors upcoming small carproject. This project opens up a new growth vista for Rico besideslowering its dependence on the two-wheeler component business.

Expect 15% earnings CAGR over FY07-09:Expected 13% CAGR in Ricos consolidated revenues and 15% CAGR in

consolidated earnings over FY07-09. We expect some margin cushion forthe company due to increased contribution from FCC Rico. Stock trades atPER of 10.9x and EV/EBIDTA of 4.8x FY09 estimates.


46/56


Promoters

46%

Public & others

14%

Foreign

18%

Institutions

20%

Non Promoter

Corporate

Holding

2%

Key financials(consolidated)*As on March 31

2007 FY05 FY06 FY07E FY08E FY09E

Net sales (Rs m) 6,798 7,871 8,988 10,209 11,425

Adj. net profit (Rs m) 498 439 393 458 518

Shares in issue (m) 107 123 126 126 126

Adj. EPS (Rs) 4.6 3.6 3.1 3.6 4.1% growth 33.5 -22.9 -12.5 16.3 13.2

PER (x) 9.7 12.5 14.3 12.3 10.9

Price/Book (x) 4.3 2.2 2 1.8 1.6

EV/EBITDA (x) 6.3 6.1 5.9 5.4 4.8

RoE (%) 50.9 24.4 14.7 15.2 15.7

RoCE (%) 31.4 21.8 16.9 16.9 17.1

Sona KoyoSona Koyo has witnessed significant value growth with thelaunch of C-EPS systems and higher share of power steeringsystems in sales mix. Sona Koyo is also developing steeringcolumns for CVs to scale up its presence in the segment. Thecompany is striving to cut its dependence on Koyo in theexport markets. It also plans to increase localization level ofpower steering systems to achieve margin expansion. Expectstrong 29% revenue CAGR and 22% earnings CAGR for Sona

Koyo over FY07-09.

Improved product offerings leading to value growth:


47/56

Inclusion of C-EPS systems in the product range has strengthenedSona Koyos portfolio besides leading to significant value growth. Withthis, the share of power steerings in total revenues has jumpedsignificantly (55% in FY07 from 28% in FY06). Sona Koyo is also workingon developing highly specialized steering columns for HCVs.

Expect margin recovery on import substitution:The shift in Sona

Koyos product mix towards power steerings has adversely impacted itsmargins due to high import content. However, Sona Koyo plans to localize70% of C-EPS components, which should lead to margin expansion.

Excellent business prospects, attractive valuations:Led by higher value growth from supply of C-EPS systems, expect

21% revenue CAGR and 23% earnings CAGR for Sona Koyo over FY07-09(after factoring in equity dilution).


Promoters

49%

Public & others

33%

Foreign

4%

Institutions

4%

Non Promoter

Corporate

Holding10%


48/56

Key financials

(consolidated)*

As on March 31


Net sales (Rs m) 2,975 3,397 5,808 7,109 8,545Adj. net profit (Rs m) 167 165 276 383 459

Shares in issue (m) 88 88 93 97 103

Adj. EPS (Rs) 1.9 1.9 3 3.9 4.5

% growth 37.6 -0.8 58.4 32 13.7

PER (x) 27.6 27.8 17.6 13.3 11.7

Price/Book (x) 6.9 6 4 2.9 2.3

EV/EBITDA (x) 16 14.6 10.3 8 7

RoE (%) 27.4 22.8 28.5 26.1 22.7

RoCE (%) 17.8 14.6 17.9 17.9 17.2


49/56

Sundram FastenersSundram Fasteners (SFL) diversification strategy is payingoff. Exports scale up and entry into new product segments(pump assemblies and engine components) has generated

incremental revenues for the company. SFL posted impressive27% consolidated revenue CAGR over FY04-06 despite pricingpressure in key markets.

Realizations capped while input costs rise:SFL faces pricing pressure in the domestic as well as export

markets. While realizations in key product categories like high tensilefasteners and coated metal parts have remained flat, cost of inputs hasescalated at a CAGR of 13% over the last five years. Consequently, SFLsrevenue growth has been primarily volume driven.

Export volume growth remains strong:SFL has recorded 41% CAGR in exports over FY02-06. Exports

would scale up further as SFL commences regular production of certainpipeline products. SFL plans to set up a 100% EOU near Chennai by FY08.Exports from the JV Sundaram Bleistahl (74% equity with SFL) would alsoincrease gradually. We expect 24% CAGR in exports for SFL over FY06-09with exports accounting for 37% of standalone revenues (30% in FY06).

Expect 31% earnings CAGR over FY06-09 :Expected 22% revenue CAGR for SFL over FY06-09, aided by

contribution from new product lines. Despite largely flat operating

margins, earnings would grow at a faster clip (31% CAGR over ourforecast period), primarily due to operating leverage. At CMP, stocktrades at 10.6x FY09 consolidated earnings and 7.4x EV/EBIDTA.


50/56


Promoters

50%

Public & others

28%

Foreign

0%

Institutions

18%

Non Promoter

Corporate

Holding

4%


As on March 31


Net sales (Rs m) 9,899 11,317 15,381 18,104 20,697

Adj. net profit (Rs m) 659 589 897 1,134 1,311

Shares in issue (m) 210 210 210 210 210

Adj. EPS (Rs) 3.1 2.8 4.3 5.4 6.2

% growth 12.9 -10.7 52.3 26.5 15.6

PER (x) 21.2 23.7 15.6 12.3 10.6

Price/Book (x) 4.9 4.3 3.8 3.1 2.6

EV/EBITDA (x) 12.6 13.1 10 8.5 7.4

RoE (%) 25.4 19.4 25.8 27.8 26.9

RoCE (%) 18 14.6 17 18 18.5


51/56

Clutch autoCompany is India's largest clutch manufacturer & Exporter today.Company has TS 16949 accredited by TUV, ISO 9002, QS 9000 and QS9000: 1998 certifications. Company has 3 decades of undisputed

Leadership history. Company supplies OE to Maruti, Mahindra, Tata-Mercedes, Ashok Leyland-IVECO, PTL, Escorts, New Holland, Eicher,TAFE-Messey Ferguson, Sonalika-International Tractors, JCBL, Bajaj Auto,greaves & BEML. Company is India's largest exporter of clutches, exportsto 40 countries, 85% to Americas. Company also has Largest after marketdistribution network in India. It is Major supplier to Indian DefenceEstablishments. It also provides State-of-the-art testing facility forClutches. Company has set up R & D center recognized by Govt. of India.Clutch Auto Ltd (CAL) is the largest supplier of clutches to the commercialvehicle and tractor segment in India. It also caters to the passenger vehicleand replacement demand and its clientele includes Tata Motors, Ashok

Leyland, Maruti Udyog, TAFE, Toyota, BEML, Escort Tractors and StateTransport Undertakings, among others.

Technology intensive business:Clutch is a technology intensive business dominated by 6 players in theworld, all operating either as joint ventures or as technology partners orlicense arrangements. CAL is the only standalone clutch company in theworld, which is testimony to its technology capability.

The company has ventured into the US truck market through theaftermarket route making it the only offshore company to be able to doso. It plans to be a niche player in the low volume, high value added

heavy-duty clutch segment for class 7 and 8 trucks. This is because, thereplacement demand for trucks in US, with a population of nearly 4.5-5mn units, is nearly as high (250,000 units pa) as the demand for newtrucks.

CAL invested in technology, research and filed for patents andtrademarks for a number of products that it developed. Today, thecompany is the only independent component company from India with anindependent patents and trademarks portfolio. It has built manyinnovative products like the Cool Clutch, Whisper and EZ N Liteoffering interchangeability unit-to-unit, component-to component with thesame serviceability norms and tools.

Strong Domestic and Export market:While the domestic market will ensure steady revenues to the company,we expect high growth to come in from the export initiatives taken by thecompany. Presently, 25% of its revenues are on account of exports. Weexpect this proportion to rise and contribute to around 50% of revenuesin the next 3-4 years.

The company increased its capacity for clutch discs and clutch coverassemblies by 122% and 200% respectively in FY05 to meet the growingdemand for its products. The company has set up a strong distributionnetwork along with product liability cover for overseas market. It already

received orders from Fleet Pride, a leading heavy-duty class partsdistributor in the US. Expect the company to witness a CAGR of 53.3% insales and 83.6% in profits between FY05 and FY08.


52/56


Promoters

17%

Public & others

25%

Foreign

8%

Institutions

11%

Non Promoter

Corporate

Holding

39%


As on March 31 2007 FY05 FY06 FY07E FY08E FY09E

Net sales (Rs m) 728 929 1,414 2,351 3,348

Adj. net profit (Rs m) -4 57 137 248 353

Shares in issue (m) 88 88 133 163 163

PER (x) -384 26.2 16.5 11.1 7.8

Price/Book (x) 4 3.5 2.4 1.8 1.5

EV/EBITDA (x) 27 14.4 10.5 6.9 4.7RoE (%) 25.4 19.4 25.8 27.8 26.9

RoCE (%) 6 11.5 15.3 20.3 25


53/56

LIMITATIONSLIMITATIONS1. The projections made in the study are subject to change as, Industry is

exposed to market risk from changes in interest rates, foreign exchange rates,commodity prices and strong competitive pressures

2. The operations of the auto component industry are directly dependent on the

Indian automotive industry, which is cyclical in nature, this poses a seriousthreat to the small companies


54/56

SUGGESTIONSSUGGESTIONS

1. Potential for synergies between companies2. Avoid cyclical nature of economy through scale of operations3. Enter in the export markets as Indian car and other vehicles are gaining acceptance

worldwide


55/56

Conclusion

All the companies which have been analyzed in the project are leaders in theirrespective sectors. These companies have outperformed the respective

benchmarks and are giving healthy returns over a period of time, however giventhe vagaries of the cyclical nature of parent industry and present scenario inEuropean markets, the auto-component sector is well poised to grow in future.


56/56

Annexure

Bibliography www.investopedia.com

www.stockcharts.com

www.yahoofinance.com

www.google.com

www.marketscreen.com

www.finpipe.com

www.wikipedia.com
http://www.stockcharts.com/http://www.yahoo.finance.com/http://www.google.com/http://www.marketscreen.com/http://www.finpipe.com/http://www.stockcharts.com/http://www.yahoo.finance.com/http://www.google.com/http://www.marketscreen.com/http://www.finpipe.com/

Project-Report-on-comparative-analysis-of-auto-component-industry-in-India.doc

Documents

Transcript of Project-Report-on-comparative-analysis-of-auto-component-industry-in-India.doc