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Program & Batch:

PGDM 2014-16

Term:

IV

Course Name:

Simulation

Name of the faculty:

Jyoti Kainth

Topic/ Title :

Automobile Industry

Original
or Revised Write-up:
Group Number:
Contact No. and email of
Group Coordinator:

Group Members:

Original
8(Batch 5)
Debayan Sen
Ph No:7530859363
Sl.

Roll No.

Name

140102040

Debayan Sen

140102053

Ishan Kumar

140101175

Spriha Agarwal

140102067

Kumar Aniket

140103097

Md. Hashir Reyaz

Automobile Sector
Introduction
With the increasing growth in demand on back of rising income, expanding middle class and
young population base, in addition to a large pool of skilled manpower and growing
technology, will propel India to be among the world's top five auto-producers by 2015.
The automobile industry accounts for 22 per cent of the country's manufacturing gross
domestic product (GDP). The auto sector is one of the biggest job creators, both directly and
indirectly. It is estimated that every job created in an auto company leads to three to five
indirect ancillary jobs.
India is expected to become a major automobile manufacturing hub and the third largest
market for automobiles by 2020, according to a report published by Deloitte.
India is currently the seventh-largest automobiles producer in the world with an average
annual production of 17.5 million vehicles, and is on way to become the fourth largest
automotive market by volume, by 2015.

Market Size
The growth story for the Indian automobile industry in 2014 rode on the two-wheeler
segment. The segment has clocked positive growth at 12.9 percent year-on-year to reach sales
of nearly 13.5 million units by October 2014.
India's automobile sector has also picked up pace, with eight of the country's leading
manufacturers' reporting combined passenger vehicle sales of 198,427 in November 2014, a
10 per cent annual rise. The rise in sales in November 2014 was led by Maruti Suzuki, whose
sales increased 17 per cent to 100,024 units in the domestic market.
The commercial vehicles (CV) industry in India has registered an increase of 8.59 per cent in
September 2014, as fleet owners have started to buy trucks in the anticipation of an improved
economic activity.
The automobile sector in Andhra Pradesh has a potential for US$ 1 billion investment and
US$ 1.50 billion output, according to a recent analysis by Automotive Components
Manufacturers Association of India (ACMA) and city-based Andhra Chamber of Commerce
and Industry Federation (ACCIF).

Investments
To match production with demand, many auto makers have started to invest heavily in
various segments in the industry in the last few months. The industry has attracted FDI worth

US$ 11,351.26 million during the period April 2000 to November 2014, according to the data
released by Department of Industrial Policy and Promotion (DIPP).
Some of the major investments and developments in the automobile sector in India are as
follows:

Snapdeal.com has entered into a partnership with Hero MotoCorp Ltd to sell two-wheelers
and expect its online automobile sales to generate Rs 1,000 crore (US$ 162.33 million) of
business in next six to 10 months.

Automotive supplier Uno Minda and Japans Toyoda Gosei Co Ltd have announced a joint
venture (JV) partnership to manufacture and sell rubber hoses to automobile makers in India.
The JV will be set up with a total investment of Rs 85.3 crore (US$ 13.84 million) in a phased
manner.

Tafe Motors and Tractors Ltd (TAFE) has invested around US$ 140 million by way of equity
in the US-based AGCO Corporation, a worldwide manufacturer and distributor of agricultural
equipment.

Flipkart founders Mr Sachin Bansal and Mr Binny Bansal have led a US$ 1 million
investment in Ather, an electric vehicle start-up focused on designing high-speed electric twowheelers.

Harley Davidson Motor Co. has expanded their line up in India as it has launched three new
models the Breakout, Street Glide and CVO limited edition.

Hero Electric is looking for merger and acquisition (M&A) options or technology tie-ups to
encourage its next generation electric vehicle technology.

Government Initiatives
The Government of India encourages foreign investment in the automobile sector and allows
100 per cent FDI under the automatic route. To boost manufacturing, the government had
lowered excise duty on small cars, motorcycles, scooters and commercial vehicles to eight
per cent from 12 per cent, on sports utility vehicles to 24 per cent from 30 per cent, on midsegment cars to 20 per cent from 24 per cent and on large-segment cars to 24 per cent from
27 per cent.
Some of the major initiatives taken by the Government of India are:

The governments decision to resolve VAT disputes has resulted in the top Indian auto
makers namely, Volkswagen, Bajaj Auto, Mahindra & Mahindra and Tata Motors
announcing an investment of around Rs 11,500 crore (US$ 1.86 billion) in
Maharashtra.

The Automobile Mission Plan for the period 20062016, designed by the government
is aimed at accelerating and sustaining growth in this sector. Also, the well-established
Regulatory Framework under the Ministry of Shipping, Road Transport and
Highways, plays a part in providing a boost to this sector.

The Government of India-appointed SIAM and Automotive Components


Manufacturers Association (ACMA) are responsible in working for the development
of the Indian automobile industry.

The government plans to come out with policies to introduce clean fuels such as
biodiesel, bioethanol and electricity for public transport vehicles and school buses in
big cities to tackle air pollution.

The Lok Sabha passed the Motor Vehicles Amendment Bill, 2014, paving the way for
regularisation of e-rickshaws.

The government has set up National Automotive Testing and R&D Infrastructure
Project (NATRiP) at a total cost of US$ 388.5 million to enable the industry to be on
par with global standards.

Road Ahead
India is probably the most competitive country in the world for the automotive industry. It
does not cover 100 per cent of technology or components required to make a car but it is
giving a good 97 per cent, highlighted Mr Vicent Cobee, Corporate Vice-President, Nissan
Motors Datsun.
The vision of AMP 2006-2016 sees India, to emerge as the destination of choice in the world
for design and manufacture of automobiles and auto components with output reaching a level
of US$ 145 billion; accounting for more than 10 per cent of the GDP and providing
additional employment to 25 million people by 2016

Attributes
Affordable prices are the most important factor while purchasing a car. This is the reason for sticking
to a particular segment till the next substantial rise in the personal disposable income. This reason is
followed by Value for money where the customers look for the best product, best services and best
repute all bundled in one with the best deal they can strike. This explains the reason for the stagnant
or sudden growth in sale of B and C segment cars just before budget and near occasions like Diwali.

Attributes

Affordable Prices
Technical superiority
Comfort
Manufacturer's Image
Value for money
Safety
After Sales Servics

DuPont Analysis
Players

Profit margin

Asset Turnover

Leverage

Tata Motors
Maruti Suzuki
Honda Cars India

0.009
0.063
0.051

1.018
1.928
0.758

1.75
1.08
2.55

Return on
Equity(ROE)
0.016
0.13
0.098

DuPont Analysis throws light on the ROE of the company that is how the shareholders money is used
by the firm to get desired profits. On this ratio, Maruti Suzuki is the leader. This is because of its high
profit margin and asset turnover ratio compared to the other firms. In the profit margin, Tata Motors is
lagging due to the high expense incurred. Honda cars India has a high leverage which shows the
weakness of the firm to control its liabilities, also it has low asset turnover which shows its inability to
turn the assets into sales.

VEL Analysis

Customer perceived
price

Customer perceived
benefits