Volume 2, Issue 3 Automobile Industry in

25 May 2017
India
Automobile Industry Update

The Indian auto industry
is one of the largest in the
world. The industry ac-
counts for 7.1 per cent of
the country's Gross Do-
mestic Product (GDP).
The Two Wheelers seg-
ment with 81 per cent
market share is the leader
of the Indian Automobile
market owing to a grow-
ing middle class and a
young population. Moreo-
ver, the growing interest
of the companies in ex-
WESCHOOL LRC
ploring the rural markets
further aided the growth
of the sector. The overall
Passenger Vehicle (PV)
segment has 13 per cent
market share.
India is also a prominent
auto exporter and has
strong export growth ex-
pectations for the near
future. In April-March
2016, overall automobile
exports grew by 1.91 per
cent. PV, Commercial
Vehicles
(CV), and Two Wheelers
(2W) registered a growth
of 5.24 per cent, 16.97 per
cent, and 0.97 per cent
respectively in April-
March 2016 over April-
March 2015.* In addition,
several initiatives by the
Government of India and
the major automobile
players in the Indian mar-
ket are expected to make
India a leader in the 2W
and Four Wheeler (4W)
market in the world by
2020.

Source: IBEF

Automobile Industry—IBEF Report

Click here to access

the report

Source: IBEF

Inside this issue:

Special points of interest:
Industry Tends—Whitepapers 2
 Automobile IBEF Report
ICRA Research Update 2
 ICRA Research Update
ICRA Insight 3
 ICRA Insight
Automobile News & Deals 3
 Self-driving car technology: When will the
Info-graphics 4 robots hit the road?
Industry Trends—Whitepapers

Title Source Abstract Link

The most recent people targeted for replacement by robots? Car drivers—one of the
most common occupations around the world. Automotive players face a self-driving-
Self-driving car technology: car disruption driven largely by the tech industry, and the associated buzz has many
McKinsey consumers expecting their next cars to be fully autonomous. But a close examination
Click here
When will the robots hit the
road? of the technologies required to achieve advanced levels of autonomous driving sug-
gests a significantly longer timeline; such vehicles are perhaps five to ten years away.

How shared mobility will
change the automotive in-
dustry
The increasing popularity of shared mobility will slow global vehicle sales but not
reverse them. Although there likely will be fewer new vehicles on the road because of
sharing, car sales in developing countries will outpace shared mobility’s impact over
the next 15 years. Still, through 2030, roughly a third of the expected increase in
McKinsey vehicle sales from urbanization and macroeconomic growth likely will not happen
Click here
because of shared mobility (Exhibit 1). Nonetheless, the shared-mobility story isn’t all
bad for the industry, especially if automakers, suppliers, and the other mobility play-
ers take steps now to position themselves for it.

Global Automotive Consum-
er Study: Consumer trends
Deloitte
on advanced vehicle tech-
nology
Forces are changing the mobility landscape and affording consumers more choices in
meeting their transportation needs. For automotive companies, these shifting con-
sumer demands result in a number of complex questions that may ultimately impact
their products and how they engage with their customers. Discover insights below
Click here
from our latest Global Automotive Consumer Study and explore findings from previ-
ous years’ research.

The increasing use of advanced data and analytics online is helping to create some of
Automotive News: Content
Deloitte the most rapid changes we’ve ever seen when it comes to the automobile and mobili- Click here
Studio ty ecosystem.

2017 Automotive Trends
Global Automotive Execu-
tive Survey 2017 - KPMG
The global auto industry is more challenged than many people realize. On the surface,
performance is strong. Worldwide sales reached a record 88 million autos in 2016, up
4.8 percent from a year earlier, and profit margins for suppliers and auto makers (also
Strategy& known as original equipment manufacturers, or OEMs) are at a 10-year high. None-
Click here
theless, viewed through the lens of two critical performance indicators, the industry
is in serious trouble
The car itself will not be the main source of profit in the future! This is demonstrated
by the results of the latest Global Automotive Executive Survey 2017. But how will
traditional automotive manufacturers earn their money in the future? With the cus-
KPMG tomers, their data or with the digital ecosystem? Who would have thought, that
Click here
already today 85% of the executives agree that the digital ecosystem will generate
higher revenues than the hardware of the car itself?

Indian Automobile Industry: Commercial Vehicles —ICRA Research

The domestic Commercial Vehicle (CV) industry ended the fiscal 2017 with a growth of 4.2% in volume terms largely driven by recovery in the
LCV (Truck) segment, which registered a growth of 7.9% in FY 2017 compared to a marginal decline in FY 2016 on YoY basis. In contrast, the
M&HCV (Truck) segment reported flat sales during the year on account of a) weak replacement-led demand, b) subdued freight demand from
industrial segments, which took a further hit post demonetisation and c) lower than expected pre-buying (ahead of the implementation of BS-
IV emission norms) despite high discounts being offered by the industry. During the year, the bus segment, which contributes 14% to industry
sales, witnessed a growth of 5.7% in volume sales driven by stable demand from almost all segments including SRTUs, Schools & Colleges as
well as corporate travel. The competitive intensity in the CV segment continues to be high and as a result, the market share of industry leader
– Tata Motors came down to 42.8% (in FY 2017) from 44.4% (in FY 2016). Within the industry, Ashok Leyland expanded its market share to
33.1% in the M&HCV (Truck) on back of expanding market coverage outside Southern India and greater acceptability of new model launches.
Likewise, Volvo Eicher and M&M also improved their market share (albeit on a low base) on back of new launches and expanding sales net-
work. Unlike M&HCV (Truck), the market share stack in LCVs remained relatively stable during the year, while Tata Motors and Volvo Eicher
gained traction in the Bus segment on back of SRTU orders.

Page 2 AUTOMOBILE INDUSTRY UPDATE

 Confluence of factors dampen domestic Commercial Vehicle (CV)
demand in FY 2017

The CV industry witnessed a demand slowdown in FY 2017 on the back of waning replacement-led demand, weak cargo availability from industri-
al sectors and uncertainty related to effective taxation on the industry under the GST regime. It was expected that the industry would witness a
pre-buying demand in the last quarter given the transition to new emission norms (i.e. Bharat Stage-IV) from April 2017 and vehicles complying
with new emission norms were expected to become 6-10% more expensive because of technology upgradation. Despite industry volumes recover-
ing in Jan-Mar 2017, the revival has been below earlier expectations. ICRA believes that fleet operators have deferred fleet expansion/ renewal
plans given the subdued economic activity along with the likelihood of GST implementation in the near-term.

As a result of pre-buying (although lower than expected), CV demand would be relatively subdued in early part of the FY 2018. While fleet opera-
tors are likely to defer incremental investments, OEMs would look to align their production and inventory levels to the new GST regime.

Within the CV industry, the M&HCV (Truck) segment is likely to register a growth of 6-8% in FY 2018, due to higher budgetary allocation towards
infrastructure and rural sectors, potential implementation of vehicle scrap program and stricter implementation of regulatory norms especially
related to vehicle length (for certain applications) and overloading norms. Furthermore the National Green Tribunal’s (NGT's) thrust on phasing
out old diesel vehicles along with Government's proposed vehicle modernization program would trigger replacement-led demand. Also resump-
tion of mining activities in select states would continue to support demand for the Tipper segment.

As for the LCVs (Truck), post three years of declining sales, the segment is on a structural uptrend and would recover swiftly once the liquidity
situation improves. In the near-term, replacement-led demand and expectation of stronger demand from consumption-driven sectors and E-
commerce logistic companies would remain key growth drivers. Over the medium-term, LCVs would benefit from GST roll-out and its impact on
logistics sector; and preference for hub-n-spoke model. ICRA expects LCV’s to register a growth of 11-13% over the medium-term.

The domestic bus segment may grow by 5-7% in FY 2018 in unit terms aided by stable demand from SRTU segment (backed GOI’s focus on im-
proving urban as well as rural transportation and focus towards smart cities initiatives). Over the past few years, bus volumes has benefitted from
healthy demand from online aggregators, staff carriers segment and Schools & College segment, a stable source of bus market in India. ICRA
believes higher replacement-led demand given the reducing fleet replacement cycle with rising customer expectations for comfortable journey will
boost demand.

Factors like slowdown in the M&HCV truck sales, increased discounts and only a partial recovery of increased steel prices and other overheads,
led to the aggregate OPBDIT margins of CV OEMs (five leading players) shrinking by 160 bps to 5.9% in 9m FY 2017 compared to corresponding
period in the previous year. On a sequential basis too, margins contracted by 200 bps from 6.0% in Q2 FY 2017 to 4.0% in Q3 FY 2017.

Due to subdued sales in Q1/H1 FY 2018, competitive pressures and rising input material costs, CV OEM’s margins are expected to remain under
pressure in FY 2018. Furthermore, OEMs may not be able to completely pass on the cost related to BS-IV technology upgradation owing to rela-
tively subdued demand. Over the medium-term, profitability may be impacted by intensified competition (as foreign OEMs scale-up volumes on
back of new model launches and expanding sales network) and higher investments in developing new models and technologies (to meet next level
of emission norms).

Despite pressure on profitability, credit profile of CV OEMs will be stable in the near to medium term. As industry’s capacity utilization remains
around 50-55%, most OEMs will limit Greenfield investments over the next 2-3 years. This would limit overall investments to new product devel-
opment, addressing portfolio gaps and technology upgradation related to next level of emission norms. Some OEMs are eyeing growing interna-
tional business and are also contemplating setting-up overseas assembly units. ICRA estimates the CV OEMs will spend approximately Rs. 31-33
billion p.a. (on aggregate basis) over the medium -term in the aforementioned areas.

Source: ICRA Insight May 2017

Automobile —News & Deals

News Deals
 GST Impact: Reactions from the Indian automobile  ISRO to transfer eco-friendly technology to the
fraternity Indian automobile industry
 How Digital is set to disrupt the Indian automobile  Brands other than General Motors that failed to
market get their India strategy right and why
 Automobile Society to give skill development push to  Maruti, Hyundai and other car makers to invest
auto sector heavily in factories to expand production in India

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