Indian Auto Component Industry- Exports

Presented By -

V. Harish

Arunava Chakraborty

INDIA – Vibrant Economy

1. Largest Democracy – 1.2 billion people, Growing Middle Class

2. 3th largest GDP (PPP) and 10th largest GDP (Nominal, USD 1.8 trillion)

3. One of the fastest growing economies - Estimates for 2013-14: ~ 5%

• India’s average GDP growth rate for the last five year: over 7%

• Expected to outpace China in the next decade

4. 3rd Largest Investor base in the World

5. Demographics Advantage – Youth driven economy

6. Suburbanization & Rural to Urban Migration – 140 million by 2020; 700 million by 2050

7. 2nd largest pool of Certified Professionals and highest number of Qualified Engineers in

the world.

Auto Component Industry in India

Where does India stand?

2nd Largest TWO WHEELER and BUS manufacturer

India is now a supplier of a range of high-value and critical automobile components

to global auto makers such as General Motors, Toyota, Ford and Volkswagen,

amongst others.

The industry currently accounts for almost seven per cent of India’s gross domestic

product (GDP) and employs about 19 million people, both directly and indirectly.

The Indian auto component industry is expected to register a turnover of US$ 66

billion and industry exports are projected to reach US$ 12 billion by FY 15–16

depending on favorable conditions, as per the estimates of Automotive Component

Manufacturers Association of India (ACMA).

Advantage India

Export Opportunities-

• India is emerging as global hub for

auto component sourcing

• Relative to competitors, India is geographically closer to key automotive markets like the Middle East

and Europe

Competitive Advantages-

• A cost-effective manufacturing base keeps costs lower by 10-25 per cent relative to operations in

Europe and Latin America

• Presence of a large pool of skilled and semi-skilled workforce amidst a strong educational system

• Fourth largest steel producer globally, hence a cost advantage

Robust Demand-

• Growing working population and expanding middle class are expected to remain key demand

drivers

• India is set to break into the league of top five vehicle producing nations

Policy Support-

• Continued policy support in the form of Auto Policy 2002 and National Automotive Mission

Plan 2002-16

• Strong support to R&D through establishment of NATRiP centers

• 100% FDI permitted without prior Govt. approval

Government Initiatives

The Government of India extended the excise duties concession beyond December

2014. Under the scheme, excise duties have been reduced for the following segments-

For small cars, motorcycle, scooters and commercial vehicles – duty has been

reduced from 12 per cent to 8 per cent.

For mid-sized cars – duty has been reduced from 24 per cent to 20 per cent.

For large cars – duty has been reduced from 27 per cent to 24 per cent.

100% FDI is allowed under the automatic route in the auto components sector,

subject to all the applicable regulations and laws.

Suspension &braking parts

Auto components

Transmission & steering parts

Equipment OthersElectrical parts

Pistons and piston rings

Engine valves and parts

Fuel-injection systems and carburettors

Cooling systems and parts

Power train components

Pressure die castings

Hydraulic pneumatic instruments

Gears

Wheels

Steering systems

Axles

Clutches

Brake linings

Shock absorbers

Leaf springs

Headlights

Halogen bulbs

Wiper motors

Dashboard instruments

Other panel instruments

Starter motors

Spark plugs

Electric Ignition

Systems (EIS)

Flywheel magnetos

Otherequipment

Sheet metal parts

Body andchassis

Fan belts

Brake and brake

assemblies

Engine & engine parts

The Auto Components Market is Split Into Six Product Segments

Growth

drivers

Demand side

drivers

Policy

support

Supply-side

drivers

• Competitive advantages

facilitating emergence of

outsourcing hub

• Technological shift;

focus on R&D

• Market liberalisation

• Establishing special auto

parks and virtual SEZs for

auto components

• Lower excise duty on specific

parts of hybrid vehicles

• Robust growth in

domestic automotive

industry

Growth Drivers of the Indian Auto Components Market

• Hydraulic Power Steering Systems &

Steering Gear Systems and Parts

• Gear boxes and parts thereof

• Wheels and Components for

Construction & Earthmoving Equipment

• Drive-axles and parts thereof

• Gas compressors: Turbo chargers

• Crank shaft for engines

• Parts for automobiles and earth moving

Equipment

• Brakes and servo-brakes; parts thereof

• Spark Ignition

• Suspension systems and parts thereof

• Air-conditioning equipment

• Road wheels and parts & accessories thereof

• Starter motors & generators

• Parts-air conditioning machines

• Brake linings & pads

• Valves, inlet and exhaust

• Head lamps and other lighting Equipment

• Radiators & parts thereof

• Injection pumps for diesel engines

• Toothed wheels, other transmission parts

Top 20 Auto Component Exports from India-

Production volumes by product range (FY13)

Source: ACMA, Aranca Research

‘Engine parts’ account for 31% of the entire product range of the auto components sector followed by ‘drive transmission and steering parts’ (19%)

‘Two wheelers’ is the largest domestic customer segment for the auto components industry

Original Equipment Manufacturers (OEMs) dominate production volumes by market range; encouragingly, exports account for a healthy 15%

31%

19%12%

12%

10%

9%

7%

Engine Parts

Drive Transmission and Steering Parts

Body and Chassis

Suspension and braking parts

Equipments

Electrical Parts

Others

Production Breakup -

HS Codes for Auto Components in India

8708 - Parts and accessories of the motor vehicles except engines

8409 - Parts solely used for or inside the engines

7326 - Articles and parts wholly made of Iron and Steel

7318 - All kinds of Screws and Bolts used in the vehicles

8511 - Parts of electrical ignition or starting equipment of a kind used for

internal combustion or compression (ignition coils, sparking plugs, glow

plugs and dynamos, etc.)

Value of auto component exports (USD billion)

Source: ACMA, Aranca Research

• India’s exports of auto components increased at a CAGR of 19.6 per cent to USD9.3 billion during FY08-13

• Europe accounts for the largest share of Indian auto components exports (35.0 per cent) followed by North America (26.0 per cent) and Asia (25.0 per cent)

Shares in export volumes by geography (FY13)

3.8 4.03.4

5.2

8.59.3

0.0

1.5

3.0

4.5

6.0

7.5

9.0

10.5

FY08 FY09 FY10 FY11 FY12 FY13

35%

26%

25%

1%4%

9% Europe

North America

Asia

South America

Australia

Africa

Exports aided overall Growth in the sector

Indian Suppliers’ Focus – Global Best Practices

Indian suppliers have won 39 awards in aspects of production and distribution of auto

components till now including awards like –

• Deming award (largest number of companies, after Japan)

• Japan Quality Medal

• TPM award

• Shingo Silver medallion

• JIPM award

This became possible since the industry is embracing modern shop-floor practices like –

• Kaizen

• TQM

• TPM

• 6 Sigma

• Lean Manufacturing

Global components sourcing hub

• Major global OEMs are planning to make India a component sourcing hub for their global operations

• Several global Tier-I suppliers have also announced plans to increase procurement from their Indian subsidiaries

• India is also emerging as a sourcing hub for engine components, with OEMs increasingly setting up engine manufacturing units in the country

Improving product- development capabilities

• Increased investments in R&D operations and laboratories, which are being set up to conduct activities such as analysis and simulation, and engineering animations

• The growth of global OEM sourcing from India and the increased indigenisation of global OEMs is turning the country into a preferred designing and manufacturing base

Inorganic route to expansion

• Domestic players are acquiring global companies to gain access to latest technology,expand their client base and diversify revenue streams

• Players such as Amtek Auto and Bharat Forge have adopted a dual-shore manufacturing model

Notable Trends in the Indian Auto Component Sector -

Auto Policy 2002• Automatic approval for 100 per cent foreign equity investment in auto component

manufacturing facilities• Manufacturing and imports in this sector exempt from licensing and approvals

Automotive Mission Plan 2006–16

• Setting up of a technology modernisation fund focusing on small and medium enterprises• Establishment of automotive training institutes and auto design centres, special auto parks and

auto component virtual SEZs

NATRiPs• Set up at a total cost of USD 388.5 million to enable the industry to adopt and implement

global performance standards• Focus on providing low-cost manufacturing and product development solutions

Dept. of Heavy Industries &

Public Enterprises

• Created a USD 200 million fund to modernise the auto components industry by providing an interest subsidy on loans and investment in new plants and equipment

Union Budget 2014–15

• Reduction of excise duty on auto components from 12 per cent to 10 per cent, Vehicles (CV’s, Small Cars and two wheelers from 12 per cent to 8 per cent, SUV’s from 30 per cent to 24 per cent

• Reduction in excise duty on capital goods from 12 per cent to 10 per cent will provide a push towards investments, elimination of customs duty on auto components will also help

Favorable Policy Measures Aiding Growth

KEY PROVISIONS OF THE 2O14-2O15 UNION BUDGET:

Investment allowance (additional depreciation) at the rate of 15% to manufacturing

companies that invest more than INR 1 Billion in plant and machinery acquired and

installed between 01.04.2013 and 31.03.2015 provided the aggregate amount of

investment in new plant and machinery during the said period exceeds INR 1 Billion.

In order to provide a further fillip to companies engaged in the manufacture of an

article or thing, the said benefit is an additional deduction of 15% of cost of new P&M,

exceeding INR 250 Million which is acquired and installed during any previous year

ending up to 31.3.2017.

From above two provisions any of one can only be availed by the manufacturers.

R&d Incentives For Industry And Private Sponsored Research:

Deduction of 200% is granted to assesses for any sums paid to a national laboratory,

university or institute of technology, or specified people with a specific direction and

that the said sum is used for scientific research within a program approved by the

prescribed authority, under section 35 (2AA) of the Income Tax Act.

Under Section 35 (2AB) of the Income Tax Act, tax deduction of 200% for both capital

and revenue expenditure, incurred on scientific research and development. Expenditure

on land and buildings is not eligible for deduction.

Export incentive schemes like Focus Product scheme, Duty remission scheme and

Focus Market scheme are also aiding to the growth in auto components exports.

Focus Product Scheme:

Objective - To incentivize export of select products that have high export intensity /

employment potential, thereby to offset infrastructure inefficiencies and other associated

costs involved in marketing of these products.

Incentive: Transferable or sellable duty credit @ 2% of FOB value of exports in foreign

exchange from 27.08.2009

Focus Market Scheme:

Objective - To offset high freight cost and other externalities to select international markets

with a view to enhance India's export competitiveness in select countries

Incentive: Transferable or sellable duty credit @ 3% of FOB value of exports in foreign

exchange from 27.08.2009

Exporters of products to countries within Europe, Latin America block, African block, or

Commonwealth Independent States (CIS) block are entitled to this scheme

Less competitive than India In competition with IndiaSource: ACMA, Aranca Research

Design andengineering skills

Manufacturingskills

Manpowercosts

Supplierbase

Rawmaterials

East Asia

Korea

China

Thailand

Indonesia

Vietnam

Central &Eastern Europe

Czech Republic

Romania

Poland

Slovakia

Russia

Hungary

Turkey

Latin America Brazil

Mexico

Exports Driven by India’s Competitive Advantage over peers

5.1 4.2 6.6 8.8 9.7 10.2

13.3%

-17.6%

58.6%

32.3%

9.9%

5.4%

-30.0%

0.0%

30.0%

60.0%

90.0%

0

2

4

6

8

10

12

2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

EXPORTS - AUTO COMPONENT INDUSTRY: 2009-14

US

D B

illi

on

Gro

wth

rate

CAGR 2009-14: 15%

Africa; 7.11%Latin America

and the Caribbean;

7.35%

North America; 21.39%

Asia; 25.16%

Europe; 38.11%

Oceania ; 0.88%

USA 20.50 Brazil 4.03

Germany 8.08 Thailand 3.41

UK 6.16 France 3.32

Turkey 5.20 China 3.04

Italy 4.93 UAE 2.77

Export Destinations: Top 10 Countries in %

Open die forging

Closed die forging

Crank shaft

Front axle beams

Hubs

Acquisitions in various countries

Transmission partsFY14

Organic Growth & Integration

Entry into new markets like US,

Greece

FY05Turnover of USD291.5

million

Turnover of USD1,121.4

million

ISOAccreditations

1960 1970 1980 1986 1990 1996 2000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Joint Ventures and technical partnerships

Bharat Forge Success Story : India’s largest auto components exporter

India Is Poised To Emerge As An Outsourcing Hub

Global auto component players are increasingly adopting a dual-shore

manufacturing model, using overseas facilities to manufacture few types of

components and Indian facilities to manufacture the others.

Hyundai plans to source gasoline and diesel engines from its

Indian manufacturing operations for its domestic and global

operations

The company is also planning to invest USD300 million for a new

engine plant and metal pressing shop in India

Honda intends to set up a power-train facility in Rajasthan with an

investment of USD115 million.

The company has an export base for certain key engine components in

India

Ford is investing USD72 million to expand its power-train facility in

Chennai to further support its sales and export growth plans in India.

Plans to make India its manufacturing hub for engines for the Asia-

Pacific region and Africa

Volkswagen plans to increase sourcing from India to 70 per cent of its

total global sourcing

Plans to build engine assembly plant in India by 2015 and

additional investment of USD84* million on component

manufacturing. It also plans to set up a USD244 million plant in India.

Capacity Addition Plans Of Key Players

Bosch, which has six companies in India, plans to invest USD458 million on fuel economy and safety technology along with an additional USD7.7 million at the end of 2013 to nearly triple its Antilock Braking System manufacturing capacity to about 800,000 units at its Chakan plant.

The company has acquired 97 acres of land in Bidadi for the construction of a new manufacturing facility which will commence production of Diesel Fuel Injection System components in 2015

Tata Auto Component Systems is setting up five auto component manufacturing plants in Sanand, Gujarat, at an investment of USD62 million. These new factories are part of the vendor park being developed at the Tata Nano plant site.

It is also investing USD 114 million for capacity addition in its Chakan plant in Maharashtra

Apollo Tires is planning to invest USD551.4 million over by 2015 to set up two new facilities in East Europe and Brazil and expand its global footprint. Apollo tires currently generates approximately 40 per cent of the group’s total revenue from overseas operations

Hyundai India is setting up a plant in Tamil Nadu with an investment of USD333 million to manufacture diesel engines and auto components

India’s TVS Group has acquired a 90 per cent stake in Universal Components UK Ltd for USD19.2 million, as part of its expansion plans. Universal Components is a wholesale distributor of commercial vehicle parts.

It has also signed a co-operation agreement with BMW Motorrad to develop motorcycles below 500cc segment

Challenges – Typical of an Emerging Market

• Raising Capital & Capacity Utilization

• Infrastructure Challenges

• Roads

• Ports

• Power

• Inflation

• Availability of Skilled Manpower

• Managerial Depth across Tiers

• R&D Competence

Potential Areas Of CooperationFollowing are possible opportunities for the industry to overcome some of the challenges

• Outsourcing from India for OEMs/T1s and Aftermarket

• European SMEs to invest in Green Field Manufacturing in India

• Partnerships with local SMEs – Product and Process Technology

• Supply Base discovery in India for European OEMs and Tier-1s

• Strategic Alliance to supply to Global customers

• Joint R&D with local companies for New Product Development, Designing,

Testing and Validation