AUTOMOBILE
The Indian automobile industry is the 4th largest in the world in terms of units sold, 7th largest
manufacturer of commercial vehicles and the 2nd largest 2-wheeler market. Also, India is the
2nd largest bus manufacturer, 5th largest
heavy truck manufacturer and 6th largest car
manufacturer.
The industry produced a total of 29,075,605
vehicles in FY 18 as against the last year’s
production of 25,330,967, thus exhibiting a
growth rate of 14.78%. It is segmented into
production of commercial vehicles, passenger
cars, 3 and 2 wheelers. Overall domestic
automobiles sales increased at 7.01 per cent
CAGR between FY13-18. The $ 93 billion
automotive industry contributes 7.1% to
Figure 1Source: Data from SIAM India’s GDP and almost 49% to the nation’s
manufacturing GDP.
Two Passenger Commercial Three-
Wheelers Vehicles Vehicles Wheelers
Passenger Light Commercial
Mopeds Passenger Carriers
Cars Vehicle
Medium and
Utility Heavy
Scooters Goods Carriers
Vehicles Commercial
Vehicle
Motorcycles
Multi-Purpose
Vehicles
Figure 2 different segments in the automobile industry
Imports and Exports
The overall auto exports saw an increase of 16.12% for the year ending March 2018, as
compared to the previous year. The passenger vehicles sector saw a decline of 1.51% while
the commercial vehicles sector experienced a steep fall of 10.53%. Overall automobile
exports from India grew at 6.86 per cent CAGR between FY13-18.
FDI in industry
Up to 100% FDI is permitted in the automobile route under the automatic route.
The industry attracted FDI amounting to $18.413 billion dollars from April 2000-Dec 2017 as
per the data released by DIPP (Department of Industrial Policy and Promotion)
Recent news impacting the industry
1. New Models Launched
Ashok Leyland has planned a capital expenditure of Rs 1,000 crore (US$ 155.20 million) to
launch 20-25 new models across various commercial vehicle categories in 2018-19.
2. Capacity Expansion
Mahindra & Mahindra (M & M) is planning to make an additional investment of Rs 500
crore (US$ 77.23 million) for expanding the capacity for electric vehicles in its plant in
Chakan.
3. Pricing
TATA Motors is planning to hike the prices of passenger vehicles by up to 2.2% from August
2018.
4. Sales Trends
The rate of two wheelers, cars, SUVs sales growth doubled in eastern states as compared to
the trends prevailing in rest of the India.
Government policies impacting the automotive industry
● The Government of Karnataka is going to obtain electric vehicles under FAME
Scheme and set up charging infrastructure across Bengaluru, according to Mr R V
Deshpande, Minister for Large and Medium Industries of Karnataka.
● The Ministry of Heavy Industries, Government of India has shortlisted 11 cities in the
country for introduction of electric vehicles (EVs) in their public transport systems
under the FAME (Faster Adoption and Manufacturing of (Hybrid) and Electric
Vehicles in India) scheme. The government will also set up incubation centre for
startups working in electric vehicles space.
Energy Efficiency Services Limited (EESL), under Ministry for Power and New and
Renewable Energy, Government of India, is planning to procure 10,000 e-vehicles via
demand aggregation, and has already awarded contracts to Tata Motors Ltd for 250 e-
cars and to Mahindra and Mahindra for 150 e-cars.
Regulatory issues affecting automobile sector
Motor Vehicles Act, 1988 and Central Motor Vehicles Rules 1989 - Governs
emission norms and safety standards in India, consolidates the law relating to motor
vehicles, lays down law relating to driving license, registration of motor vehicles,
control of traffic, construction & maintenance of motor vehicles.
The opening up of the Indian market following the economic reforms of 1991 and
permission of up to 100% FDI in the automobile sector has been contributing factors
to the sustained growth of the automotive industry in India.
The auto industry is set to witness major changes in the form of electric vehicles
(EVs), shared mobility, Bharat Stage-VI emission and safety norms.
Electric cars in India are expected to get new green number plates and may also get
free parking for three years along with toll waivers. Sales of electric two-wheelers are
estimated to have crossed 55,000 vehicles in 2017-18.
Initiatives like ‘Make in India’, ‘Automotive Mission Plan 2026’, and NEMMP 2020
to give a huge boost to the sector.
Present Trends
Premiumization - The luxury car (37%) and the premium Bike segment (45%) has seen the
high growth rate in recent times.
New Financing options - Carmakers such as BMW, Audi, Toyota, Skoda, Volkswagen &
Mercedes-Benz have started providing customized finance to customers through NBFCs.
Major MNC & Indian corporate houses are moving towards taking cars on operating lease
instead of buying them
Electric Cars- The Indian government has shifted its focus on electric cars. It has aims to sell
only electric cars by 2030 under the National Electric Mobility Mission Plan.
Mahindra has launched its new electric car and Tesla motors is also set to enter the Indian
market. Electric buses from Tata Motors are in testing phase. Suzuki Motors is setting up a
new plant in Gujarat to manufacture lithium ion batteries.
Global positioning- In 2017, the Indian passenger vehicle market has achieved a new feat by
moving up to the fourth position in the world in terms of volume, beating Germany. It is
expected to become the third-largest by 2020, thus to become a cynosure in the eyes of global
automotive industry. SAIC motors is planning to enter the Indian market, the first Chinese
automotive company to do so.
New product launches- Honda is planning to launch three new car models in India by 2020
and will localise the engines to keep the prices low.
Fiat Chrysler Automobiles India, launched its new Jeep brand Compass in February 2017,
which is going to be produced indigenously in Ranjangaon,, Maharashtra. India will be the
4th manufacturing hub, globally, for the brand.
In March 2017, Tata Motors’ new sports car was unveiled, under its new sub brand –
TAMO, at the Geneva International Motor Show. The show will displayed niche segment
models with advanced technologies
In May 2017, Pune based Kinetic Green Energy and Power Solutions Ltd. has launched its
1st electric 3- wheeler “Kinetic Safar”, This 3-wheeler is equipped with an advanced lithium-
ion battery.
Market Share of the companies in the Industry
Automobile sector split into four segments, each having few market leaders.
Percentage market share of carmakers in India - FY18
Others
Renault
Toyota 3.10%6.23%
5.27% Maruti Suzuki
Honda cars India Hyundai Motors
5.17% Mahindra and Mahinda
Tata motors Tata motors
6.39% Honda cars India
Toyota
Renault
Mahindra and Others
Mahinda
7.56%
Hyundai Motors
16.30% Maruti Suzuki
49.98%
Figure 3 Source: SIAM data, financial express
Market share of major players in 2-wheeler segment
Royal Enfield; 3.96
Suzuki Motorcycle India; 2.48 Others; 0.46
Yamaha Motor India;
3.92
Hero MotoCorp
HMSI
Bajaj Auto; 9.77
Hero MotoCorp; TVS Motor Company
36.56 Bajaj Auto
Yamaha Motor India
Suzuki Motorcycle India
TVS Motor Company; Royal Enfield
14.24 Others
HMSI; 28.6
Figure 4 source: financial express
Growth drivers
Growing Demand Policy Support Support infrastructure
Clear vision of Indian and high investment
Rising income and a large government to make India an Improving road infrastructure
young population auto manufacturing hub Established auto ancillary
Greater availability of credit Initiatives like ‘Make in India’, industry giving the required
and financing options ‘Automotive Mission Plan support to boost growth
Demand for commercial 2026’, and NEMMP 2020 to 5 per cent of total FDI inflows
vehicles increasing due to give a huge boost to the to India went into the
high level of activity in sector automobiles sector
infrastructure sector
Key ratios and metrics used in the industry
Metrics used that affects cost and sales price
1. Number of units manufactured
2. Total cost to manufacture
3. Utilization Rate
4. Profitability
5. Manufacturing Cycle Time
6. Recall Rates
7. Safety Incidents per Employee
8. Scrap Rate
9. Average Production Downtime
10. Customer Satisfaction
Key ratios
1.P/E
2.EV/EBITDA
3.Debt/Equity
4.Inventory Turnover Ratio
5.EV/Sales
Industry Value (as of 31st March 2018)
P/E –34.3
Debt/Equity –0
EV/EBITDA-17.8
P/B-5.8
EV/sales- 2.6
( source:- https://www.duffandphelps.com/insights/publications/valuation/industry-multiples-
india-report-q1-2018)
