Indian auto market characteristics

Introduction

It is a known fact that health of country’s automotive industry is one of the key indicators of the manufacturing competitiveness of the country. What is also important is, how vibrant is the complete eco system with all OEM manufacturers, component manufacturers, manufacturing practices, local market demand, export demand, etc.

No doubt India has emerged as one of the key global markets (both as consumption and as production base) in automotive industry and particularly in last few years it has witnessed tremendous growth and has also been base for global manufacturers . VW, Nissan, Renault, GM, Ford, Honda, Suzuki, Hyundai, Daimler, BMW, Skoda, Audi, MAN, all top brands are present in India and also manufacturing/assembling locally.

By facts, India is 2nd largest two wheeler manufacturer, 4th largest CV manufacturer, largest three wheeler manufacturer and among top 5 global PV manufacturers. Automotive is strong 68 Billion USD Industry as of 2011 and contributes 5-7% of Indian’s GDP.

Market characteristics: Segmentation and production development

At GrowthPraxis we consider Auto market into four distinct segments :

Segments of Auto market

Fig1. Auto market segments

As shown in fig. 2 below, between 2006-07 and 2010-11, auto segment witnessed CAGR of 12.7% to reach total production units of 17.91 million units. Two wheelers represent largest segment with 75% share followed by 17% of PV and 4% each by CV and Three wheelers.

Production development of Indian Automobile Industry

Fig 2.Production development of Indian Automobile

But most interesting aspect is that passenger vehicle segment exhibits highest growth of 17.9% followed by 12% of Two wheelers. Growth of  both CV and 3 wheeler segment were between 9-10%.

However, in Revenue terms, PV is the largest segment with approx. 63% share followed by CV with 22%, and 2 wheeler and 3 wheeler with remaining 15%.

 

Sales development

Fig 3 shows us the sales development in these segments. Domestic sales had grown at relatively slower pace than production with sales CAGR of 11.3%. It again reinforces the fact the PV emerged out as largest growth segment with 16% followed by 11.6% CAGR of 2 wheeler.

Sales development of Indian Automotive Industry

Fig 3. Sales development of Indian Automotive

As of 2010-11 there was domestic demand of 2.5 million PV and 11.8 million two wheelers, approximately 676 thousand units of CV and 526 thousand units of 3 wheeler which were sold in Indian market.

An interesting features is that ration of domestic sales to Production is decreasing indicating an attractive demand for exports. From 91% in 2006-07 it decreased to 86% in 2010-11.

Exports development

Fig 4 gives the details about export indicating that India exported approx. 2.3 million automobiles of which comprise of about 0.5 million PV and 1.5 million two wheelers and about 270 thousand units of 3 wheelers.

Export development of Indian Automotives

Fig 4. Export development of Indian Automotives

Again the interesting fact is that PV with around 25% CAGR growth is the highest growth segment followed closely by 2 wheelers with 24% CAGR growth and 3 wheeler with impressive 17% CAGR.

This clearly demonstrates the fact that India has emerged as one of the attractive manufacturing base for Automobiles globally and this is true for all the segments.

Hyundai is exporting close to 50% of its production and same is true for Reanult and Nissan.

In fact,  India is increasingly becoming base for small car and compact car manufacturing globally.

Competitive Intensity

In most of the segments, market leaders are domestic companies but closely contested by rival global brands. For example:

Two wheeler: Hero motor corp. has 55% market share and Bajaj has 22% share.

3 wheeler: Piaggio and Bajaj have nearly equal share of 40% each.

PV: Maruti Suzuki has 45% market share, Hyundai has 16% and Tata has 15% share.

CV: Tata with 65% is dominating leader. However, Ashok has 2nd highest share in M&HCV segment with 24% whereas Mahindra’s are 2nd in LCV segment with 30% share

Both the segments of PV and CV are highly competitive with presence of all the global top manufacturers. Latest to enter India was Nissan and Renault in PV and Bharat Benz in CV

Growth  Prospects

GrowthPraxis does believe that future for Indian Automobile industry is really bright and all the sub segments shall witness growth.  Major Drivers would be Strong local demand, rising per capita income, establishment of India as global auto hub, product innovation and multi financing options.

Growth estimates and demand drivers

Fig 5. Growth estimates and demand drivers

As shown in Fig 5, Indian Automobile segment shall increase from 17.9 million units in 2010-11 to 29.1 Million units in 2015-16 and shall be  in excess of 120 billion dollar industry by then.

PV segment shall cross 5 million units and CV and 3 wheeler each shall cross 1 million units.

So, coming years shall establish India more strongly  as base for Automobile manufacturing and which in ripple affect shall lead to demand increase in R&D, Engineering services and other service industries as offshoring.