Indian Automobile Industry:

Trends and Drivers

Prasad Koparkar

January 2012
Outline of the presentation
Near term economic outlook
Economic activity
Inflation
Industrial production
Short-term trends and drivers: 2011-12 & 2012-13
Growth across key global automobile markets
Opinion on auto segments- cars, two wheelers and commercial vehicles
Key lead indicators of growth
Key emerging trends
Long-term trends and drivers: 2011-12 to 2016-17
Growth potential over the long run
The structural drivers
Key emerging trends


Key takeaways
Economy to perform moderately in 2012-13 amidst global chaos and
domestic policy paradox
Economic activity remains subdued with slight recovery expected in GDP
Inflation expected to come down from high levels
Industrial production to show moderate recovery after drastic slowdown in
2011-12

Slow down in 2011-12; to be compensated in subsequent year
Cars & UVs expected to recover volumes as supply eases in 2012-13
Rural growth and easing of scooters supply, to drive two wheeler sales
In the absence of strong revival in GDP, MHCV expected to grow moderately
LCV sales expected to remain robust amid increasing rural penetration

Long-term growth potential across auto segments remains robust
Car sales to more than double in 5 yrs; growth emerging from
underpenetrated car market
Rural demand for motorcycles and high growth in supply driven scooter market
to drive two wheeler
Evolving nature of logistics industry to drive LCVs & MHCV growth



Economic Outlook
India outlook
Variables 2011-12F 2012-13 F
Overall GDP: Supply-side
7.0 7.1
Agriculture
3.8 3.0
Industry
4.5 5.9
Services
8.9 8.7
GDP: Demand-side
Private final consumption expenditure
6.1 6.2
Other macroeconomic variables
WPI inflation (average)
9.2 5.8
Interest rate (10-year G-sec March-end)
8.5 7.3-7.4
Exchange rate (Rs-$ March end)
48.0* 45.0-46.0
Fiscal deficit (As % of GDP)
5.5 5.2
Source: CRISIL Research (C-CER)
Note: * probability of 50%
Sustained slowdown in IIP growth
Source: Ministry of Industry
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
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Y-o-y growth%
Stubborn WPI inflation contribution has remained broad based
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Fuel Group Total food
Primary non-food articles & minerals Non-food manufactured products
Overall WPI
%
Source: Ministry of Industry & CRISIL estimates
WPI Change y-o-y
Short-term trends
Passenger vehicles



Probable



Probable
Unlikely
Environment scan in 2012-13 - Impact on personal vehicle growth
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2012-13 F
Cars 13-16%
2W 11-14%
Income Growth
(Nominal per Capita GDP)
16%
Cars ~12%
2W ~12%
Cars ~16%
2W ~14%
13 %
Nominal
10%
Low/
Decrease
High
Economic Condition:
Real GDP
Inflation
Interest rate
Vehicle Prices -
Economic Condition:
Real GDP
Inflation
Interest rate
Vehicle Prices -
Unlikely
Ownership cost risen by 25 per cent in past 2 years, marginal increase
expected in 2012-13
Cost of owning a compact car in the first year of purchase (excluding down payment)
Source: CRISIL Research
Fuel prices and interest rate hikes contributed over 90 per cent of incremental ownership cost in 2011-12.
Cost of ownership expected to increase marginally in 2012-13 due to Increase in vehicle prices, despite expectation of
lower fuel and Interest cost
114
125
141
2009-10 2010-11 2011-12P
17%
23%
13%
47%
6%
18%
76%
(in Rs thousands)
Excise duty Vehicle prices Financing cost Fuel cost
Total Cost of
Ownership
Moderate growth in nominal GDP expected in 2012-13, to support growth
Source: CRISIL Research
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1
Sales (dtrend) RHS Ownership cost (dtrend) LHS
Period with High growth in
Nominal GDP helped sustaining
car growth, despite rising costs
Passenger cars
33-35%
21%
16%
59-60%
51%
31%
2012-13 P
2010-11 E
2005-06 E
Sedans Small Cars
More buyers opt for diesel cars as petrol pinches hard
Source: CRISIL Research
Share of diesel cars in passenger car segments
Overall Diesel car sales to reach a size of ~0.77 million units, with a share of 34 per cent by 2012-13
(~30 per cent in 2011-12)
Launch of 4-5 diesel
models in the compact
car segment aided
growth significantly.
Sedan to continue outperform, small cars to grow over low base
30
50
70
90
110
130
150
170
2
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A3_SA_Sales A3_SA_sales_exp-trend
30
80
130
180
230
280
330
380
430
480
530
2
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A2_SA_Sales A2_SA_sales_lin-trend
Sedan outperformed in 2011-12, despite negative
sentiments, owing to model launches & vehicle
availability
Sedan will continue to outperform in the short run
with more model options in cheaper diesel fuel.
Supply constraints, rising cost of ownership
impacted sales in A2
Small car (A2) is expected to bounce back, in the
near term owing to easing of supplies
Subsequently, it is expected to revert back to
mean
FY13: 13-15%
FY13: 16-18%
Source: SIAM, CRISIL Research Source: SIAM, CRISIL Research
Two Wheelers
Large rural share and low finance dependence makes 2 wheelers
less cyclical
30%
41%
54%
62%
68% 68%
43%
39%
22%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
1
9
9
7
-
9
8
1
9
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1
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Finance penetration 2W sales growth
High growth period
despite falling finance
penetration
Stricter repossession norms
led sharp decline in
finance penetration in
2008-09
Source: SIAM, CRISIL Research
0
50
100
150
200
250
300
350
400
450
500
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-
12
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Scooters capacity HMSI HMSI Sales Industry Sales Heavy UGS
TVS Wego
M&M
Rodeo,
Duro
Suzuki
Access
Outperformance driven
by multi players
Product launches, rising supply to drive scooter sales
Source: Industry, CRISIL Research
Heavy ungeared Scooters sales trend
Commercial Vehicles
Environment sensitivity scan - Impact on commercial vehicle growth






2012-13F
MHCV 6-8%
SCV 16-18%
12%
MHCV ~0%
SCV ~10%
MHCV ~9%
SCV ~15%
MHCV ~16%
SCV ~25%

MHCV ~5%
SCV ~18%
9 %
Stable
6%
Improve
Deteriorate
Economic Condition:
GDP*
Diesel prices
Interest rate
Economic Condition:
GDP*
Diesel prices
Interest rate
Economic Condition:
GDP*
Diesel prices
Interest rate
Economic Condition:
GDP*
Diesel prices
Interest rate
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Freight Demand
(*GDP Industry and Agriculture)
Tippers driving the MHCV demand, while SCV continues to remain strong
-40%
-20%
0%
20%
40%
60%
80%
100%
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
100000
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1
2005-06 2006-07 2007-08 2008-09 2009-10 2010-112011-12
SCV sales (<3.5T) SCV sales growth (<3.5T)
The haulage segment of MHCV has remained flat in
the current year principally from slowdown in
industries
Tippers growth has been strong owing to strong
replacement demand and growth in road
investments
Light, Medium and Heavy Duty Vehicle (>3.5T GVW)
Small Commercial vehicle (<3.5T GVW)
-100%
-50%
0%
50%
100%
150%
200%
0
20000
40000
60000
80000
100000
120000
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2005-06 2006-07 2007-08 2008-09 2009-10 2010-112011-12
Ex Tippers Tippers growth Ex Tippers growth
Tippers leading
the entire MHCV
growth
Small commercial vehicles linked to consumption
demand continues to remain strong
Further increasing rural penetration aiding SCV
demand
Source: SIAM, CRISIL Research Source: SIAM, CRISIL Research
Long-term trends
Passenger Cars & UVs
Rise in car sales to be driven by widening customer base
Note: Income distribution estimates based on NCAER surveys for 2001-02, 2003-04 and estimates for 2009-10. Future forecast of
households based on population forecast and people per household estimates by NCAER All numbers estimated @ 2001-02 prices
Source: CRISIL Research
0%
2%
4%
6%
8%
10%
12%
14%









2001-02
192 mn
2006-07
217 mn
2010-11
239 mn
2016-17
261 mn
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Annual household income (at 2001-02 Rs.)
Flattening of Income
distribution curve to add ~75
million more households to
addressable market by 2016-17
2001-02 2005-06 2010-11 2016-17
5
10
64
139
Car addressable Households
(in million households)
CAGR: 21%
CAGR: 45%
CAGR: 14%
Proportion of Households who can
potentially buy a car to increase
from 27 of total HHs to 50 per
cent by 2016-17. Penetration in
these HHs to be at 20 per cent
-100
0
100
200
300
400
500
600
700
0 10000 20000 30000 40000 50000 60000
India underpenetrated at 9 cars per 1000, long way to grow
China
Russia
Brazil
India
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GDP per Capita based on PPP
Western
Europe
Source: World Bank Data, CRISIL Research
Note: Data is for the year 2007/2008 based on availability. For India it is 2011 data
Passenger cars to show strong growth; with small cars leading the way
Penetration at 9 cars per thousand people in India
Small cars will continue to outperform sedans with expansion of the affordable segment,
rising congestions in the cities, supported by model launches. Small car segment to reach a
size of 3.6 million units by 2016-17.
Passenger cars to record strong growth
Rise in share of small cars to continue
82%
77%
75%
77%
78%
79%
70%
72%
74%
76%
78%
80%
82%
84%
2
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0
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Source: SIAM, CRISIL Research Source: SIAM, CRISIL Research
Two Wheelers
Two-wheeler sales grow as rural populace takes to bikes
Source: CRISIL Research
Two-wheelers per thousand people
105
32
55
89
173
253
259
98
0 50 100 150 200 250 300
-- India Urban
--India Rural
India Overall
China
Indonesia
Thailand
Vietnam
Japan
Low penetration in rural markets to drive growth more specifically in motorcycles
Penetration in urban 2W close to international levels, growth
prospects remain muted
Rural penetration to aid growth; scooters pie to grow
Motorcycle sales to be driven by rural markets with ~65% of incremental sales in rural areas
by 2016-17 from ~40% in 2011-12
Scooters to aid two-wheeler sales growth with rising preference for scooters, improving road
conditions and more buying options for customers in heavy scooters category
Two wheelers to continue its growth trend
Share of scooters to rise
22%
16%
15%
15%
18%
19%
26%
0%
5%
10%
15%
20%
25%
30%
2
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P
Source: SIAM, CRISIL Research
Source: SIAM, CRISIL Research
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Commercial vehicles
MHCV Sales follows Industrial Growth Trends
Source: CRISIL Research
Government intend to increase its focus on manufacturing under National Manufacturing policy
0
50000
100000
150000
200000
250000
300000
0
200000
400000
600000
800000
1000000
1200000
1
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GDP-Industry Incremental (in Rs mn) LHS Total MHCV sales (RHS)
3
2
%
3
8
%
4
4
%
5
1
%
5
6
%
5
8
%
6
1
%
6
3
%
6
6
%
0%
20%
40%
60%
80%
100%
2
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E
ICVs MCVs HCVs including Tippers
6
%
8
%
1
2
%
1
5
%
1
9
%
1
6
%
1
8
%
2
0
%
2
0
%
2
1
%
0%
20%
40%
60%
80%
100%
2
0
0
3
-
0
4
2
0
0
4
-
0
5
2
0
0
5
-
0
6
2
0
0
6
-
0
7
2
0
0
7
-
0
8
2
0
0
8
-
0
9
2
0
0
9
-
1
0
2
0
1
0
-
1
1
2
0
1
1
-
1
2
E
Three-wheelers Sub-1T Pick-ups Upper-end
Leading to shift towards higher tonnage MHCVs and smaller SCVs
Source: SIAM, CRISIL Research
MHCVs: Product-mix in tonnage terms
LCVs: Product-mix in tonnage terms
Driven by
evolution of hub
& spoke
Source: SIAM, Industry, CRISIL Research
2.7
5.2
5.3
6.3
10.0
20.1
0.0
5.0
10.0
15.0
20.0
25.0
India Brazil China UK Indonesia USA
LCV-MHCV ratio suggests substantial scope for growth in the segment
Source: CRISIL Research, Wards Automotive
LCV to MHCV sales ratio across markets
L
C
V
-
M
H
C
V

s
a
l
e
s

r
a
t
i
o

(
t
i
m
e
s
)

Note: Computed ratio is an average for 2006-09 period
LCVs will continue to show robust growth with linkage to logistics efficiency
With evolution of hub and spoke, SCV to grow strongly
>3.5T growth at low double digits driven by GDP
growth, offset somewhat by structural shift to
higher tonnage

Light, Medium and Heavy Duty Vehicle (>3.5T GVW) Small Commercial vehicle (<3.5T GVW)
SCV sales will grow much faster with evolving
nature of hub and spoke model, low LCV/MHCV
ratio in India and growing rural penetration
0
100
200
300
400
500
600
700
2
0
0
1
-
0
2
2
0
0
2
-
0
3
2
0
0
3
-
0
4
2
0
0
4
-
0
5
2
0
0
5
-
0
6
2
0
0
6
-
0
7
2
0
0
7
-
0
8
2
0
0
8
-
0
9
2
0
0
9
-
1
0
2
0
1
0
-
1
1
2
0
1
1
-
1
2
E
2
0
1
6
-
1
7

P
T
h
o
u
s
a
n
d
s
0
100
200
300
400
500
600
700
800
900
2
0
0
1
-
0
2
2
0
0
2
-
0
3
2
0
0
3
-
0
4
2
0
0
4
-
0
5
2
0
0
5
-
0
6
2
0
0
6
-
0
7
2
0
0
7
-
0
8
2
0
0
8
-
0
9
2
0
0
9
-
1
0
2
0
1
0
-
1
1
2
0
1
1
-
1
2
E
2
0
1
6
-
1
7

P
T
h
o
u
s
a
n
d
s
Source: CRISIL Research Source: CRISIL Research
Summary of Forecasts
Segments
Growth Y-o-Y (%) 5 Yr CAGR %
FY 13 P FY 12-17 P
Cars 13 to 16 17 to 19
Utility Vehicles 12 to 15 11 to 13
Motorcycles 10 to 12 7 to 9
Scooters 18 to 20 17 to 19
Segments
Growth Y-o-Y (%) 5 Yr CAGR %
FY 13 P FY 12-17 P
Goods
SCVs (< 3.5T ) 16 to 18 18 to 20
LMVs (>3.5T to 12T) 10 to 12 10 to 12
HVs (>12T) 4 to 6 9 to 11
Buses 4 to 6 9 to 12
3 Wheelers
3W Cargo 5 to 7 3 to 5
3W - Passengers 7 to 9 5 to 7
Personal Vehicles
Commercial Vehicles