INDIAN AUTO COMPONENT INDUSTRY

INTRODUCTION
The auto component industry is ancillary to the automobile industry. Nevertheless, the size of global auto component industry is as large as the automobile industry itself. The industry not only caters to the Original Equipment Manufacturers OEM) but also to the existing huge automobile population or fleet in the replacement market. The global auto component industry is estimated at around US$ 1.5 trillion in 2009.

Size of the Indian auto component industry

The Indian auto component industry is estimated at around Rs.1,280 billion (US $ 27 billion) in 2009-10. Our industry has the resources to manufacture the entire range of components required for vehicle manufacturing, approximating 20,000 components. The domestic market is estimated at Rs.1,060 billion (US$ 22 billion), while Rs.220 billion (US$ 5 billion) worth auto components were exported in 2009-10. The OEM market is estimated at Rs.700 billion (US$ 15 billion), whereas the replacement market is estimated at Rs.360 billion (US$ 8 billion). While the indigenous manufacturers catered Rs.740 billion worth domestic market, Rs.320 billion worth components were imported in 2009-10.

Segmental market size in 2009-10 (Rs. billion)

Exports, 220, 17%

Replacement market, 360, 28%

OEM market, 700, 55%

INDIAN AUTO COMPONENT INDUSTRY

Key component segments Engine components
Engine components fall into three broad categories - core engine components, fuel delivery system and others. This segment includes products such as pistons, piston rings, engine valves, carburettors, crank shafts, sump connecting rod etc. These are the most critical components and require high level of co-ordination between component manufacturer and OEM. This segment, accounting for 31 per cent of component market (by value), has seen major technical advancements with improved designs for optimal fuel consumption and lesser emission.

Drive transmission and steering components

This segment, accounting for around 19 per cent of auto component market, includes components like gears, wheels, steering systems, axles and clutches.

Body and chassis

This segment accounts for 12 per cent of auto component market.

Suspension and braking components

This segment includes components like brakes, brake linings, leaf springs and shock absorbers and accounts for 12 per cent of the auto component market.

Equipment
This segment, accounting for 10 per cent of the market, includes components like headlights, dashboard instruments, wiper motors, electric horns etc.

Electrical components
The main products in this segment include starter motors, generators, spark plugs, ignition coil, flywheel magnet, voltage regulator, electric ignition and distributors. This is one of the major upcoming segments, forming 9 per cent of the Indian component industry. Digital Twin Sparkplug Ignition (DTSI) mechanism is the latest concept in the automobile industry.

Others
Sheet metal components and plastic moulded components are two of the major components in this category. Around 7 per cent of the market is accounted for by other components not included in the above segments.

INDIAN AUTO COMPONENT INDUSTRY

Component-wise market segmentation

Electrical Components 9% Equipments 10% Suspension and Braking Components 12% Others 7% Engine Components 31%

Body and Chassis 12%

Drive Transmission and Steering components 19%

Source: ACMA

Industry structure and competition

Auto component industry is fragmented and predominantly controlled by the unorganised sector. Organised segment accounts for only 30-35 per cent of the domestic sales. There are around 500-600 units in the organised segment, while the unorganised segment has presence of more than 6,000 units. Despite Indias auto component industry producing US$ 20 billion worth output, the top-line of hardly 40-45 players exceed US$ 100 million. Some of the major domestic auto components manufacturing groups in India include TVS, Rane, Amalgamations, Kalyani, Sona, Rico, Minda and Amtek, amongst others. The organised segment faces competition from counterfeiters as well. According to the industry, counterfeit market is estimated to be as large as US$ 1 billion. On account of the relatively larger size, scalability and better financial strength than the unorganised segment, the OEM market is primarily catered by the units in the organised segment. The units in the unorganised segment attempt to find their fortunes amidst fierce competition in replacement market. Many players in the unorganised segment are also involved in job work and contract manufacturing for the organised sector.
The global key auto makers have brought along the international component suppliers into India. Major international auto component manufacturers like Lear Corporation, Delphi, Visteon, Mando, ZF Steering, Bosch, Motherson Sumi, Denso etc have established their strong presence in India. The entry of global manufacturers enabled introduction of new technologies, new products

INDIAN AUTO COMPONENT INDUSTRY

Global players in India
Delphi Bosch Denso Lear Johnson Controls Visteon TRW Siemens VDO DANA Steering System and Wiring harness Spark plugs, Fuel Injection equipments, Oil Filters Auto electric components, alternators, fuel pumps and Radiators Electronic and Auto electrical components Seating Systems and Controls Air conditioning, engine cooling systems Engine valves, steering system, braking system and electric components Automotive dashboard instruments and accessories Clutch, Piston rings, axle housing

Importance to the economy

The auto component industry may not seem important to the economy in terms of its direct contribution to the GDP (2-3 per cent) or to the exchequer (approximately 2-3 per cent) or to the foreign exchange earnings (2 per cent of Indias exports in value). However, this industry is indirectly very important, as it employs close to 10 million people directly and indirectly, which makes it significant amongst the Small and Medium Enterprise (SME) sector.

Major Clusters
The component industry, being ancillary to the automobile industry, has been primarily developed in and around automobile manufacturing clusters. National Capital Region (NCR) in north, Pune and Aurangabad belt in west and Chennai & Bangalore belt in south are the key automobile manufacturing hubs in India. There are some OEM plants in Madhya Pradesh, Jharkhand and West Bengal as well. Tier-I and Tier-II component suppliers generally have their plants located within the vicinity of the OEMs manufacturing unit. Nevertheless, small component manufacturers especially

in the unorganized segment primarily catering the replacement market are spread across the country. Players like Asahi Glass, Jai Bharat Maruti, Sona Koyo, Omaxe and Bharat Seats are the key suppliers in the organised segment in north Indian automobile cluster around NCR. North India has disadvantage of being land locked with large distance from port. However, the Government has responded well by setting up Inland Container Depot at Tughlakhabad to facilitate exports. Similarly, the western India automobile cluster in Pune and Aurangabad is supported by Tata Autocomp, Bharat Forge, Bosch and Lear, amongst others. This region has access to Mumbai and JNPT port as well as Kandla in Gujarat. Visteon, Delphi and Bosch are some of the suppliers that support the automobile cluster in southern India. This region finds Chennai, Tuticorin and Kochi ports in its close proximity. With Gujarat emerging as a new centre of automobile production with the entry of General Motors and Tata Motors, substantial investments in the automobile component industry would be attracted.

INDIAN AUTO COMPONENT INDUSTRY

UTTARAKHAND Atul Auto, Bajaj Auto, M&M, Tata Motors

HIMACHAL PRADESH International Cars and Motors, TVS HARYANA Hero Honda, Honda Motorcycle and Scooters, Maruti Suzuki, Suzuki Motorcycle, India Yamaha UTTAR PRADESH
Honda Siel, LML, Scooters India,

PUNJAB Swaraj Mazda

RAJASTHAN Ashok Leyland

Tata Motors, India Yamaha

GUJARAT Atul Auto, Electrotherm, General Motors, Tata Motors WEST BENGAL Hindustan Motors JHARKHAND Tata Motors

MAHARASHTRA Ashok Leyland, Audi, Bajaj Auto, Fiat India, Force Motors, M&M, Mahindra Renault, Mahindra TwoWheelers, Mercedes Benz, Piaggio, Premier, Skoda, Volkswagen, Tata Motors

MADHYA PRADESH Eicher Motors, Force Motors, Hindustan Motors

ANDHRA PRADESH M&M

KARNATAKA Toyota Kirloskar, TVS, Volvo

TAMIL NADU Ashok Leyland, BMW, Ford, Hindustan Motors, Hyundai, Nissan, Royal Enfield, Tatra Vectra, TVS

INDIAN AUTO COMPONENT INDUSTRY

Government Policies
Customs Duty
Customs duty rates determine the protection government gives to the domestic industry. Customs duty on auto components has been reduced over the years. Simultaneously, the customs duty on inputs has also been reduced wherever the duty was high. The duty on output is higher than that on inputs (equal in case of catalytic converter), which suggest favorable duty structure. Reduction in customs duty on auto components comes in line with the increasing indigenization by the OEMs.

Trend in custom duty on auto components and its inputs

Customs (%) Auto Components Engine & engine parts, except the below-mentioned Silencer, exhaust pipes & radiators Catalytic converter Drive transmission, steering, suspension & braking parts, except the below mentioned Couplings & seals Electrical parts Inputs Steel and Lead Aluminium & Copper Nickel FY05 20.4 20.4 5.1 20.4 20.4 20.4 5.1 15.3 15.3 FY06 15.3 15.3 5.1 15.3 15.3 15.3 5.1 10.2 5.1 FY07 7.7 10.3 5.1 12.8 7.7 7.7 5.1 5.1 5.1 FY08 7.7 10.3 5.1 10.3 7.7 7.7 5.2 5.2 5.2 FY09 7.7 10.3 5.1 10.3 7.7 7.7 5.2 5.2 5.2 Stimulus 7.7 10.3 5.2 10.3 7.7 10.3 5.2 5.2 5.2 FY10 7.7 10.3 5.2 10.3 7.7 10.3 5.2 5.2 5.2

Excise Duty Excise duties on auto components have been drastically reduced in the last year itself, in line with the overall reduction in the rates of excise duty in order to provide stimulus to the economy that was reeling under the pressure of global financial crisis. Being a fragmented industry, almost the entire benefit of the excise duty cut has been passed on to the end-users. Trend in excise duty on auto components and its inputs
(%) All Auto Components Inputs Steel Aluminium, Copper Nickel & Lead FY05 16.3 12.2 16.3 FY06 16.3 12.2 16.3 FY07 16.3 16.3 16.3 FY08 16.5 16.5 16.5 FY09 14.4 14.4 14.4 Stimulus 8.2 8.2 8.2 FY10 8.2 8.2 8.2

Value Added Tax (VAT) / Sales Tax Earlier, the sales tax rates varied from state to state. However in 2005, sales tax was replaced by VAT, which is applicable at the rate of 12.5 per cent across all the states. Uttar Pradesh was the only state which accepted the VAT regime late in January 2008.

INDIAN AUTO COMPONENT INDUSTRY

Foreign Direct Investment (FDI) policy

The economic reforms in 1990s brought around radical changes in the Indian business environment. Though the pace of reforms was slow, de-licensing and relaxation in many other areas made the atmosphere increasingly conducive for business. In 2002, after the framing of the new auto policy, government threw the sector open to 100 per cent Foreign Direct Investment (FDI) under the automatic route. Liberalisation has brought major international OEMs like Hyundai, General Motors, Ford, Toyota, Daimler Chrysler, Mitsubishi, Daewoo, Mercedes Benz, etc into India. This attracted international auto component majors like Lear Corporation, Delphi, Visteon, Mando, ZF Steering and Denso as well into our country. The entry of multi-national OEMs has also boosted the growth of indigenous auto component manufacturers, as these OEMs not only sourced major portion of the components for their Indian operations but also for their overseas operations from Indian suppliers. Besides expanding the size of the sector, entry of foreign firms has led to significant knowledge spill-over on Indian auto component firms.
Barriers to entry: Medium

The Automobile component industry is moderately capital intensive in nature. Replacement market, the bigger segment, is cost-conscious and not brand-conscious. These factors make the entry into the business easier. However, the industry is dependent on technology to some extent in relation to the product design and its technical know-how as intellectual properties, especially in engine-related components. The component manufacturers work closely with the OEM in designing the components. Players in the organised sector have an upper hand to be the preferred suppliers to OEMs. Thus, it is difficult for a new or a smaller player to make through the OEM segment. The 100 per cent FDI being allowed in the sector, corroborated with easy availability of lowcost labour and inputs like steel, aluminium and copper makes the entry easy for international players into the Indian market, primarily in the OEM segment where there is presence of international OEMs as well. But penetrating the replacement market is difficult for them, as this market requires large distribution network.
Competition: Medium to High

The industry is fragmented in nature and predominantly controlled by the unorganised sector. The organised segment accounts for only 30-35 per cent of the domestic sales. There are around 600 units in the organised segment, while the unorganised segment has the presence of more than 6,000 units. Despite Indias auto component industry producing close to US$ 20 billion worth output, the top-line of hardly 50 odd players exceed US$ 100 million.

INDIAN AUTO COMPONENT INDUSTRY

The range of products manufactured, with each broad product segment having a different market structure and technology has negated any possible concentration of the market in a few hands. The market is so large and diverse that a large number of players can be absorbed to accommodate buyer needs. However, there are a select few large companies that have integrated their operations across the value chain. The key to competing in this industry is through specialisation by product-type and integrating operations across the related area of specialization.
Threat from substitutes: Low There are no alternates or substitutes for the auto components. However, the industry faces

competition from counterfeits and cheap Chinese imports, especially in cost-conscious replacement market. As per the industry, counterfeits account for around US$1 billion worth sales. The indirect threat to the industry can come from the probable increase in cargo and/or passenger movement by alternate modes like airlines or railways, which may impact demand for automobiles and thus the components. Furthermore, improvement in road infrastructure would also lead to lesser wear and tear and thus lower demand for components in the replacement segment.
Bargaining power of buyers: High

On account of fragmentation, the bargaining power of the component manufacturers is very low. The OEM segment on the other hand is consolidated, with top two players in each subsegment accounting for at least more than 2/3
rd

of the production in each segment. Thus, the

OEMs have an upper-hand over the component suppliers. Market share of top two players in various segments of Indian automobile industry
PV Largest player Maruti Suzuki Share in production (%) 44 nd 2 largest player Hyundai Share in production (%) 24 Cumulative Production 67 Share (%) LCV Tata Motors 59 M&M 29 88 MHCV Tata Motors 61 Ashok Leyland 25 86 2 Wheelers Hero Honda 40 Bajaj Auto 25 65 3 Wheelers Bajaj Auto 57 Piaggio 28 85

In the replacement market, no single buyer dominates the industry and sales in this segment are akin to retail sales. However, this segment is very cost-conscious and thus, the bargaining power of the fragmented component industry is very weak. The export market is also very price sensitive, as India faces competition from other low-cost manufacturing centres like China, Thailand, Philippines, Malaysia, Hong Kong etc.
Bargaining power of suppliers: High

Ferrous and non-ferrous metals, crude oil derivatives and other commodities form inputs of auto component manufacturers. The auto component industry is not a very significant consumer of these commodities. Thus, the component manufacturers, either individually or collectively, do not

have any noteworthy influence over the prices of these commodities. The commodity manufacturers themselves have limited say in the pricing of the respective commodities, as their

INDIAN AUTO COMPONENT INDUSTRY

prices are based on their global demand-supply balance and macro-economic cycles.
Regulatory intervention: Low

There is minimum regulatory intervention in the auto component industry. There are no special regulations or statutes framed for the industry. The overall business environment has been liberalised and made conducive for business over the years. The automobile sector holistically being an important sector to the economy is looked upon favourably by the Government, especially during the economic downturn. Stringent labour laws, though having a social importance, do not go well for this labour-intensive industry.
Barriers to exit: Medium to low

The barrier to exit for the sector is primarily in terms of labour. The process of retiring the existing labour force is a tedious process and involves high cots and legal compliances for terms like Voluntary Retirement Scheme (VRS), separation compensation, gratuity etc. However, there is no regulatory interference to exit. Since the industry is fragmented, the probability of assets or the entire business of the exiting firm being bought out is high.

INDIAN AUTO COMPONENT INDUSTRY

BUSINESS RISKS
This chapter deals with important and unique business risks, on which the companies involved in the automotive component manufacturing and selling can be assessed and compared:

Scale of operations
The Indian auto component industry is fragmented in nature with more than 6,500 units producing around US$ 19 billion worth output. In this light, the scale of operation becomes very critical. The Original Equipment Manufacturers (OEM) prefer associating themselves with larger players for supply of components for vehicles they manufacture. Furthermore, the component manufacturer should also be able to scale up its operations in line with the growth of the OEM it is associated with. Larger scale of operations is also advantageous for the players in the highly-competitive replacement and export market. The scale of operations can be gauged by the market share of the player in the component(s) it manufactures and market it operates.

Diversification
Well-diversified market and customer mix is imperative for component manufacturer for minimizing risk of volatile sales and profits. The sales should be well diversified amongst OEM, replacement and export segments. Furthermore, the sales in OEM segment should be well diversified across various vehicle manufacturers and that in the export segment across geographies. Dependency on one/limited OEMs can ensure business, but also exposes the component manufacturer to the risk of its fortunes being linked to the performance and success of those OEMs. Thus, balance between sales in various segments like OEM, replacement and exports, wider customer base and diversification across geographies in case of exports is desirable.

Performance of the OEM

If the component manufacturer is more dependent on one or two OEMs, the market position of those OEMs and the potential threat to their market position needs to be considered. The future performance of such component manufacturers would largely depend on the performance of those OEMs. Furthermore, the expansion plans of the OEMs also need to be taken into account that help to understand the increase in potential orders.

Parentage
The component manufacturer being a part of an OEM group is viewed positively, as it provides ready access to parents business, technological skills and experience. Similarly, being a part of major Tier-I supplier provides it with access to technology inputs.

INDIAN AUTO COMPONENT INDUSTRY

Value addition and significance in value chain
The business risk of component manufacturers can also be judged on the basis of value addition. Generally, the business with low value addition is not very capital and technology intensive and thus attract many smaller players leading to fragmentation and thus stiff competition. Higher the value addition, difficult it becomes for entering the business and consequently, less fragmented is the industry. Furthermore, position of the component manufacturer in the value chain is important to understand its significance in the value chain. Higher value addition and significant position in the value chain gives the company more bargaining power.

Product complexity
The degree of complexity of the product determines the importance of the component manufacturer in the supply chain and thus impacts its bargaining power. The complexity can be measured by the extent of research and development efforts and expenses, precision involved, product validation etc. More complex the product, limited is the downside risk of price and profitability and difficult it is to enter the business.

Technology and manufacturing process

The component manufacturers with strong in-house research and component development teams or faster access to technology through collaboration or tie-ups would be in a better position to secure orders from OEMs. Access to technology is the important criteria for vendor selection by the OEMs. The OEM also checks the quality management practices that are adopted by the auto ancillary units. Moreover, the OEM also ascertains as to whether the practices like six sigma, Justin-time etc are practiced or do they have quality improvement methodologies such as Total Productivity Management (TPM), Total Quality Management (TQM), Zero Defects etc.

INDIAN AUTO COMPONENT INDUSTRY

DOMESTIC MARKET
The domestic auto component market can be segmented into Original Equipment Manufacturer (OEM) segment and the replacement segment or the after-market. The auto components are not only used by the OEMs for rolling out new automobiles, but also by the existing automobile population for replacing the used and worn-out ones.

Size of the domestic market

The domestic auto component market is estimated at Rs.1,060 billion in 2009-10. The sales to the 1,200 OEM segment are estimated at Rs.700 billion, whereas the sales in the after-market are estimated at Rs.360 billion. While the indigenous manufacturers catered Rs.740 billion worth domestic market,
600 Rs.320 billion worth components were imported. 300

Trend in domestic market size

F 0 Y 3

billion in 2004-05 and further to Rs.1,060 billion in 2009-10. This implies a 5-year Compounded Annual Growth Rate (CAGR) of 20.9 per cent and 10-year CAGR of 20.1 per cent.
OEM Replacement Source: Intec Capital Limited the size of domestic auto component Imports

Trend in
1,200 1,200

FY 00

market

(Rs. billion) (Rs. billion)

900 900 600 600 300 300 0 0

F F 0 0 Y Y 3 3

F F 0 0 Y Y 4 4

F F 0 0 Y Y 1 1 F F Y Y 02 02

F F 0 0 Y Y 5 5 F F Y Y 06 06

FY FY 00 00

F F 0 0 Y Y 7 7

F F 0 0 Y Y 8 8

OEM OEM

Replacement Source: Intec Capital Replacement Limited Intec Capital Source: Limited

Imports Imports

F Y F F 1 Y Y 0

F 0 0 Y 9 9 1 0 E E

F 0 Y 9 F 1 Y 0 E

F 0 Y 4

F 0 Y 1

F 0 Y 5

F Y 02

F Y 06

F 0 Y 7

F 0 Y 8

0 The domestic market for auto components increased from Rs.170 billion in 1999-00 to Rs.410

(Rs. billion)

900

INDIAN AUTO COMPONENT INDUSTRY

EXPORTS
India exports a vast range of auto components, totalling Rs.220 billion in 2009-10. Export market is becoming increasingly important for the Indian auto component manufacturers. The share of exports in total production by value has increased to around 24 per cent in 2009-10 from 12 per cent in 1999-2000.

Trend in exports
Indias auto component exports increased at Compounded Annual Growth Rate (CAGR) of 27.2 per cent from Rs.20 billion in 1999-2000 to Rs.220 billion in 2009-10. The major component categories that have witnessed healthy growth rate include transmission shaft and cranks, drive axles, starter motors, generators and bumpers. Auto component exports galloping at healthy rate
( i R billio n s . n) 240 200 160 120 E x p o r t s 80 40 FY 00 F 0 Y 1 F 0 Y 2 F 0 Y 3 F 0 Y 4 F 0 Y 5 F 0 Y 6 F 0 Y 7 F 0 Y 8 F 0 Y 9 0 30% 25% 20% 15% 10% 5% 0% F 10 Y E o f production A proporti s on

Exports

As proportion of production (in value)

Source: The Automotive Component Manufacturers Association of India (ACMA) and Intec Capital Limited

On account of Indias low cost advantage, many international automobile manufacturers are either sourcing components from India or have set up their subsidiaries in India to produce components for their global operations. Higher exports by Indian subsidiaries of global Original Equipment Manufacturers (OEMs) and Tier-I component manufacturers has been driving component exports from India. International players like Delphi, Visteon, FAG Bearings, and Timken India etc have increased their export revenues from Indian operations.

Key markets
India exports auto components to more than 100 countries. Europe is the biggest destination for Indias component exports, followed by America. Together, Europe and America accounted for around 70 per cent of component exports from India in 2009-10. Asia formed further 15 per

INDIAN AUTO COMPONENT INDUSTRY

cent of exports in 2008-09. Importance of Europe and America increasing in export market
100%

8% 13%

10% 11%

8% 7% 15%

South Africa 3%

80% 16% 60% 27% 31% 40% 18%

Thailand 4% UAE 3% Korea and China 2% each

26%

USA 22%

Italy 8%; Germany 7% U.K. 5%

20%

44% 36% 30%

0% FY 00 Europe America FY 05 Asia Africa FY 10 Others

Source: Intec Capital Limited

In 1999-00, nearly 45-50 per cent of the exports catered the OEMs or the Tier I suppliers, while 50-55 per cent of the exports catered the replacement market. Today, around 80 per cent of Indias component exports cater the OEMs or the Tier I suppliers, which demonstrates longterm relationships and repeat orders from these customers.

Key products exported

India primarily exports engine components (that include products such as pistons, piston rings, engine valves, carburetors, etc.) and drive transmission and steering components (that include products like gears, transmission shafts and cranks, steering systems, axles, clutches etc.). These two categories currently account for around 34 per cent and 19 per cent of component exports from India by value. Body and chassis, Suspension and braking components and Equipment each account for 11-12 per cent of component exports from India by value. Electric parts form around 8 per cent of the exports by value. Some of the key parts exported include piston rings, gaskets, engine valves,

INDIAN AUTO COMPONENT INDUSTRY

fuel pump nozzles, fuel injection parts, filter and filter elements, radiators, gears, leaf springs, brake assemblies and bearings, clutch facings, head lamps, auto bulbs and spark plugs.

Component-wise exports by value

Electrical Components 8% Equipments 11% Suspension and Braking Components 12%

Others 5%

Engine Components 33%

Body and Chassis 12%

Source: Intec Capital Limited

Drive Transmission and Steering components 19%

Some of the products that have witnessed healthy export growth include starter motors, axles, transmission cranks, shafts, generators and bumpers. The engine components are technology as well as capital intensive and thus are dominated by large players. Similarly in drive transmission and steering components, the steering systems are technology as well as capital intensive, which act as entry barrier for smaller unorganised players.

INDIAN AUTO COMPONENT INDUSTRY

IMPORTS
India imports nearly one-third of the auto components it consumes in value terms. The share of imported consumption has drastically increased in the last decade. China has been aggressively exporting components to India.

Size of imports
India is estimated to have imported Rs.320 billion (US$ 7 billion) worth auto components in 2009-10, as against domestic component consumption worth Rs.1,060 billion (US$ 22 billion). Thus, imports form around 30 per cent of the domestic component consumption in value terms.

Trend in imports
Indias auto component imports increased at a CAGR of 32.4 per cent from Rs.19 billion (US$ 0.4 billion) in 1999-00 to Rs.320 billion (US$ 7 billion) in 2009-10. The major components imported into India include piston rings, brake assembly, bimetal bearings, transmission shafts, wheel rims, motor cycle parts etc Auto component imports soaring at a fast rate
300 R Imports (in s . billion) 250 200 150 100 50 FY 00 F 0 Y 1 F 0 Y 2 F 0 Y 3 F 0 Y 4 F 0 Y 5 F 0 Y 6 F 0 Y 7 F 0 Y 8 F 0 Y 9 0 32% 24% 16% 8% 0% F 1 Y 0 E A proportio o dom consumptio s n f . n

Imports

As proportion of production (in value)

Source: ACMA and Intec Capital Limited

INDIAN AUTO COMPONENT INDUSTRY

Indian Auto Component Industry
Key sources of imports
India imports auto-component mainly from the European Union (EU), US, Japan, South Korea and China. EU is the key exporter of auto components to India, with 37 per cent of the components imported by India being sourced from that region. China, though accounting for a smaller share of 9 per cent, is emerging to be a bigger threat. Component imports from China increased at perturbing CAGR of 63.5 per cent from Rs.2 billion (US$ 47 million) in 2003-04 to Rs.25 billion (US$ 545 million) in 2008-09. Thus, Chinas share in Indian auto component imports increased to current level of 9 per cent from 3 per cent during the said period. Regional share of auto component imports into India
Others 19% US 3% Japan 5% China 9% Thailand 10% S. Korea 17% EU 37%

Source: Intec Capital Limited

According to the industry, the share of imports to domestic consumption is likely to increase further on account of reduction of customs duty on several auto parts under Free Trade Agreements (FTAs) with the Association of South East Asian Nations (ASEAN) and South Korea. Custom duty on auto parts like pistons, rings, bumpers, gear boxes and radiators would be brought down to zero by 2013 under the Indo-ASEAN FTA. Similarly, custom duty on motorcycle and engine parts would also come down under the India-South Korea FTA. Under the FTA with Thailand, there is already zero duty on certain components imported from that country, which include engine parts, lighting equipment, ball bearings, gear boxes/transmissions, pumps and helical springs. India is also negotiating market opening pacts with the European Union and Japan.

INDIAN AUTO COMPONENT INDUSTRY

COST AND PROFITABILITY
This chapter deals with the cost structure and profitability of the auto-component industry.

Cost Structure
Raw material cost is the key cost head for the auto component industry, followed by employee costs, power & fuel costs and selling & distribution costs. Each of the cost head is elaborately analysed below:

Typical Operating Cost Structure

Selling and distribution costs 3.9% Other operating costs 8.5%

Power and fuel cost 5.3% Employee cost 8.8% Raw material cost 73.5%

Source: Intec Capital Limited

Prospects :
In the long term, the growth of this sector will depend partly on pace of indigenisation levels across all segments. The prospects look bright as most companies are increasing the indigenous components, in an effort to reduce their currency losses and remain competitive. Also, the fact that auto manufacturers like Ford, Hyundai and Maruti are exporting cars, make the prospects look encouraging.

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