group 8_automobile industry

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Analysis of Automobile sector -India 2011

ALLIANCE UNIVERSITY-SCHOOL of BUS INESS Page 1

Research Methodology

(MGT 506)

Analysis of Automobile sector

India


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ACKNOWLEDGEMENT

We would like to express our sincere gratitude to our project guide, Dr. T. J. Joseph.

We were privileged to experience a sustained enthusiastic and involved interest from his

side. This fuelled our enthusiasm even further and encouraged us to boldly step into

what was hazy and unexplored expanse for us.

We would also like to thank Dr. Mihir Dash for his guidance towards analysis skills.

Last but not least, we would like to thank all the faculty members for giving us their

valuable insights into the industry.

Archa Richa Amit Shanki Shrikant


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DECLARATION

We hereby declare that the work presented in this project titled Analysis of

Automobile sector-India submitted towards completion of research project in third

Term by Section-Finance-B of MBA at the Alliance University-School of Business,

Bangalore. It is an authentic record of our original work pursued under the guidance of

Dr. T. J. Joseph.

Slno Name ID Signature

1 Richa 10SBCM0347

2 Archa 10SBCM0436

3 Amit 10SBCM0491

4 Shanki 10SBCM0232

5 Shrikant 10SBCM081

Place: Bangalore

Date: 03-03-2011


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Table of Contents

Slno Topic Page No

1 Introduction 5

2 Industry Structure 6

3 Industry Trends 9

4 PEST Analysis 11

5

Industry Conduct and Practices

Distribution Strategy 18

Pricing, Promotion, R&D and Products 20

Marketing Intensity 22

Technology Intensity 23

Foreign Exposure 26

Leverage of the firm 28

Working Capital Ratio 29

6

Industry Performance

Growth Analysis 30

Profitability Trend 31

Accounting based measures 32

7 Competition Analysis (Porters five forces model) 34

8 Future Outlook 36

9 Conclusion 37

10 Sources of information 38


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Introduction

Automobile sector is the lifeline of a nations path to prosperity and constitute to about 4.14%

of GDP [1]. The automobile sector consists of light commercial vehicles (LCV) and medium

commercial vehicles (MCV). India has been one of the preferred destinations due to its low

labour and material cost. However, cost on technology is still high with respect to the

MNCs.

With rapid increase in middle class, the demand for LCV has gone up by 40% [2]. India is a

price-conscious economy and choices are substituted by public transport including railways

and Buses.

The era of green revolution marks the introduction of green vehicles. However, the growth of

green vehicles will be slow unless encouraged by government [3]. Manufactures place great

faith in dual-fuel technologies than in battery-powered alternatives because of the lack in

infrastructure support.


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Industry Structure

Number of Players 10

Total Market Size 117331.84 Crores

Nature of Competition Oligopoly

Industry Concentration High

Number of Players [4]

HCV

Ashok Leyland Eicher Motors Force Motors SMS ISUZU Tata Motors

LCV

Ford India Hindustan Motors Honda Siel Cars Hyundai Motor Maruti Suzuki

Nature of Competition

The nature of competition for in automobile sector is Oligopoly due to following reasons:

Few firmso There are a total of 10 Automobile firms in the India according to Capitaline

database. However other firms not listed in Capitaline database include

premium MNC firms like Daimler group, BMW group, Volkswagen group,

Toyota, Nissan and Ferrari


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Capital intensive sector acts as a barriero The automobile sector is capital intensive. It requires huge investments for

operations and so its difficult to enter the market

Potential for product differentiation is high

o The product variety is high and varies in terms of Fuel efficiency Pricing Size Brand Name Technology

Industry Concentration

Herfindahl Index is a measure of size of the firms in relationship to the industry an indicator

of the amount of competition among them.

Where,

H = Herfindahl Index.

Si = Contribution of each individual firm to Industry sales.

n = Number of firms.

According to Herfindahl index, the concentration of Indian Automobile industry is high

(2599.40).


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Relative Market Share

The market leader in Indian Automobile industry is Tata Motors leading by 36.75% of

market share followed by Maruti Suzuki with 29.55% and Hyundai Motors by 16.72%. Tata

motors include both HCV and MCV whereas Hyundai and Maruti Suzuki belong to LCV

group. Ashok Leyland has 8.85% of market share and belongs to HCV group.

The remaining firms contribute to 8.85% of market share with Honda Siel occupying 3.48%

of market share.

8.85

0.37

1.14

0.70

36.75

1.830.61

3.48

16.72

29.55

Relative Market Share

Ashok Leyland

Eicher Motors

Force Motors

SML ISUZU

Tata Motors

Ford India

Hind.Motors

Honda Siel Cars

Hyundai Motor I

Maruti Suzuki


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Industry Trends

Growth

The commercial vehicles have grown steadily from 2004-2007, until recession struck the

Indian economy due to the cascading effect of American economy, which led to decline in

sales and reached to -5% in 2007-2008. However, with Indian economy bouncing back in

second half of 2009, Domestic sales volume increased significantly [11].


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Affordability

According to research conducted by KPMG, the average Personal disposable income of a US

citizen is $36380 and an average price of a car in US is $27000. This is in contrast to the

Indian economy where the average Personal disposable income of an Indian citizen is $1080

as compared to the average price of a car, which is $8500.

However when compared to China, India has low Personal disposable income but the average

price of a car in china is double to that available in India.

With the breakthrough in price level by Tata Nano, people buying two-wheeler would instead

buy a car. The increasing number of educated people entering the working age bracket will

provide a healthy demand for private light transport.


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Luxury Car Sales

According to SIAM, the luxury car sales have grown significantly over the last three years.

On one side India is home to price-conscious citizens, however on the other side it has

citizens who are status conscious. While the luxury car volumes are only about one percent of

the total passenger vehicle sales in 2009-10, the cumulative annual growth rate (in volume) of

nearly 40 percent over the last two years suggests that this share is bound to grow.


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Rural Demand

The rural demand over the past three years have picked up significantly. With huge untapped

potential of increasing sales volume, the rural market would be an important part of growth of

Indian Automobile industry. The untapped demand segments (rural markets, youth, women

and luxury cars) are expected to play a significant role in the growth of Automobiles.

LCV/MCV

According to the SIAM and ICRA, LCVs have outperformed HCVs in sales for the past 7

quarters. The sale of HCV reached a peak of 95000 in Q4FY08 but saw a decline in the next

quarter. With the market conditions getting better and economy reviving from recession,LCV saw a quarter on quarter growth from Q3FY09 to Q2FY10.


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PEST Analysis

PEST stands for Political, Economic, Social and Technological factors that serve as Macro-

environmental factors used to analyse an industry.

Political factors

Reform phase

o The automotive industry, which saw a negative annual growth rate of 10.1% inthe vehicles segment in the year 1991-92, recovered in the subsequent years of

the post-reforms period. The passenger car segment with the highest untapped

growth potential saw the most hectic activities from the foreign automotive

firms.

o By mid-1990s, several foreign players had entered into the Indian passengercar market by mainly setting up JVs with the local firms Mercedes-Benz

with TELCO (1994), General Motors with HML (1994), Daewoo with

acquisition of DCM-Toyota (1995), Honda Motors with Siel Ltd. (1995), Ford

with M&M (1996), Hyundai with a 100%-owned subsidiary (1996), Fiat with

Tata Motors (1997) and Toyota with Kirloskar Group (1997). In the CV

segment, Tata in collaboration with Vectra Motors (1997) and Volvo with its

100%-owned subsidiary (1997) made their foray into the Indian market.

o Auto Policy 2002 allowed automatic approval of foreign equity investmentupto 100% for the manufacture of automobiles and auto-components. With

regard to the tariff structure, the policy proposed to fix the import tariffs in a

way that the actual production within the country was facilitated over mere

assembly, without providing undue protection at the same time. Also,

environmental and safety standards as an integral and important part of

modern automotive industry received due attention.


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Stability of Governmento The political instability of the country has a very strong impact on the

automobile industry. Fluctuations happen in the automobile industry with any

kind of small and big political news, like if there is a news that a particular

political party has withdrawn its support from the ruling party.

o If the government is not stable, then it will adversely affect any industry. Thegovernment imposes many restrictions and taxes on the automobile industry.

With the change in government there will be change in the taxes levied on the

industry also. India has been politically instable in the past but it is a

politically stable now-a-days.

International trade regulationo At present 100% FDI is permissible. The import of technology or

technological up gradation on the royalty payment of 5% without any duration

limit and lump sum payment of USD 2 million is also allowed underautomatic route in this sector. The industry provides direct and indirect

employment to nearly 15 million people.

Economic factors

Impact of monetary policy

o There is a tremendous impact of monetary policy on Indian automobileindustry, because of which many automobile companies of both LCV and

HCV segments faced huge loss in terms of sales and profit.

o Inflation is the main cause of this downfall of profits of the companies,because of the recent inflation faced by country; India has taken a decision to

raise the interest rates as a part of monetary policy. Hence all the food prices

were increased, and all the commodities prices were increased. Therefore there


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was a huge impact on the buyers decision of any commodity. Similarly in the

automobile industry, an ordinary man, who has a desire to buy a car or any

vehicle cannot afford to buy, hence there was a sudden downfall of profits in

the Automobile sector.

Populationo As the Population increases, the demand increases, which in turn leads to

increase in production and output. Population and Production are directly

proportional to each other. So, the population affects the automobile industry.

As quoted by the CEO of Tata Group If you look at the Tata Nano, people

buying two-wheeler bikes who have a bit more disposable income and can

now afford to buy a car instead. I think youre going to see a doub ling of sales

over the next three to four years and I think thats going to be driven by both

domestic demand and by India becoming a small car export hub

Social factors

Income distribution

o Income distribution is how a nations total economy is distributed amongst itspopulation. Expensive cars are used as status symbols to display ones wealth

by the high class people. The amount demanded increase with an increase in

their price and decrease with a decrease in their price. This happens with the

consumers whose income is high and forms the upper strata of the society.

o In countries where most people are poor and very few people are rich, therewill be maximum demand for high price luxury cars by the rich class people

and in countries where most people derive an average income, there will be

more demand for small and medium sized cars which most people can afford.


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Fashion and Fads

o Fashion and Fads also influence the choice of the buyers. Innovations and newtechnologies give rise to new models of automobiles. Fashion consciousconsumers always look for the most latest model of the car to possess the most

current model.

o As fashions and fads always keeps changing consumers choice of cars alsokeeps on changing. Changed lifestyle of people, leads to increased purchase

ofautomobiles, so automobile sector have a large customer base to serve.

Indian customers are highly discerning, educated and well informed. They are

price sensitive and put a lot of emphasis on value for money, preference for

small and compact cars.

Green Revolutiono Increasing fuel prices is bestowing a tough time to everyone. But car

manufacturers have come up with the solution to overcome this problem.

Many auto makers turning their vehicles green by rolling out hybrid cars.o Honda Siel has launched the Indias first hybrid car the Honda Civic Hybrid.

As hybrid cars are something new to India and people have little knowledge

about it. Hybrid cars are 47 per cent more fuel efficient than its petrol

counterpart.

o REVA is the only electric car that flaunts on the Indian roads but will soon beseen with its rivals. Electric cars are affordable and easy to maintain. The car

turns out to be 40 per cent cheaper than a conventional petrol car. Though

the green cars will be expensive, it will definitely give tough competition to

the petrol version cars. If the revolution gets its victory, then India will soon

be a country with less pollution.


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Technological factors

o More and more emphasis is being laid on R & D activities carried out bycompanies in India. The Government of India is promoting National

Automotive Testing and R&D Infrastructure Project (NATRIP) to support the

growth of the auto industry in India. Technological solutions helps in

integrating the supply chain, hence reduce losses and increase profitability.

o Internet makes it easy to collect and analyse customer feedback the entry ofglobal companies into the Indian market, advance technologies, both in

product and production process have developed.

o While young automakers from the developing world will certainly continue togain both technological and market experience, established international car

companies still have considerable advantages in technological, management,

and marketing that should give them a solid advantage in the BRIC countries

for some time to come.


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Industry Conduct and Practices

Distribution channel

Stockist:

Stockists are people who undertake to maintain stocks of automobiles. They may act as the

wholesalers of vehicles having large stocks. The automobiles manufactured are stored in

large numbers and as and when needed the stocks are transferred to the dealers .The stockists

generally represent 3 to 4 districts in a state. In a particular state there are stockists in themain districts of the state.

Dealers:

The vehicles are shipped to the regional branch and from there, to the authorized dealers of

the companies. The dealer represents the district or the main city. The customers can directly

approach the dealers who have good amount of stocks and can purchase the desired vehicles.

They maintain stocks less in number as compared to the stockists but a large number of sales

is undertaken from them only. The dealers are located in the main city of a particular state.

Sub-dealers:

Sub-dealers deal in small scale and have fewer stocks of vehicles in comparison to the

dealers. They represent a particular area in a particular city. They are located in main areas of

1 Stockist

2 Dealers

3 Sub Dealers

4 Booking Agents


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the city so as to be in the reach of a large number of customers. The customers can approach

these easily as they are located at the main areas of the city.

Booking Agents:

Booking Agents are individuals working on free lance basis. Free lance basis means that

persons sell their service to employers without long-term commitments to their employers.

They generally work under the terms of the contract of sale and have a prior target of

accomplishment of a certain number of customers. They are responsible for reaching the

customers and for completing the process of sale.


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Marketing Strategies

Pricingo The prices are fixed keeping in mind a number of factors such as market

conditions, costs incurred, profit percentage desired by the company and

dealers profit. They adopt penetration pricing when they are introducing a new

model of a car. Penetration pricing is a pricing strategy of setting a relatively

low initial entry price so as to attract new customers, to increase market share,

rather than to make profits in the short run. Generally this type of pricing

strategy is very often adopted by Tata Motors

o Companies also use reference pricing strategy in which their products are soldat a price which is just below its main competing brand. Another type of

pricing strategy followed by the major automobile companies is premium

pricing strategy. Premium pricing strategies is the strategy of consistently

pricing at, or near, the high end of the possible price range to help attract status

conscious consumers. Honda uses this type of pricing strategy. Its cars are

costlier than the other cars in the same segment. It targets people who are

status conscious and belong to the high class society

o Psychological pricing is also another pricing strategy adopted by theautomobile companies. Certain prices have a psychological impact .The retail

prices are often expressed as odd prices, a little, less than the round numbers.

Hyundai follows this kind of pricing strategy

Promotiono The automobile industry in India makes use of various tools of promotion to

increase their sales. Personal selling, advertising, sales promotions, public

relations all form part of their promotion strategy. There is a minimal personal

selling involved.The Sales Officers at the dealerships collect prospective

customer databases and perform cold calling to attract customers

o Advertising is another tool by which they promote their brands. Advertising isa form of commercial mass communication designed to promote the sale of a

product or service. Companies are responsible for the advertising of their


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products. The dealer does play any role in the advertising. The various media

used for advertising are T.V., Newspapers, Magazines, Workshops and

seminars, banners, booklets, and pamphlets Hoardings, and Internet etc. The

dealer conducts point-of-purchase displays to advertise the products. The

advertisements done by the companies help the dealer to capitalize on the

market

o Thepurpose of sales promotion is to supplement and coordinate advertisingand personal selling. Sales promotions are designed to persuade consumers to

purchase immediately by providing special incentives such as cash rebates,

prizes, extra product, or gifts. The companies conduct intensive sales

promotion during festivals.Public Relations is a management function that

creates, develops, and carries out policies and programs to influence public

opinion or public reaction about an idea, a product, or an organization. The

companies take serious measures to maintain good public relations

R&Do The R&D efforts of the automotive industry are primarily focused on

technologies that will make automobile as environmentally compatible, as

economically and as safe as possible. The Department of Heavy Industry,

under the Ministry of Heavy Industries and Public Enterprises, is the main

agency in India for promoting the growth and development of the automotive

industry. The department assists the industry in achievement of its expansion

plans through policy initiatives, suitable interventions for restructuring of

tariffs and trade, promotion of technological collaboration and up-gradation as

well as research and development.

Legal tactics

o Companies focus at the tactical level to develop strict goals, which the middlemanagement accomplishes. All tactics strive to foster the cost leadership while

in the meantime catching up with technology.


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Marketing/Advertising Intensity

HCV

Force Spent Rs 52.47 Cr [4] in 2005 on advertisement and reduced in the subsequent years.

SML ISUZU increased its marketing intensity in the HCV segment. Tata spent considerably

less owing to its already established brand image and quality.

LCV

Ford India has been aggressive in marketing (Data from 2006-2010 is not available in

Capitaline database). Hyundai has the market dominance with 16.72% [4] and intensive

marketing through Shahrukh Khan as its brand ambassador. Honda has increased its spending

year on year.

0

0.01

0.02

0.03

0.04

0.05

0.06

0.07

2005-03 2006-03 2007-03 2008-03 2009-03 2010-03

Eicher Motors

Force Motors

SML ISUZU

Tata Motors

0.0000

0.0100

0.0200

0.0300

0.0400

0.0500

0.0600

0.0700

0.0800

0.0900

2005-03 2006-03 2007-03 2008-03 2009-03 2010-03

Ford India

Honda Siel Cars

Hyundai Motor

Maruti Suzuki


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Technology Intensity

In-house R&D

HCV

Product innovation is the key to a companys survival. Force Motors spending declined from

Rs 56.49 Cr in 2006-2008 to Rs 22.1 Cr in 2008 [4]. Tata Motors saw a rapid increase in R&D

spending owing to Nano (cheapest car in Indian market). Eicher Motors have been stable in

their R&D spending as compared to volatility in other competitors spending.

LCV

Hyundai has been focusing on putting more variants in the small car segment to compete with

other small car players in the market. Maruti Suzuki and Hindustan Motors increased their

R&D expenses after recession.

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

2005-03 2006-03 2007-03 2008-03 2009-03 2010-03

Ashok Leyland

Eicher Motors

Force Motors

Tata Motors

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

2005-03 2006-03 2007-03 2008-03 2009-03 2010-03

Hind.Motors

Hyundai Motor I

Maruti Suzuki


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Technology Imports

HCV

Tata Motors has been consistently spending on technology imports. It increased its

technology imports from Rs 107.88 Crores in 2005 to Rs 331.03 crores in 2010 [4]. Ashok

Leyland signed a joint venture with John Deere Construction Company to manufacture

backhoes and wheel loaders and will market backhoes, wheel loaders and excavators in India

[6].

Ashok Leyland brings to the table its expertise and broad, pan-India distribution network

while John Deere will provide its technical know-how and vast experience in the construction

equipment business. Ashok Leyland in association with Australia developed a 6-cylinder, 6-

litre 92 kW BS-4 engine [6] for operation with Hythane. Hythane is a blend of natural gas and

hydrogen which improves efficiency, while retaining the low emission characteristics of

CNG.

Eicher Motors signs a joint venture partnership with AB Volvo comprising of Eicher Motors

entire truck and bus operations and the Volvo Groups Indian truck sales and service

operations [7].

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

2005-03 2006-03 2007-03 2008-03 2009-03 2010-03

Ashok Leyland

Eicher Motors

Force Motors

Tata Motors


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LCV

Honda spent considerably in technology import in 2009. The year saw the launch of Hondas

Accord V6 and Jazz [8].

Maruti Suzuki hiked its spending on technology import in 2009. The technology spending

lead to an increase in mileage of A-star from 19.6 km/l to 39.48 km/l. Maruti Suzuki also

unveiled the K12M engine for hatchback Ritz[9].

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

2005-03 2006-03 2007-03 2008-03 2009-03 2010-03

Ford India

Honda Siel Cars

Hyundai Motor I

Maruti Suzuki


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Foreign/International Exposure

Export Intensity

HCV

Ashok Leyland bags US$ 10.5 million deal in 2009 for supplying 139 vehicles to Honduras

armed forces for humanitarian purposes [6].

Tata motors recorded a growth of 10.4% in exports in 2006 [5].

LCV

Exports for Hyundai grew at 96.8% whereas domestic sales grew at 19.3% for the year

ending 2008 [10]. At a time when economy was going through recession, innovative schemes

and a large network helped Hyundai to boost sales.

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%18.00%

2005-03 2006-03 2007-03 2008-03 2009-03 2010-03

Ashok Leyland

Eicher Motors

Force Motors

Tata Motors

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

2005-03 2006-03 2007-03 2008-03 2009-03 2010-03

Ford India

Hyundai Motor I

Maruti Suzuki


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Import Intensity

HCV

Force motors has been heavy in imports as compared to its net sales as compared to Tata

motors and Ashok Leyland, but the imports dipped from 2009-2010.

LCV

Honda launched Civic hybrid by marking the first hybrid car to be launched in India.

Launched in 2008, Civic hybrid received an overwhelming response.

Hyundai focused less on imports and more on exports due to large operations centers with

cheap labor available in India.

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%20.00%

2005-03 2006-03 2007-03 2008-03 2009-03 2010-03

Ashok Leyland

Eicher Motors

Force Motors

SML ISUZU

Tata Motors

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

2005-03 2006-03 2007-03 2008-03 2009-03 2010-03

Hind.Motors

Honda Siel Cars

Hyundai Motor I

Maruti Suzuki


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Leverage of the Firm

HCV

Eicher Motors and Ashok Leyland have been able to maintain a balance in debt and equity

structure as compared to Tata motors, SML ISUZU and Force motors whose debt increased

significantly from 2007 to mid 2008 and gradually declined thereafter. This was due to

economic recession affecting the steel industry and demand for vehicles.

LCV

Hyundai motors show an increase in leverage from 2006 to 2009 on account of funding new

operation facilities in India and increasing the plant capacity to meet the demand.

Ford India shows a considerable decline in its debt for the period 2006-2009. Maruti Suzuki

has been balancing its leverage in an efficient way and keeping it low as compared to other

competitors.

0.00

0.50

1.00

1.50

2.00

2.50

2005-03 2006-03 2007-03 2008-03 2009-03 2010-03

Ashok Leyland

Eicher Motors

Force Motors

SML ISUZU

Tata Motors

0

0.5

1

1.5

2

2.5

3

3.5

4

2005-03 2006-03 2007-03 2008-03 2009-03 2010-03

Ford India

Hind.Motors

Honda Siel Cars

Hyundai Motor I

Maruti Suzuki


29/38



Working Capital Ratio

HCV

Working capital defines how efficient is one firm in meeting its current obligation. SML

ISUZU has efficiently managed its working capital. Tata Motors shows a negative working

capital. This is due to high current liabilities as compared to its current assets.

LCV

We see a decline in working capital of all the LCV firms. This is due to increase in current

liabilities as compared to current assets.

-0.200

-0.100

0.000

0.100

0.200

0.300

0.400

2005-03 2006-03 2007-03 2008-03 2009-03 2010-03

Ashok Leyland

Eicher Motors

Force Motors

SML ISUZU

Tata Motors

-0.200

-0.150

-0.100

-0.050

0.000

0.050

0.100

0.150

0.200

2005-03 2006-03 2007-03 2008-03 2009-03 2010-03

Ford India

Hind.Motors

Honda Siel Cars

Hyundai Motor I

Maruti Suzuki


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Industry Performance

Growth Analysis

HCV

** Data for Eicher Motors is not available after 2009

The HCV firms have seen a gradual growth after sales dipped in 2009. The development in

infrastructure, increase in FDI, employment have created opportunities for HCV firms to

recover their losses in recession.

LCV

Hindustan Motors has been a debt laden company. Its current liabilities exceed current assets

and spending on R&D is too low. Hyundai Motors saw a 53% growth in its sales in 2009 as

compared to 26% in 2010.

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

2006-03 2007-03 2008-03 2009-03 2010-03

Ashok Leyland

Eicher Motors

Force Motors

SML ISUZU

Tata Motors

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

2006-03 2007-03 2008-03 2009-03 2010-03

Ford India

Hind.Motors

Honda Siel Cars

Hyundai Motor I

Maruti Suzuki


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Profitability Trend

HCV

PAT for Force motors jumped from 2.72 Crores in 2005 to 30.13 Crores in 2006. The

companies profits dipped in 2007 and gradually increased in 2009. All others are gradually

picking profits as compared to their previous performance.

LCV

The LCV firms saw a steep decline in PAT from 2008-2009. However, the firms have been in

a recovering spree after 2009 owing to improved economic conditions.

-400%

-200%

0%

200%

400%

600%

800%

1000%

1200%

2006-03 2007-03 2008-03 2009-03 2010-03

Ashok Leyland

Eicher Motors

Force Motors

SML ISUZU

Tata Motors

-250%

-200%

-150%

-100%

-50%

0%

50%

100%

150%

2006-03 2007-03 2008-03 2009-03 2010-03

Hind.Motors

Honda Siel Cars

Hyundai Motor I

Maruti Suzuki


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Accounting based measures

Return on assets

HCV

EBDIT over total assets for all firms except Force motors have been increasing after 2009.

Force Motors sees volatility in its earnings which doubled from 2005 to 2006, went in losses

in 2008 and recovered in 2010.

LCV

All firms show steady returns on assets except debt laden Hindustan motors and Maruti

Suzuki whose total assets increased by 28% from 2009 to 2010.

-5%

0%5%

10%

15%

20%

25%

30%

35%

40%

2005-03 2006-03 2007-03 2008-03 2009-03 2010-03

Ashok Leyland

Eicher Motors

Force Motors

SML ISUZU

Tata Motors

-10%

0%

10%

20%

30%

40%

50%

2005-03 2006-03 2007-03 2008-03 2009-03 2010-03

Ford India

Hind.Motors

Honda Siel Cars

Hyundai Motor I

Maruti Suzuki


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Return on sales

HCV

Force motors shows volatility in return on sales as compared to other firms, showing stable

returns on sa les.

LCV

The LCV market is ahead of the HCV market and so is the return on assets as compared to

HCV. Ford shows a high return on sales as compared to other firms. However, Hindustan

Motors shows negative return due to low R&D and high debt.

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2005-03 2006-03 2007-03 2008-03 2009-03 2010-03

Ashok Leyland

Eicher Motors

Force Motors

Tata Motors

-5%

0%

5%

10%

15%

20%

2005-03 2006-03 2007-03 2008-03 2009-03 2010-03

Ford India

Hind.Motors

Honda Siel Cars

Hyundai Motor I

Maruti Suzuki


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Competition Analysis

PORTERS FIVE FORCES

Porters five forces developed by Michael E. Porter provide a framework for analysing the

industry with respect to five criteria. The five forces determine the competitive intensity and

attraction of a market. We look at the Automobile sector and analyse it with respect to the

five forces of Porters model.

Threat of new entrants

o Automobile industry is a capital intensive industry and requires hugeinvestments with respect to operational facilities. It also requires huge funds to

keep up with research and development that is necessary for the innovation

requirements.

o However considering the global players and their innovative designs, theypose a threat to the local players. The upcoming segment is that of a niche

market comprising of the hybrid cars.


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Bargaining power of suppliers

o The bargaining power of suppliers is very low in the automobile industry.There are so many suppliers to this industry; manufactures can easily switch

to another supplier if it is necessary. The Automotive sector comprises of

powerful buyers who are able to dictate their terms to suppliers.

o According to Automotive component manufacturers association of India, thereare more than 600 companies forming majority of auto component output in

organized sector in India. They operate on quality system based on ISO

9001:2000.

Bargaining power of Customers

o Buyers in Automobile sector have a wider set of choices. They can easilyswitch to their competitor product by scaling them relatively on price and

quality.

o India has more than 20 foreign players in Automobile sector. This spoils thecustomer for wide variety ranging from high-end cars such as Lamborghini,

Ferrari, and Rolls-Royce to low-end cars such as Tata Nano, Omni, Swift and

Alto. Internet helps the customers to evaluate their requirements and assist

them in finding the best option.

Threat of substitute product

o Threat of substitute product is moderately low. Substitute products depend on thegeographic location of the costumer. Potential threat can be Indian Railways,

Public transport and suburban rail.

Competitive rivalry within an industryo Rivalry among the competitors is very strong in Automobile sector. Constant

innovation with respect to design, technology and models has led to fiercely

competitive market.


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Future Outlook

The environmental impact of global warming has caused a worldwide concern. Companies

are spending heavily on alternative technologies to come up with green technologies. The

depletion of the oil wells in Middle East also is a major concern for Automobile sector.

The recent hike in crude oil prices due to Egypt and Libya crisis marks danger to the stab le

supply of oil and smooth functioning of an economy because oil is the root to an economys

growth. The prices of oil affect the prices of all other commodities leading to switching from

personal vehicles to public vehicles.

Companies such as Honda and Toyota have come up with environment friendly technology.

With increasing competition in the local market, India consumers will be spoilt for more

choices since the FDI in Automobile allowed in 100%.

However considering all other factors, Infrastructure continues to be a major worry for the

Automobile sector as its the prime platform of its existence. The improvement in

infrastructure-roads and highways would lead to an increase demand.


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Conclusion

The analysis of heavy commercial and light commercial vehicles in the Automobile sector

with respect to industry conducts, performance and Porters five forces helps us to conclude

that Tata is the leader in the HCV segment whereas Maruti Suzuki is the leader in LCV

segment.

However Hyundai seems to be a close competitor of Maruti due to increase sales and better

technology. The penultimate profit is to the customer who seeks value for money, comfort

and excellent service support.

Taking into account the capital intensive nature of Automobile industry, we conclude that

there is a lot of potential in the industry. If you have the environment friendly technology

which can differentiate from other competitors then you are bound to make an impact.


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Analysis of Automobile sector -India 2011Sources of Information

Sl. NO Reference Site

[1] http://www.indiainbusiness.nic.in/

[2] ACMA report 2010

[3] KPMG Report on Indian Automobile industry 2010

[4] Capitaline database

[5] http://www.tatamotors.com/

[6]

http://www.ashokleyland.com/

[7] http://www.eicherworld.com

[8]http://www.hondacarindia.com/default.aspx

[9] http://www.marutisuzuki.com/

[10] http://www.hyundai.com/in/en/main/

[11]

http://www.siamindia.com/
http://www.indiainbusiness.nic.in/http://www.indiainbusiness.nic.in/http://www.tatamotors.com/http://www.tatamotors.com/http://www.ashokleyland.com/http://www.ashokleyland.com/http://www.eicherworld.com/http://www.hondacarindia.com/default.aspxhttp://www.hondacarindia.com/default.aspxhttp://www.marutisuzuki.com/http://www.marutisuzuki.com/http://www.hyundai.com/in/en/main/http://www.hyundai.com/in/en/main/http://www.siamindia.com/http://www.siamindia.com/http://www.siamindia.com/http://www.hyundai.com/in/en/main/http://www.marutisuzuki.com/http://www.hondacarindia.com/default.aspxhttp://www.eicherworld.com/http://www.ashokleyland.com/http://www.tatamotors.com/http://www.indiainbusiness.nic.in/

group 8_automobile industry

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