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Over view of Indian automobile industry

The Indian Automobile Industry embarked on a new journey since 1991 with deli censing of thesector and subsequent opening up for 100 per cent FDI through automatic route. Almost all theglobal majors have set up their facilities in India taking the next level of production of vehiclesfrom 2 million in 1991 to 110+ million in 2011.

Demand is linked to economic growth and rise in income levels. Per capita penetration at arthousand people is among the lowest in the world (including other developing economies like Plike cars).

While the industry is highly capital intensive in nature in case of four-wheelers, capital intensityis a lot less for two-wheelers. Though three-wheelers and tractors have low barriers to entry interms of technology, four wheelers is technology intensive. Costs involved in branding,distribution network and spare parts availability increase entry barriers. With the Indian market

moving towards complying with global standards, capital expenditure will rise to take intoaccount future safety regulations.

As compared to their global counterparts, both the two-wheeler as well as four wheeler segmentsare relatively lesser fragmented. However, things are changing, especially on the passenger carsfront as many foreign majors are eyeing the Indian market. As a result, pricing power is likely todiminish going forward.

Automobile majors increase profitability by selling more units. As number of units soldincreases, average cost of selling an incremental unit comes down. This is because the industryhas a high fixed cost component. This is the key reason why operating efficiency throughincreased localization of components and maximizing output per employee is of significance.

FACTS:

Largest three wheeler market in the world2nd largest two wheeler market in the world7th largest passenger car market in Asia & 10th Largest in the world4th largest tractor market in the world5th largest commercial vehicle market in the world5th largest bus & truck market in the world
http://www.equitymaster.com/detail.asp?date=6/25/2009&story=1&title=Indian-auto-majors-in-drivers-seathttp://www.equitymaster.com/detail.asp?date=6/25/2009&story=1&title=Indian-auto-majors-in-drivers-seat


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Segment wise market share in 2011-12

Sales trend analysis of automobile sector


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(2005-06 to 2011-12)

Brief About companies

0

50

100

150

200 Total vehicle sales inmn units

0

200,000

400,000

600,000

800,000

1,000,000

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

Commercial vehicles

Commercial

vehicles

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Passenger vehicle sales

0

5,000,000

10,000,000

15,000,000

two wheelers

0

200,000

400,000

600,000

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

Three wheelers


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CUMMINS INDIA

Tata Cummins Limited, (Jamshedpur) was formed between Cummins Inc. a Tata Motorsin 1993 to produce mid-range engines for Tata Motors' commercial vehicles.

Product launches- E B series and ISB electronic engines for the commercial vehicle, power

generation and industrial markets.

Achievements- vegetable oil has been uses as an input to generators and running of ricemills from locally available pomgania seeds in Padarwadi village, which is situated near

pune.

BEST PRACTICES- For on time payment of supplier Company focuses on national

electronic transfer.

SCOOTERS INDIA

Products-Vikram 450D, Vikram 410G, Vikram 600G, Vikram 750D, Vikram 750D (WC), Vikram

EV.

Achievements- Got Distinction of developing first zero pollution electric three wheelers in the

world.

Best practices- Their laboratories are Equipped with Computer Aided Design (CAD lab),

Advanced Instrumentation, testing rigs prototype manufacturing facilities and internet.

LML

LML was launched in 1993 with a joint venture with Piaggio.

PRODUCTS - Retro look STAR (200 CC SCOOTER)based px150,FREEDO(100cc bike)

LML

BEAMER 150 150cc, Manual, Petrol, 50 kmpl, Freedom Prima

Acheivments-In 2000 Recognized by the Ministry of Science and Technology, for remarkable success

in

introducing upgrades of scooters in the market with more fuel-efficient engines.

KINETIC MOTORS

Product launches -Kinetic Nova 135, a 135 cc gearless scooter

Awards and achievements- Confident about KEL's technical capability, TML has selected KEL

to supply transmission gears & shafts for the prestigious Nano car.

Best practices-Air line leakages arrested by new PU pipe and fittings


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ATUL AUTO INDIA

Planned launches - Micro Commercial Vehicle to carry 750 Kg. payloads, Range of

Electric Commercial Vehicles.

Achievements- Awarded as the most promising sme Auto and engineering by cnbc-tv 18 icici

emerging India awards.

Best practices- This year they have reduced energy consumption per vehicle by 13.29

%.

TATA MOTORS

Tata Motors operates through three business segments: Jaguar Land Rover; Tata vehicles, spares,and financing; and other operations.

ACHIEVEMENT-Tata Motors has received the prestigious Golden Peacock Award, for ExcellenceCorporate Governance for 2011.

PRODUCT LAUNCHES - Tata Prima Cons truck, Tata Nano, Light commercial

vehicles.

INNOVATION-Tata Motors is working on a radical idea in which a material made of cornstarch,

light of

weight and with flexible properties, could lead to improving the safety of cars.

MARUTI SUZUKI

Maruti Suzuki India (MSIL or 'the company'), a subsidiary of Suzuki Motor Corporation,

manufactures and distributes motor vehicles and spare parts.

ACHIEVEMENTS-"Engine of the Year" award for K-series engine at CNBC-TV18 Awards

2011

PRODUCT LAUNCHES-Ritz, Ertiga, Swift, SX4, Kizachi, Alto,800

MAHINDRA AND MAHINDRA


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Founded in 1945, with growth into a US $15.4 billion multinational group with more than

144,000 employees in over 100 countries across the globe.

ACHIEVEMENTS - Tech Mahindra ranked no.1 telecom software service

provider

PRODUCT LAUNCHES- SsangYong Rexton, Mahindra Reva NXR , Verito

Duro,XUV500,Scorpio.

BEST PRACTICES- iDecisions is a well-designed Business Intelligence solution accelerator

with intuitive and sophisticated analytics enabling banking organizations with a distinct

advantage.

TVS

TVS Motor Company is the third largest two-wheeler manufacturer in India and one of the topten companies in the world.

PRODUCTS- Motorcycles (Apache RTR 180, Flame DS 125, Flame, TVS Jive, StaR City,

Sports) Variomatic Scooters (TVS Wego, Scooty Streak, Scooty Pep+, Scooty Teenz)

Mopeds (TVS XL Super, TVS XL Heavy Duty)

AWARDS- The 'Good Advertising' award by Auto India Best Brand Awards

2009.

ACHIVEMENTS- 1980: TVS launched moped TVS 50 which was the country's first 500cc twoseater.

1984: It was the first mover to introduce 100cc indo-Japanese motorcycle.

BEST PRACTICES- 85% recyclable parts: 85% of all TVS vehicles are completely

recyclable.

INNOVATION- Electric Scooty (Scooty Teens EV): It is pure electric vehicle,Wego: It was the

first scooty with body balance technology, Jive: In 2009-2010 TVS launched an auto clutch bike

which comes with auto adjusting gear box i.e. while in gearing up and down there is no need to

pull the clutch.

HERO MOTO CORP

Hero MotoCorp Ltd. (Formerly Hero Honda Motors Ltd.) is the world's largest manufacturer of two

wheelers, based in India.

PRODUCT- Hunk, karizma, KarizmaR, Karizma ZMR FI, Ignitor,Maestro,splender.

AWARDS- CNBC AWAAZ AWARD: IN 2011 Hero MotoCorp was awarded for "Effective

rebranding of a new corporate entity" by CNBC Awaaz Consumer Awards.


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ACHIVEMENTS-In 1984 Hero Honda motors ltd was incorporated. It had a joint venture

with a Japanese company called Honda motor co ltd.

BAJAJ AUTO

The Bajaj Group was founded in 1926 by Jaman Lal Bajaj; it is amongst the top 10 business houses inIndia, ranked as the world's fourth largest two- and three- wheeler manufacturer

PRODUCTS- Bajaj Platina ,Bajaj pulsar, Discover DTSi

AWARDS- In 2009 -2010:Bajaj auto was awarded for most trusted brand by Brand equity.

ACHIEVEMENTS -In March 2010 Bajaj auto achieves the Bharat stage III norm Compliance for

its range

of product. It was the first company to do so.

ASHOK LEYLAND

Ashok Leyland was founded in 1948. It is the second largest commercial vehicle manufacturing

company in India in the medium and heavy vehicle.

PRODUCTS-Buses-city bus, sub -urban bus, intercity bus, optare bus,Trucks -Long haultrucks.

AWARDS-Company had won LCV cargo carrier of the year in 2012 by CVAward

ACHIEVEMENTS-1967: Titan' - The first Indian-made double decker with 50%

indigenous components was launched.IN 1969: For the first time power steering was

featured in commercial vehicles.

INNOVATION-In 2002 Country's first hybrid vehicle was developed and featured in auto expo.

.BEST PRACTICES-They ventured into the development of wind energy as early as 1995,

approx100

million units of wind energy is generated every year and the entire energy is used for captiveconsumption Hinduja Foundries.

BOSCH GROUP

The Bosch Group is a leading global supplier of technology and services. According to the latest

figures (as of January 2012), about 302,519 associates generated sales of 51.5 billion euros in the

areas of automotive and industrial technology, consumer goods, and building technology

OUTSTANDINGACHIEVEMENTS
http://en.wikipedia.org/wiki/Bajaj_Platinahttp://en.wikipedia.org/wiki/Bajaj_Platina


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Bosch Builds World-class Competence Center for Automotive Technology

PRODUCT LAUNCHES

1) Bosch and Siemens Home Appliances Group (BSH), largest manufacturer of homeAppliances in Europe announced the launch of Bosch home appliances in India

2) Bosch is going to launch new power tools like Milwaukee Tool and products Concrete,

INNOVATION

1)Bosch have patents worldwide

2)It has innovation portal for everyone one such community Birds of a Feather Innovation

Leaders (BOF)

BEST

PRACTICES

1)Bosch domain expertise with SAP best

practices

2)Implementation using pre-configured

solutions

3)Cost optimization by using fixed scope and time basis

4)Ready-to-use process catalogues

5)Strong and well tested quality gates

KAR MOBILES

Production of quality valves for internal combustion engines commenced in 1974

Technical

Collaboration with TRW Inc, USA Global excellence in product and process

technologies

Preferred supplier

OUTSTANDING ACHIEVEMTS

1) First First Indian company to become a vendor partner to General Motors

2) KML has 2 world class manufacturing plants in Bangalore & Tumkur

PRODUCTLAUNCHES

New heavy duty engine and automotive engines are launched

INNOVATION

State of the art management Systems

PRACTISE

1) Governance is based on principles of integrity, transparency and fairness


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Employee behavior is nourished

2) In this culture it is governed through a policy document "Ethical Standards of

Behavior" that regulates employees and directors


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Analysis of companies

1) The report contains data from 15 companies belonging to automobile sector. These include autocomponent manufacturers , two wheelers, three wheelers ,four wheelers and Commercial vehicle

makers. The list of the companies is mention below.

Tata motors, Mahindra and Mahindra, Maruti Suzuki, force motors, Hindustan motors, kinetic

motors, Bajaj auto, Ashok Leyland, tvs motors, Cummins India ltd, Kar mobiles, LmL, Atul auto ,

Hero motors corp and Scooters India Ltd.

2) The companies have been devided into three groups based on their return on capital employed.

The criteria sset for the devision is described below.

High performing - Roce >20

Medium performing - 10


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Tests of Normality

group

Kolmogorov-Smirnova

Shapiro-Wilk

Statistic df Sig. Statistic df Sig.

npm HIGH PERFORMING .275 6 .173 .866 6 .210

MEDIUM PERFORMING .355 4 . .807 4 .116

LOW PERFORMING .305 5 .144 .882 5 .318

a. Lilliefors Significance Correction

Null hypothesis( p value>0.05)- The data is

normally distributed

Alternate hypothesis(P value


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Tests of Normality

group

Kolmogorov-Smirnova

Shapiro-Wilk

Statistic df Sig. Statistic df Sig.

nom HIGH PERFORMING .197 6 .200*

.919 6 .501


LOW PERFORMING .268 5 .200*

.898 5 .398

ronw HIGH PERFORMING .315 6 .063 .802 6 .061


LOW PERFORMING .276 5 .200*

.896 5 .388

assettover HIGH PERFORMING .245 6 .200*

.859 6 .185


LOW PERFORMING .351 5 .043 .756 5 .034

*. This is a lower bound of the true significance.

Similarly Data For NOM( Net operating margin) , RONW( return on

I net worth s normally distributed as the sig values are greater than

distributed .But in case of asset turn over the low performing group

0.05 that show the data is not normally distributed and their high va

of low performing companies.

Homogenity of population variance using Lavene statistic

Test of Homogeneity of Variances

Levene Statistic df1 df2 Sig.

npm 1.666 2 12 .230

nom .341 2 12 .718

ronw 1.849 2 12 .200

assettover 2.843 2 12 .098

roce 2.462 2 12 .127

Null Hypothesis ( p value> 0.05) There is homogeneity in variance among the group.

Alternate hypothesis (p value


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The p values of npm , nom , ronw and asset turnover ratio are greater than the significance level of

p=0.05 hence we can conclude that Null hypothesis is accepted and their is no significant evidence

that their is difference in variance among groups for each factor ie npm ,nom,ronw,roce and asset

turnover ratio

F statistic test to check difference in group means for each of the five variables.

ANOVA

Sum of Squares df Mean Square F Sig.

npm Between Groups 151.245 2 75.623 5.709 .018

Within Groups 158.958 12 13.247

Total 310.203 14

nom Between Groups 145.448 2 72.724 4.880 .028

Within Groups 178.817 12 14.901

Total 324.265 14

ronw Between Groups 3603.695 2 1801.847 6.939 .010

Within Groups 3116.129 12 259.677

Total 6719.823 14

assettover Between Groups 4.078 2 2.039 .852 .451

Within Groups 28.734 12 2.394

Total 32.812 14

roce Between Groups 3076.617 2 1538.309 5.991 .016

Within Groups 3081.422 12 256.785

Total 6158.039 14

Null hypothesis- Their is no significant difference in group means

Alternate hypothesis- Their is significant difference in group means

The f static values signifies whether or not the group means for each of the five factors are equal or

not , if the significant values of statistic is less than 0.05 that means null hypothesis conveying

group means are equal is rejected . if f statistic value is greater than0.05 than the null hypothesis is

accepted which means their is no significant difference in group means for that that particular factor

and hence all values belonging to the three groups do not differ significantly.. We will reject such

factor in further analysys.

From the table above we can see that the f statistic significant value for roce, npm, nop, roce is less

than 0.05 significance level , hence we conclude that their is difference in means between the groupsof each of these respective factors.


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The f statistic significance value of asset turn over ratio is 0.45 which is greater than the significance

level of 0.05 , hence the group means for this factor are equal and hence the factor is insignificant in

determining low performing , high performing and medium performing companies..

Turkey Hsd test to determine groups for each factor that are causing differences in

performance.

Tukey HSD

Depen

dent

Variabl

e (I) group (J) group

Mean Difference

(I-J) Sig.

npm HIGH PERFORMING MEDIUM PERFORMING 1.27167 .853

LOW PERFORMING 7.15767* .018

MEDIUM PERFORMING HIGH PERFORMING -1.27167 .853

LOW PERFORMING 5.88600 .078

LOW PERFORMING HIGH PERFORMING -7.15767*

.018

MEDIUM PERFORMING -5.88600 .078

nom HIGH PERFORMING MEDIUM PERFORMING 1.66917 .785

LOW PERFORMING 7.11967*

.026




.026


roce HIGH PERFORMING MEDIUM PERFORMING 20.89250 .150


.013




.013


ronw HIGH PERFORMING MEDIUM PERFORMING 17.47000 .253


.008




.008



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assetto

ver

HIGH PERFORMING MEDIUM PERFORMING .67167 .783


MEDIUM PERFORMING HIGH PERFORMING -.67167 .783

LOW PERFORMING .54500 .861

LOW PERFORMING HIGH PERFORMING -1.21667 .423

MEDIUM PERFORMING -.54500 .861

*. The mean difference is significant at the 0.05 level.

For the factors (NPM,NOP,RONWa and ROCE) The significant values for difference in means

(between high performing and low performing)is less than the significant value of 0.05 . This

shows that the above mentioned groups have significant difference between them and strongly affect

the performance of companies.

It is also observed that that the Significant values for mean difference between (medium and high

performing, medium and low performing) companies has a significant p value greater than 0.05.

This concludes that there is no evidence that there is significant difference in means when medium

performing group is compared with other 2 groups.

In case of asset turnover ratio , there is no significant difference in means of groups as the significant

values are greater than 0.05 , hence asset turnover ratio is not a dominant factor in grouping the

companies into 3 groups.


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Discriminant analysis on companies data for the year 2002-03

The discriminate analysis has been done on the variables nop, npm, ronw, roce and asset

turnover ratio. For the year 2002-03 for all the fifteen companies The main objective is to

analyse how many companies have been classified correctly and incorrectly by the model.And which factors contribute significantly in determining the performance of the companies

Wilks lamda test

The Significant value of wilks Lamda test helps in determining the discriminating power of

the functions. Lower the sig. value the higher the discriminating ability for that particular

function.

Wilks' Lambda

Test of

Functio

n(s)

Wilks'

Lambda

Chi-

square df Sig.

1

through

2

.323 11.853 8 .158

2 .822 2.056 3 .561

The wilks lamda significant value for function 1 is 0.158 compared to significant value of

function 2 which is 0.326. Hence we can conclude that that function 1 has a better

discriminating ability to classify companies into different groups In other words function 1

is a better model than function 2.The table below gives the canonical discriminant scores for

each variable and hence we can derive the discriminate function equation for each function.

Standardized Canonical

Discriminant Function

Coefficients

Function

1 2

npm-.093

1.37

2

nom .231 .387

ronw1.25

9

-

1.84

9

assett

over-.607 .954


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From the coefficients derived through discriminant analysis we can conclude that in function 1 ronw

has higher discriminating ability than any other variables and in function 2 ronw and npm have higher

discriminating ability.

A unit increase in ronw in function 1 can cause increase of 1.259 in the discriminate score of function

1 .similarly in function 2 a unit increase in ronw can decrease the Discriminate score by 1.8489 and a

unit increase in npm can increase the score by 1.372.

Canonical Discriminant Function Coefficients(unstandardized)

Function

1 2

npm -.025 .377

nom .060 .100

ronw .078 -.115

assettover -.392 .617

(Constant) -.520 -2.333

By using the above table we get two equations for discriminant scores

Function 1 score=-0.520 -0.025*npm +0.060*nom +0.078*ronw -0.392*asset turnover ratio

Function 2 score=-2.33 +0.377*npm +0.100*nom -0.115*ronw + 0.617*asset turn over ratio

Cutt off scoreThe cut off score will help us in predicting that any new company taken

will fall in which of the three categories by using the unstandardized discriminant equations

as mentioned above. The cut of scores are mention in the group centroid table given below.

Functions at Group Centroids

group

Function

1 2

HIGH PERFORMING 1.180 -.254

MEDIUM PERFORMING .011 .690

LOW PERFORMING -1.425 -.248

Unstandardized canonical discriminant functions

evaluated at group means


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Cut off criteria

Lets say for company x the discrminiant scores are A and B for functions 1 and 2 respectively then

the cut off criteria would be

A close to B close group

1.80 -2.54 High performing

0.011 0.690 Medium performing

1.425 -0.248 Low performing

Predicted group member ship

Group category

1-> high performing

2->medium performing

3-> poor performing


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Predicted Group Member Ship By the Model for Year 2002-03

Company group old predicted group

Tata motors 1 2

Mahindra and mahindra 3 2

maruti Suzuki 3 3

HINDUSTAN MOTORS 3 3

Force motors 1 1

Bosch 1 1

Kar mobiles 2 2

cummins india ltd 2 2

scooters india ltd 3 3

Atul motors 2 3

Hero motors 1 1

LML 3 3

Ashok Leyland 2 1

TVS Motors 1 1

Kinetic motors 1 1

Conclusion -By Analyzing the above table we can conclude that 73.6 companies have correctly by

the model and remain 26.4 % have classified into different groups they belong to different groups

than their original ones.Tata motors which was a high performing company has been predicted as a

medium performing company by the model. Similarly Mahindra and Mahindra has been categorized

into medium performing from low performing Previously .Ashok Leyland has moved from a medium

performer to a high performer category.

In the next step the classification of companies has been done on the basis of predicted group member

ship and the data for all the five factors is taken for financial year 2011-2012. Hence we find that how

many companies in the year 2011-12 have changed their group membership compared to membership

in year 2002-03 .


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Predicted Group Membership For the year 2011-12 using

Pedicted classification of the year 2002-03

company group membership Predicted group

in 2002-03 membership in 2011-12

Tata motors 2 2

Mahindra and mahindra 2 2

maruti Suzuki 3 2

HINDUSTAN MOTORS 3 3

Force motors 1 1

Bosch 1 2

Kar mobiles 2 2

cummins india ltd 2 2

scooters india ltd 3 3

Atul motors 3 3

Hero motors 1 1

LML 3 2

Ashok Leyland 1 2

TVS Motors 1 2

Kinetic motors 1 1

Above above table shows that 60% % companies have been classified correctly and the remaining

40% have shifted to other groups.

Conclusion -Out of a total of 6 companies belonging to high performing group 3 companies( bosh ,

Ashok Leyland and Tvs motors) )have shifted to medium performing group and the remaining 3

companies( kinetic motors ,hero motors, force motors ) have retained their status as high performing.

.From among 4 companies belonging to average performing group none have shifted to any other

group .Out of 5 companies belonging to low performing group ,2 Companies (Maruti Suzuki and

LML) have shifted to average performing group ) The remaining companies ie atul auto , scooters

india Ltd and Hindustan motors have shown no improvement in performance are are still poor

performing.

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