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1 The changing Aftermarket Industry and how Indian Automotive ancillaries can benefit from arising opportunities Prepared for: Singex Prepared by: Spire Research and Consulting Date: 28 th September 2019

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Page 1: The changing Aftermarket Industry and how Indian ...4 Automobile Industry in India – Overview The automobile industry in India is the world’s fourth largest vehicle market.In 2018

1

The changing Aftermarket Industry and

how Indian Automotive ancillaries can

benefit from arising opportunities Prepared for:

Singex

Prepared by:

Spire Research and Consulting

Date:

28th September 2019

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2

Topic

1 Automotive Market

1a Overview

1b Segmentation of four wheelers

1c Tire Industry-Overview

1d Tire Industry-Key Players

2 Automotive Aftermarket

2a Overview & Trends

2b Online E-retailing

2c Safety & Security

2d Auto Components Export

3 Summary

Agenda

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Automotive Market – Overview

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Automobile Industry in India – Overview

The automobile industry in India is the world’s fourth largest vehicle market. In 2018 India was the world's 4th largest

manufacturer of cars and 7th largest manufacturer of commercial vehicles.

Indian automotive industry (including component manufacturing) is expected to reach INR16-18 trillion (USD251-283

billion) by 2026.

35 39 39

44 51

2 2 2.2

2.5 2.6

0

1

2

3

0

20

40

60

2014-2015 2015-2016 2016-2017 2017-2018 2018-2019

in

M

illio

ns

In B

illio

ns

Size of the market FY19

Overall Revenue of Auto Components Number of Automobiles Sold in India

Source: SIAM Society of Indian Automobiles.

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81%

13%

4% 3%

Automobile Domestic Sales

Trends FY19

Two Wheelers Passenger Vehicles

Commercial Vehicles Three Wheelers

Automobile Industry in India – Overview

Source: SIAM Society of Indian Automobiles.

Domestic sales are dominated by large number of two wheeler vehicles. In 2017, India surpassed China to become

the world’s biggest market for two wheelers.

A total of 21.1 million units were sold last year, which comes down to 58,000 units every day.

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Automobile Industry in India – Segmentation of

four wheelers

50%

26%

24%

Automobile Domestic Sales Trends

2018

Hatchbacks SUV's and MUV's Sedans

Indian Market has been known for the market for hatchbacks. Even the government has implemented rules to allow

the development of cars under 4 metres, as they attract lesser duty and other taxes. Petrol engines smaller than 1.2-

litre and diesel engines that are under 1500cc, have a lesser excise duty. This helps to increase fuel efficiency and also

reduce pollution.

Total Number of Commercial

Vehicles Sold in 2018

1,007,319

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Tire Industry: Overview

Key Figures for FY2018: No. of Tyre Companies in India: 41 No of Tyre Plants in India: 62 Industry Turnover 2018-19 (est.): INR63000 crore (USD9 Bn) Exports 2018-19 (est.): INR12890 crore (USD1.8 Bn)

0%

20%

40%

60%

80%

100%

38% 30%

62% 70%

Distribution across various

channels

Aftermarket OEM+exports

58% 28%

14%

Global

Truck & Bus

Passenger Vehicle (PV)

2/3-Wheeler

55% 22%

13%

10%

Indian

Truck & BusPassenger Vehicle (PV)2/3-WheelerOthers

Distribution of exports/sales of

Tyres manufactured in India FY18

2011 2018

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Tire Industry: Key Players and Plant Locations

• Limda, Gujrat

• Perambra, Kerala

• Kalamessey, Kerela

• Orgadam, Tamilndadu

• Chittor, Andhra Pradesh*

• Kankroli, Rajasthan

• Banmore, Madhya Pradesh

• Mysore (2), Karnataka

• Sriperumbudur, Tamil Nadu

• Haridwar, Uttrakhand

• Balasore, Orissa • SIPCOT Thiruvallur, Tamil Nadu

• Dhar, Madhya Pradesh

• Pune, Maharashtra

• Chennai, Tamil Nadu

• Arkonam, Tamil Nadu

• Trichy, Tamil Nadu

• Puducherry

• Medak, Telangana

• Poda, Goa

• Kottayam, Kerala

• Baruch, Gujarat*

• Mumbai, Maharashtra

• Halol, Gujarat

• Ambarnath, Maharashtra

• Nasik, Maharashtra

• Nagpur, Maharashtra

• Sriperumbudur, Tamil Nadu* • Bahadurgarh, Haryana

• Modipuram, Uttar Pradesh • Rudrapur, Uttarakhand

• Madurai, Tamil Nadu

• Baliabhgarh, Haryana

• Aurangabad, Maharashtra

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Automotive

Aftermarket

Overview and Trends

Online E-retailing

Government Regulations

Auto Components Export

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10

Automotive Aftermarket

The Automotive Aftermarket refers to the manufacturing, retailing and installation of all vehicle parts

after the sale by the OEM (Original Equipment Manufacturer).

The automotive aftermarket is broadly divided into three sectors:

The post warranty vehicle (>4 years) service market was mainly captured by small independent garages i.e. the unorganized sector because of the huge cost differences (of after warranty

services) between authorized and local garages.

46%

52%

1% 1%

Automobile Aftermarket FY19

Organized Single

Brand Outlet

Unorganized

MBOs/ Workshops

Organized Multi

Brand Outlets

Online Platforms

Automotive Aftermarket Products/Services

Replacement Parts

Replace the original stock components which are worn out

in due course of time.

Accessories

Made for comfort, convenience, performance, safety, or customization,

and are designed for an add-on.

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The total aftermarket has grown at a CAGR of 14% over 2013-2018. The vibrant automotive sector

drives the growth of the automotive aftermarket in India and is estimated to grow at INR75,000 crore by fiscal year 2020.

Automotive Aftermarket

Drive

Transmissi

on and

Steering,

21%

Engine

Compone

nts, 18%

Electricals,

18%

Suspensio

n and

Braking,

15%

Consuma

bles and

Miscellane

ous, 14% Cooling

Systems,

8%

Rubber

Compone

nts, 3%

Electronic

Compone

nts, 3%

Product-wise share in

aftermarket turnover (FY18)

Major Players by Segments:

Engine & Engine Parts

Goetze, Rane Engine Valves, Ucal Fuel Systems etc.

Transmission &

steering parts

Sona Koyo Steering

Systems, Rane NSK Steering Systems.

Suspension & braking parts

Brakes India, Rane Brake Lining, Jamma Auto & Jai Parabolic and Gabriel India.

Electrical Lucas TVS, Denso, Delco Remy Electricals

Equipment Lumax, Premiere Instruments & Controls

and Jay Bharat Maruti.

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Automotive

Aftermarket

Overview and Trends

Online E-retailing

Government Regulations

Auto Components Export

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Trends in Automotive Aftermarket: Online E-

retailing

At present, the automotive aftermarket sale channels is fronted by traditional stores and garages. This majorly falls (53% in FY2018) under the unorganized sector.

Taking in consideration factors such as increase in the spending capacity, changing consumer

behaviour, penetration of technology, e-commerce and most importantly; need for an organized

market. Online e-retailing will soon be a business disruptor for this sector. It has already been observed in western countries and developed markets.

2% 3% 3%

4% 4%

4%

0%

2%

4%

6%

2015 2016 2017 2018 2019* 2020*

US Online sales of auto parts and

accessories 2015-2020

Revenue from online sales of auto parts *Projected

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Trends in Automotive Aftermarket : Online E-

retailing

In 2014, the online auto aftermarket in India was estimated at around USD20 million (less than one percent of the overall parts aftermarket at a retail level) and is expected to increase at a CAGR of 7%, valued at USD26 million in 2018 and is projected to reach USD30 million by 2020. There are huge opportunities to explore in the B2B space due to speedy growth of organized and independent workshops along with customers being positively disposed towards them.

Recent advancements in the online automobile aftermarket include:

Online autoparts marketplace

SparesHub.com has raised INR2

crore from Singapore-based

Anthill Scale Ventures, US-based

Esvee Technologies, Chennai

Angels and other high net-worth

individuals (HNIs).

Boodmo – an online

marketplace for auto

components (Ukrainan

company) – has ventured into

the Indian Markets. It aims to

organize the replacement parts

market and make the shopping

process easier and convenient.

Recently raised a funding of

INR8 crore, adding up to a total

of INR35 crore.

New Delhi-based Cross Roads

India Assistance, popularly

known as CRIA, has acquired

based MeriCAR.com, a

marketplace and aggregator for

the after sales automotive space.

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Trends in Automotive Aftermarket : Online E-

retailing

These Online Markets are now offering complete range of auto components from OEM spares to

price effective alternatives:

Advantages compared to offline stores:

Braking System

Clutch Systems

Filters

Suspension

Systems

Unassigned Parts

Car Access-

ories

Tires

Interiors

Suspension

Systems

Maintannce

/Service Parts

Convenience

Freedom of choice

Multi-Product Selection

Round-the-clock Service

Fair Points

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Automotive

Aftermarket

Overview and Trends

Online E-retailing

Government Regulations

Auto Components Export

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Government Regulations

1st April, 2018

ABS (Anti-braking system) for

two wheelers/cars for all new

models.

BS VI emission norms

April, 2020 2024

1st April, 2018 ABS( Anti-braking system) for

two wheelers/cars for existing

models.

Airbags mandatory for all new

models/existing post 2017.

FE Regulations 2

Government

The government of India has revised/introduced new regulations for passenger safety and pollution checks for

automobiles. Some are already in place, while upcoming norms have also been preponed.

Deadline for airbags was preponed by 6 months and BS VI scheduled in 2023, has been preponed to 2020.

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Trends in Automotive Aftermarket : Safety &

Security

One of the key concerns in the automobile sector is the rising safety and security standards. Indian Government put in place new regulations for automobile manufacturers. Consumers have also realized the importance and relevance, where a growth in demand has been observed off late.

Tota

l A

uto

mo

tive

In

du

stry

: Te

ch

no

log

ies

an

d S

eg

me

nt

Sc

op

e

Technologies like Anti-lock

Braking System (ABS) and

Reverse Parking Sensors (RPG)

have very high penetration

across vehicle segments and are

expected to generate revenue

of INR16,000 crores by FY 2020.

2W PV CV

Reverse Parking Sensor

In Car Entertainment(ICE) System

Anti- Lock Braking System (ABS)

Driver Information System (DIS)

Body Control Module (BCM)

Immobilizers

Telematics

Tyre Pressure Monitoring System (TPMS)

Airbag Electronics

LED based Headlamps

Electric Power Steering

Remote Vehicle Diagnostic Sys.

Automatic Transmission (AMT,DCT,CVT)

Electric and Hybrid Vehicles

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India emerging as a global hub for sourcing

auto parts

Government Initiatives :

The target for this sector is to cross the USD100 billion mark with exports reaching USD35-40 billion and USD20-22 billion in revenue from overseas assets. Initiatives that are taken by the government to encourage the growth of this industry include :

1. The Automotive Mission Plan 2016-26 (AMP 2026) 2. Voluntary Vehicle Fleet Modernization

programme (V-VMP)

AMP 2026 under one of it’s five main

objectives, seeks to increase the net

exports of the Indian Automotive industry

several fold. It recognizes that the Indian

Automotive industry (both vehicles and

auto components) has the potential to

scale up exports to the extend of 35-40%

of its overall output over the next 10

years (FY16-26).

This policy offers incentives worth 8-12%

of the cost of a new vehicle for

surrendering the old one. It would be

able to generate steel scrap worth USD

1,728 million domestically every year

with the set-up of organized shredding

centres; in addition to providing

environmental and energy efficiency

benefits.

Turnover USD200

billion

Export USD80

billion

Export USD80

billion

Direct Incremental

employment – 3.2

million

Metal Scrap

Vehicles Scrapping Policy 2018

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India emerging as a global hub for sourcing

auto parts

After the implementation of such government initiatives:

Several global tier-I suppliers have already

announced plans to increase procurement of

auto parts from their Indian subsidiaries.

French tyre manufacturer Michelin announced

plans to produce 16,000 tonnes of truck and bus

tyres from its Indian facility this year, a 45% rise

from last year.

Auto components maker Bharat Forge Ltd (BFL),

has formalized an agreement with Rolls-Royce

Holdings Private Limited Company (Plc), which

will supply BFL with critical and high integrity forged as well as machined components.

Everstone Capital – a Singapore-based private

equity (PE) firm – has purchased 51% in Indian

auto components maker SJS Enterprises for an

estimated USD51.35 million.

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Trends in Automotive Aftermarket : Safety &

Security

Other technologies which may/can expect growth are:

After new regulations, ICRA

estimates 90% increase in the

penetration by 2019. The domestic

passenger vehicle market has sold

close to 3.64 million units in the last

financial year.

India In-Car Entertainment market

revenue is projected to grow at a

CAGR of 5.3% during 2015-21. Audio

system firm Harman is expects a

revenue of USD1 billion by 2022.

A recent study by Future Market

Insights (FMI) predicted that the

automotive global remote

diagnostics market will grow at a

CAGR of approximately 18%

through 2028.

The global market for automotive

TPMS (Tire-pressure monitoring

system) is anticipated to reflect a

CAGR of over 6% 2016-24.

Government making it mandatory in

passenger cars and higher focus on

enhancing fuel efficiency attract

growth.

Indian Vehicle Telematics market is

projected to touch USD300 mn by

2021. It also becoming an important

part of CV industry because it is

widely used by aggregators like Ola,

Zoomcar and Revv.

Vehicle immobilizers are finding

increased application in PV as well

as CV. Automobile giants like TVS

and Maruti also increased the

electrical components per vehicle

and added immobilizers for Anti-

Theft functionality.

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Automotive

Aftermarket

Overview and Trends

Online E-retailing

Government Regulations

Auto Components Export

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Automotive Aftermarket – Auto Components

Export

The automobile components industry contributes towards 25.6% to the manufacturing GDP and 3.8% to the national GDP, providing indirect employment to 1.5 million people. It has the capacity and accessibility to export to other auto components across key global automotive markets like Japan, Korea and Europe. The total value of exports for the year 2018 was USD13.50 billion. Following are the advantages India has over it’s competitors when it comes to export of auto components:

1. Geographical Proximity

2. Improved Product Quality

3. Increased Investment & Government Initiatives.

USA, 22%

Germany, 7% Turkey, 6.20%

U.K., 5.10%

Italy, 4.10%

Thailand, 3.30%

France, 3%

U.A.E., 2.80%

Mexico, 2.80%

Brazil, 2.60%

Share of Indian Auto Component Exports – Top

10 Countries FY17

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71% 71% 72% 75% 74%

29% 29% 28% 25% 26%

0%

20%

40%

60%

80%

100%

2014 2015 2016 2017 2018

Value of auto component exports FY19

Domestic Revenue Exports

Automotive Aftermarket – Auto Components

Export

35 39 39 44 51

Total Revenue in

billions

India’s exports of auto components increased at a CAGR of 5.77%, during FY14-FY18, with the value of auto

component exports increasing from USD10.2 billion in FY14 to USD13.5 billion in FY18.

Moreover, the number of automobiles being exported grew by 18% during FY14-18.

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Automotive Aftermarket – Auto Components

Export

Highest component is captured by “brakes and servo-brakes” which also accounts for a high percentage as it is one the most commonly worn out components of car. Second most sold component are “Gear boxes” which also account for higher percentage as it is comparatively expensive component.

Bumpers and

parts thereof, 5%

Other oarts and

accessories of

bodies(including

cabs), 7%

Brakes and

servo-

brakes;parts

therof, 23%

Gear boxes, 19%

Drive axles with

differential w/n

provided with

other transmitters,

17%

Road wheels and

parts and

accessories

thereof, 8% Suspension shock

absorbers, 7%

Radiators, 2%

Clutches and

parts thereof, 3%

Steering wheels,

steering columns

and steering

boxes, 8%

Component Wise Global Exports of Auto

Components FY18

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Summary

• Automotive market in India is currently progressing towards a positive growth path given the current opportunities and challenges.

• The factors which contribute to its growth are primarily – • Government Regulations - Regulations related

to the introduction of new safety features that encourage the manufacturing of new safety components along with ensuring their quality.

• Changing Automotive ecosystem - The emergence of new sales channels like online e-retailing and multi brand outlets (MBOs) are playing a key role in changing purchase behaviour of the end customers.

In summary, we believe that Indian Automobile Aftermarket & Indian Automobile Component Aftermarket is better placed and expected to grow. Another major factor which ensures this growth is that we are serving a lot of businesses in emerging countries outside India. This minimizes the risk of slowdown due to any dependency on domestic market. One of the example is tyre manufacturing and components industry which has shown tremendous growth in exports in past five years.