02.Roland Berger R.bhinge

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Indian Automobile and ComponentIndustry TrendsPresentation for OESA

18 May 2010This is a confidential document solely for the use of client personnel. No part of i t may be circulated, quoted, orreproduced for distribution outside the client organization without prior written approval from Tata Strategic

Management Group.

STRATEGIC MANAGEMENT GROUP


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STRATEGIC MANAGEMENT GROUP 2

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53%

22%

25%

Cars & UV Two Wheelers

CVs & Tractors

34%

27%

39%

European Union NAFTA Others

In FY10, Indian auto component production was valued at ~USD 25.7 billion,including exports

INDIAN AUTO COMPONENT PRODUCTION : FY101)

DOMESTIC PRODUCTION (Total USD 25.7 bn)

EXPORTDESTINATIONS

OEMSEGMENTWISEOFFTAKE

Notes : 1) FY : Financial Year ending 31st March of the year mentioned, i.e. FY10 is year ending 31st

March 2010; 2) 1 USD = 45 INR

Source: UN Comtrade, Crisil, Automotive Mission Plan 2006-2016, Tata Strate ic Research

13%

67%

20%

Exports OEM Replacement


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19%

57%24%

MNC Indian Promoter Unorganised

Large Indian promoter groups form a major part of the Indian autocomponent industry

INDIAN AUTO COMPONENT INDUSTRY : STRUCTURE

PROMOTER SEGMENTATION

Kalyani Group...(11%)

TVS Iyengar Group.(10%)

Munjal Group (7%)

Amtek Group (7%)

Sona Group(3%)

Escorts Group(3%)

Rico Group.(2%)

Anand Group.(2%)

JBM Group.(2%)

Rane Group(2%)

Elgi Group..(2%)

Minda SL Group(2%)

Shriram Group...(2%)

Tata Group..(1.2%)

Amalgamation Group(1%)

Total: USD 25.7 billion

Total 57%

Prevalent business models:

Full Indian ownership

Indian owner and MNCs

in technical alliance

Indian owner and MNC JV

Complete MNC subsidiary

Notes : 1) All figures for FY10 2) 1 USD = 45 INR

COMMENTS

Source: Crisil, Tata Strate ic Research, Auto Component Manufacturers Association ACMA


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6%

2%

-2%

12%

4%

-3%-4%

-2%

0%

2%

4%

6%8%

10%

12%

14%

2007 2008 2009

EBIT ROCE

INDIAN AUTO COMPONENT INDUSTRY: PROFITABILITY COMPARISON

Indian suppliers have largely remained profitable during the slowdown

INDIAN COMPONENT SUPPLIERSPROFITABILITY (%)

GLOBAL COMPONENT SUPPLIERSPROFITABILITY (%)

Compared to their European and American peers, Indian auto component suppliers have been

profitable even during global recession

This can be attributed to their unique cost positioning in low volume flexible production systems

Note: Global supplier profitability reported by CY and Indian by FY (Financial Year) ending 31 st March

Source: FactSet/Reuter's; Roland Ber er/Rothschild lobal automotive supplier database 2009; CRISIL

12%

11%

5%

17%16%

11%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

FY07 FY08 FY09

EBIT ROCE


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1,950 2,1762,428

2,7103,024

3,375

531579

631688

750

818

FY10 FY11 FY12 FY13 FY14 FY15

Component suppliers will benefit from the continued strong growth of theIndian automotive market

INDIAN AUTOMOTIVE MARKET : FORECAST

Note: 1) FY : Financial Year ending 31st March of the year mentioned

INDIA DOMESTIC VEHICLE SALES (000 units)

PassengerVehicles

CommercialVehicles

CAGR

Total 2,481 2,755 3,398 3,775 4,193

9%

11.6%

3,060 11.1%

In addition, 490,000

vehicles were exported

in FY10, of which > 90 %

passenger cars

Exports likely to grow to

1,130,000 vehicles by

FY15 (~ 19 % CAGR)

EXPORTS

Source: SIAM, Crisil, Tata Strate ic Research


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17 2023

26 30

345

66

6

7

7

34

5

6

7

8

FY10 FY11E FY12E FY13E FY14E FY15E

Auto component production in India is hence expected to double in valueover the next 5 years

INDIAN AUTO COMPONENT PRODUCTION : FORECAST

AUTO COMPONENT PRODUCTION TREND (USD Bn)

OEM

Replacement

CAGR

Total 26 29 38 44 50

20%

7%

33 14%

Exports

15%

Note: 1) FY : Financial Year ending 31st March of the year mentioned

Strong growth driven by

sales to OEMs in India as

well as exports

COMMENTS

Source: SIAM, Crisil, Tata Strate ic Research


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Indian auto component industry is expected to remain cost competitive

INDIAN COST COMPETITIVENESS IN AUTO COMPONENTS

LOWLABOURCOSTS

Availability of low cost and highly skilled workers

Availability of qualified engineers / technical personnel

LOW FIXEDCOSTS

Appropriate level of automation with low levels of capex

Cost competitive even at smaller scale and lower utilization

LOW DESIGNCOSTS

Low cost innovation differentiates India from other emerging countries

Easy availability of competent product design personnel

Source: Tata Strate ic Research



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Many global players have established international purchase offices in India

INTERNATIONAL PURCHASING OFFICES (IPOs) IN INDIA INDICATIVE

OEM Value (USD m) Components

Volvo 90

Fiat 4

Ford 150Engine components,leaf springs

Gearbox & engine

components

Renault 65

Global OEMs Sourcing from India

Undisclosed

Castings, Forgings,Power-train components`

Toyota UndisclosedManual gearboxes,propeller shafts

Daimler 125 Undisclosed

Global sourcing offices in India

Pune

Bangalore

Gurgaon

Chennai

Delhi

Component Production Hubs

Jamshedpur

Magna Undisclosed Power-trains

Valeo Undisclosed Clutch plate, housing

Global auto suppliers sourcing from India

Brose Undisclosed Undisclosed

Source: Tata Strate ic Research, Roland Ber er
http://images.google.co.in/imgres?imgurl=http://www.ulsterpubs.com/download/1/ford_logo.gif&imgrefurl=http://www.ulsterpubs.com/opencontent/default.asp?itemid=106&section=Associate+Members&usg=__WHI099xDOej8zVTqlRsyFzlk_tc=&h=422&w=838&sz=62&hl=en&start=5&itbs=1&tbnid=rTaNH3S-zJeZAM:&tbnh=73&tbnw=144&prev=/images?q=Ford+logo&hl=en&gbv=2&tbs=isch:1http://images.google.co.in/imgres?imgurl=http://me.stanford.edu/groups/design/automotive/images/LogoToyota.jpg&imgrefurl=http://me.stanford.edu/groups/design/automotive/about.html&usg=__wK7A06_8omb-S_QVSSIe9T2G5bA=&h=301&w=350&sz=14&hl=en&start=2&itbs=1&tbnid=Z7mfeoRPIPZdeM:&tbnh=103&tbnw=120&prev=/images?q=Toyota+logo&hl=en&gbv=2&tbs=isch:1



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They have also set up R&D centres of global scale

R&D CENTRES IN INDIA

Global companies R&D centres in India

Bangalore

Noida

Rohtak

Nasik

Pune

Automotive R&D forhatchbacks and low

cost cars

India - a centre for lowcost innovation

INDICATIVE

Hubs of R&D facilities

Jamshedpur

FOCUS AREAS

http://blog.xkmph.com/wp-content/uploads/2009/01/451px-tata_logo.pnghttp://images.google.co.in/imgres?imgurl=http://mahindra.com/Newsletters/M&M%20Newsletter%20Issue%203%202005/diamond/spotlight/Mahindra-Logo.jpg&imgrefurl=http://mahindra.com/Newsletters/M&M%20Newsletter%20Issue%203%202005/diamond/60yrs.htm&usg=__VEBqYaKSaQLc21ZwLfOiT1EU0Cc=&h=103&w=200&sz=18&hl=en&start=6&itbs=1&tbnid=4cbY2oneGHmpuM:&tbnh=54&tbnw=104&prev=/images?q=Mahindra+logo&hl=en&gbv=2&tbs=isch:1



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CASE STUDY : BOSCH

Global component manufacturers who have entered India have benefitted inthe areas of sourcing, innovation, and cost

Power Tools

Security Systems

Automotive

Low cost innovation enhances Boschs leadership globally Being leveraged for other hatchbacks and two wheelers Bosch is the largest auto component exporter in India

Radical innovation in CRDi to meet target costs; several patents filed

Enhanced local sourcing for key components

Recognized need to foray in sub7,000 passenger cars (Revenuetarget1bn by 2010)

Partnered Tata Motors for Nano project for very low cost FI module

Established in 1953 in India, Presence in Automotive, Power Tools, Industrial Tech, Engg services

Dominant position in Indian market for fuel injection (FI) modules Extensive global sourcing from India

http://www.boschindia.com/content/language1/html/715_14621.htm



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CHANGING BUSINESS ENVIRONMENT FOR SUPPLIERS IN INDIA

Several new challenges are emerging for suppliers in India

INDICATIVE

More vehicle variants

Shorter product life

Growing OEM exports Changing regulations

(emissions and safety)

Rapid technology shifts

Increasing OEM expectations on

Quality

- Delivery performance

- Cost

Increasing complexity

Managing life cycle costs

Latest features and safety requirements Conformance to both Indian and export

requirements (e.g. ABS)

Access to technology and rising R&D cost

Increasing pressure to

- Upgrade skills and processes

- Overcome inferior logistics

infrastructure

- Further reduce costs

Emerging trends Challenges for suppliers




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CAPABILITIES OF INDIAN SUPPLIERS

Indian suppliers will not be able to cater to many evolvingrequirements, completely on their own

Partial Non Existent (Nascent)

Climate control ECE ABS

Front airbag Power steering

Head/side airbags Infotainment Protection Automatic transmission

Engine parts Transmission& steering Chassis parts Sheet metal Electrical/Electronics parts Body parts Rubber parts

Proven

Nature ofownership

0%

100%

0%

100%

Technologyrequi

rements

INDICATIVE

Current capabilities of Indian suppliers

IndianForeign

Source: VW, Business Meetin s, Tata Strate ic Research


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Safety systems New materials

Various modes for India entry exist to harness these growth avenues

Modes of India Entry

Enter through

acquisitions / JVs Enter on their own

Joint Venture with anIndian company

Acquire an existingcompany

Enter as a whollyowned subsidiary

Entry

Modes

Legal

entity

Possibleareas ofentry

MODES FOR ENTRY INTO INDIAN AUTOMOTIVE INDUSTRY

Advanced power train Automatic transmission

Electronics Interiors

INDICATIVE

Arvin Meritor Motherson Sumi Tata Johnson Controls

Examples

SKF

Denso Timken Delphi



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CRITICAL SUCCESS FACTORS (CSF) FOR COMPONENT BUSINESS IN INDIA (1/4)

Critical Success Factors

Understanding market, buying behavior

Differing OEM purchasing processes

- Cultural differences between Indian / global players

Rapidly evolving consumer demands- Anticipate technology changes

- Upgrade to requirements for export demand

More than 25% unorganized players

- Understand basis of competition

Spurious components in aftermarket



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Understanding regulations and taxation

Lengthy procedural approvals & statutes:

- Labor laws

- Local regulations and permits

Peak customs duty 7.5 %

- Regional FTAs e.g. Thailand

Many local levies at present

- National GST (goods & services tax) regime expected by 2011



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Managing logistics successfully

Vast geographical expanse

- The 3 main auto hubs are 800 1000 miles distant from each other

Long delivery lead times- National Highways constitute 2% of road length but carry 40% of traffic

- On average, a 9 ton truck takes 3 days to cover 1000 km

Insufficient road / rail infrastructure to penetrate the rural markets

- 40% of rural areas not connected by all-weather roads

A countrywide Goods & Services Tax (GST) yet to be rolled out

- Multiple stocking points



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Low cost structure

Control employee cost

- But ensure people quality

Control capex- Scalable manufacturing units

Harness global sourcing for raw material linkages e.g. rubber, specificgrades of steel /polymers

Maximize capacity utilization

- Some players were at 85% even during downturn



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Summary


India has a fast growing economy, with drivers being largely domestic

Attractive growth market for automotive sector

Opportunities in multiple dimensions exist for automotive component suppliers

Domestic demand

Exports

Frugal engineering / low-cost innovation

Changing OE requirements are creating gaps for new entrants. Modes:

100% subsidiary


Market and buyer behavior

Regulation & Taxation

Logistics

Cost structure

Joint venture Alliances Acquisitions


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STRATEGIC MANAGEMENT GROUP 19STRATEGIC MANAGEMENT GROUP

Juergen Reers

Managing PartnerDetroit/Chicago/New York

Phone:+1 (248) 729-5000

Fax: +1 (248) 729-5118

[email protected]

Raju Bhinge

Chief Executive

Phone:+91 22 6637 6655

Fax: +91 22 6637 6600

[email protected]

We welcome your feedback or questions

02.Roland Berger R.bhinge

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