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Project Report
Comparative analysis
Auto-component industry
In India
Submitted to Submitted by
Mrs. Neenu Yogesh thakker

1. Preface

2. Acknowledgement

3. Certificate

4. Project Description

• Auto-component Industry in India

• Big players go high-tech

• Government Initiatives

• FDI Scenario

• Domestic Sales--How is Indian market performing

• Exports

• Indian Component Industry is fast emerging as an

Attractive OEM/Tier 1 Supplier

• Company Profile

• Auto Components-Major players

• Data Analysis and Interpretation

5. Conclusion

6. Bibliography

Master of Business Administration is a course, which combines both theory and its
applications as its contents of study in the field of management. As part and parcel of
this course, every aspirant has to undergo summer training in an organization. The
purpose of this training is to expose the student of management sciences to real life
situations existing in the organization and to provide an insight into the various
functions, who can visualize things, what they have been taught in classrooms.
Actually, it is the life force of management. It is in practical training that the
effectiveness of management itself is realized.

This report is a continuation of that tradition. It is an attempt to present an account of

practical knowledge and observations gathered during the analysis.
This report includes the information about the premiere companies in auto-component

Yogesh Thakker
Department of Business administration
National Institute of Technology
I hereby acknowledge the courtesy and prompt response of all those who were
requested to contribute their views, readily grant the necessary permission to
contact them at inconvenient hours despite the pressure of work. The project
report would not have been possible without unstinting support of all the
executives of Clutch Auto Ltd.

I would like to express my sincere gratitude towards Mr. for giving me this
opportunity to experience a whole new dimension in my study curriculum which
has not only enriched my knowledge but has also helped me by giving a practical
exposure to the corporate world. His invaluable and constructive criticism and
continuous encouragement throughout the project helped me to get insight of the
working of Clutch Auto Ltd.

I am grateful to Mr. Giriraj, Mr. B.S.Panigrahi and all the officers in the
organization who were very co-operative and were there whenever I needed

I would like to express my sincere thanks to Mrs. Aarti Deveshwar and Mr.
KURUKSHETRA for guiding me through the project, without her help it would
have been difficult for me to complete this project.

The training experience will go down as one of the most cherished memories in
my life. The officers at Clutch Auto limited and my guide at the college have
made me a better person today. I am humbled and feel too small to accept the
respect showered on me.

(Yogesh Thakker)

The automobile industry in the country is one of the key sectors of the economy in
terms of the employment opportunities that it offers. The industry directly employs
close to around 0.2 million people and indirectly employs around 10 million people.
The prospects of the industry also has a bearing on the auto-component industry
which is also a major sector in the Indian economy directly employing 0.25 million

All is not well with the automobile industry the world over currently with the
slowdown that has gripped most of the major economies of the world. The gap
between the manufacturing capacity volume and the assembly volume is growing by
the day and has worried the manufacturers. This state of affairs has triggered a lot of
cutthroat competition and consolidation in the industry. Cost reduction initiatives have
come to be the in thing in the global industry today. Towards this direction, many
automobile factories are being closed down.

The Indian automobile industry is a stark contrast to the global industry due to many
of the characteristics, which are peculiar to India. The Indian automobile industry is
very small in comparison to the global industry. Except for two wheelers and tractors
segments, the Indian industry cannot boast of big volumes vis-à-vis global numbers
The scope of project is to identify the premiere players in auto-component industry
and to make a comparative analysis of their financial positions as well as future
1. To do comparative analysis of the premiere players of auto-component market
The research involves plotting of graphs on the basis of calculation made in the excel
worksheets. On the basis of these calculations and charts further conclusions were

The financial data of all the companies taken up for the project have been taken from
Auto-component Industry in India

The auto component industry has come of age and now forms an important
component of the Indian economy. In recent years, it has grown more impressively,
fetch double digit growth. More interestingly, it has captured attention as well as
business from leading auto makers of the world. The industry plays a crucial role in
the automobile sector. Manufacturing vehicles typically involve assembling a large
number of components out-sourced from number of ancillaries or component
manufacturers. Competitiveness with quality as a theme has been the watchword for
the Indian industry and especially the auto component industry ever since the Indian
economy was opened up to the world in the early 1990s. While economic revival,
lower interest rates and better road infrastructure are driving domestic demand for
automobiles and, therefore, components, increasing outsourcing by global automobile
majors is creating a huge export opportunity for Indian component manufacturers.

Industry dynamics
The Indian auto components industry started out small in the 1940s supplying
components to Hindustan Motors and Premier Automobiles, two largest
manufacturers of automobiles in India at that time. In the 1950s, the arrival of Telco,
Bajaj, Mahindra & Mahindra led to steadily increasing production. A closed market
with high import tariffs characterized the Indian auto component industry pre 1985.
1985-91 saw significant JVs in the Indian auto component segment with Japanese
manufacturers. After 1991, the delicensing of the sector led to global auto
manufacturers initiating assembly operations in India. This subsequently led to global
Tier I players entering the Indian auto space and the recognition of the potential in the
Indian auto component segment.The Automotive Component Manufactures
Association (ACMA) classifies the auto ancillary
industry into the following product segments:
• Engine and engine parts: Pistons, piston rings, piston pins, gaskets, carburetors, fuel
injection pumps, etc.
• Drive transmission and steering parts: Transmission gears, steering gears, crown
wheels and pinions, axles, wheels, etc.
• Suspension and braking parts: Leaf springs, shock absorbers, brake assemblies, etc.
• Electricals: Spark plugs, starter motors, generators, distributors, voltage regulators,
flywheel magnetos, ignition coils, etc.
• Equipment: Dashboard instruments, headlights, horns, wipers, etc.
• Others: Fan belts, sheet metal parts, plastic mouldings, etc.

The major players in the auto ancillary industry can be classified between the ones
catering to the two wheeler industry and the four wheeler industry. MICO, Bharat
Forge, Sundaram Clayton, Sundaram Brakes, Rane Brakes, etc. mainly cater to
commercial vehicles/tractors. There are many companies like Ucal Fuel, Motherson
Sumi, PRICOL, Subros, etc. which supply mainly to car industry. Companies like
Munjal Showa, Lakshmi Auto, Omax Auto, etc. cater to two-wheelers.
Sectoral Performance
The auto-ancillary was the best performing sector among the intermediate goods.
Different segments of the sector such as bearing, casting, fasteners, batteries and tyres
have grown in a range of 25-40%.
During the June quarter, global automobile majors have announced major investment
& domestic automobile companies such as General Motors (GM) and Honda in
fragmented auto-ancillary sector. Global majors are in a very critical condition; they
are loosing their market share because major automobile companies are being
attracted by India, China, & Taiwan. During first quarter of FY07, exports of
automobile components grew around 25% compared to the previous quarter on a YoY
basis. And exports registered a growth at around Rs 2833 crore compared to around
Rs 3530 crore in the corresponding quarter of FY06. The main reason for boost in
export is that the nature of the customer base of overseas market has been undergoing
major change. Indian companies are transforming into principal suppliers for the
Original Equipment Manufacturers (OEMs) from the after sales market or
replacement market. During that quarter, production of autocomponents increased by
15% YoY. And the result came out so far in this quarter is, Shanthi Gears, witnessed a
jump in net profits for the quarter ending in September, 2006. During the quarter, the
company witnessed a jump in NP at 43.45%, Sales for the quarter rose 31.90%
compared with the corresponding quarter, a year ago. The company has facilities for
manufacturing patterns, centrifugal castings of phosphor bronze rings, ferrous
castings, aluminum castings, heat treatment, forging, fabrications and cutter
manufacturing in-house which constitute the major raw materials for gearboxes.
Automotive Axles reported marginal improvement in the net profits for the quarter
ended June 30, 2006. During the quarter, the company reported a 2.30% rise in profits
and Sales for the quarter rose 35.15% compared with the corresponding quarter, Y-o-

Future Outlook

Given the significant scale up of capacities by the domestic majors, and their
improving global cost effectiveness, the domestic auto ancillaries are well set to
sustainable scale up their share of the global auto component pie. The players are
aggressively focusing on new client acquisition, inorganic growth in developed
countries and cost reduction measures on fronts like quality, delivery, design and
Growth in the domestic market would be driven by sustained growth in supplies to
OEMs as well as acceleration in the demand from replacement market. Moreover,
cars, utility vehicles and CVs made in India are increasingly getting acceptance in
foreign markets, thus driving the demand further. Even Indian two-wheeler majors are
targeting markets abroad. Simultaneously, foreign auto majors like Ford and Hyundai
are making India its manufacturing base for several models. Overall, the short to
medium term outlook for the domestic auto component producers is positive.
Automobile industry, which is a key driver of auto-component industry, is likely to
grow at 12-17%. Along with this some other key drivers including exports,
outsourcing, and replacement market are slowing down competitiveness in global
markets in turn boosting the productivity of Indian auto
components industry. Setting up a new plant by existing companies and out-sourcing
by the foreign vendors will result in domestic companies benefiting, either by
exporting from domestic facilities or setting up facilities in those locations. To meet
the emerging opportunities and challenges, Indian vendors are diversifying across
products, processes, clients and markets. Companies that have restricted themselves to
domestic business have seen modest growth and flat margins. A robust business
outlook is expected to drive strong revenue growth for the auto-component industry.
Steel is a major raw material in manufacturing of parts. Since mid January 2006, the
domestic steel prices have been increasing. Similarly, other inputs like non-ferrous
metal, fuel, and transport costs have also been increasing. However, the auto
ancillaries are not able to pass on the rise in costs, due to quality and price
consciousness of auto majors. Fortunately, healthy rise in volumes, players move up
the value chain, increasing exports together facilitated them to cushion the rise in
costs, and enabled them to maintain margins.

Hindustan Composites is planning break lining and clutch facing unit near the
proposed Tata Motor plant at Singur in Hooghly district of West Bengal. The company
has already started discussion with few tier 1 component manufacturer of Tata Motors
in this regard The company is planning to tie up with an outfit which is likely to be
entrusted with for the break assembly of small car. Tata Motors is overhauling its
outsourcing policy across all categories of cars. As part of this policy, which is aimed
at keeping costs under control, the company has taken a conscious decision to move
away from the multiple vendor models to a single vendor model.

Bharat Forge Ltd. (BFL), signed a Memorandum of Understanding (MoU) with the
Government of Maharashtra to jointly develop a multi-product Special Economic
Zone (SEZ) in Khed Taluka of Pune District. The SEZ is expected to attract
investments of about Rs. 25,000 crores and generate 120,000 new employment
opportunities. The project has received in-principle approval from the Board of
Approval, Ministry of Commerce, Government of India. The project would be
implemented through a Special Purpose Vehicle (SPV) to be jointly promoted by BFL
/ Kalyani Group and the Maharashtra Industrial Development Corporation (MIDC) in
which the two promoters would hold upto 74% and 26% of the equity capital
respectively. Land acquisition and other project related activities would commence
Indian auto component industry likely to be $ 40bn in 2015

350 72

300 58 Replacement
(Rs. bn) 250 45 276 OEM
200 38 246 Exports
150 164
100 134
50 45 61 83
26 34
FY02 FY03 FY04 FY05 FY06

207 Replacement
(Rs. bn) 1000 OEM
168 507
134 Exports
500 116 419 915
309 346
162 296
FY07 FY08 FY09 FY10 FY11
The world's top car makers turn to India for the nuts and bolts of their vehicles.
Riding this success, and capitalizing on the spiraling demand of domestic auto
companies, the Indian automobile components industry has emerged as one of India's
fastest growing manufacturing sectors, and a globally competitive one. A number of
them source critical components from India, with engine parts making up nearly
a third of all exports:

Electrical Parts

20% 10%
Engine Parts

Suspension & Braking

13% Parts
13% 33% Body And Chasis

Drive Transmission &

Steering Parts
The India Advantage:

Steered here by the country's high engineering skills, established production lines, a
thriving domestic automobile industry and competitive costs, global auto majors are
rapidly ramping up the value of components they source from India. The industry is
poised to jump from exports of Rs. 61 billion in 2005-06 to Rs. 296 billion in 2011-
According to the Automotive Component Manufacturers Association of India, more
than a third (36 per cent) of Indian auto component exports head for Europe, with
North America a close second at 26 per cent.

Major Export Markets

Others America North America
38% 36%

In 2006, components worth Rs.83billion were exported by Indian companies, 75 per

cent of which were bought directly by car companies. The original equipment
manufacturers (OEMs) include firms like General Motors, Ford Motor Company,
Cummins International, Bosch, Volkswagen, BMW, MAN (trucks) and JCB
(earthmoving equipment) amongst others.
Economic Survey 2006-07 says:

The turnover of the auto component sector has grown from $ 3.1 billion to $ 10
billion between 1997-98 and 2005-06. In 2005-06, the sector's exports grew by 28
per cent to reach $ 1.8 billion. The major destinations of export for this sector are
US and Europe, which belong to the category of high Accepted Quality Level

Over 20 OEMs have set up their International Purchase Offices (IPOs) in India to the
components. This number is expected to double by the year 2010.
India enjoys a cost advantage with regard to castings and forgings. The manufacturing
costs in India are 25 to 30 percent lower than its western counterparts. India's
competitive advantage does not come from costs alone, but from its full service
supply capability.

Destination India

India is on every major global automobile player’s roadmap, and it isn’t hard to see

 India is the second largest two-wheeler market in the world

 Fourth largest commercial vehicle market in the world
 11th largest passenger car market in the world
 Expected to be the seventh largest by 2016


Global auto majors and domestic giants are pulling out their purses and putting their
money where the production lines are.
 Auto parts maker Robert Bosch of Germany will invest $ 201.4 million in its
Indian subsidiaries over two years. Bulk of the investment will be in Motor
Industries Co Ltd (Mico) -- the Bosch flagship in India.
 Japanese electronic major, Hitachi Ltd. is planning to start auto component
manufacturing in India when it’s OEMs-Isuzu Motor and Nissan Motor--
start manufacturing their cars in India.
 Dubai-based auto ancillary major Parts International Company has plans to
invest approximately $ 3.6 million in India over three years. This includes
setting up a manufacturing facility meant to service exports to CIS and
SAARC countries.
 Fiat India is taking baby steps in becoming a global sourcing hub for
components. Fiat has exported components worth $ 8.3 million last year to
its operations in South Africa.
 General Motors has decided to increase sourcing of components from
Indian suppliers and intends to ship parts worth $ 1000.7 million to its global
production units by 2010.
Big players go high-tech

The smaller scale of operations of most Indian auto component companies has meant
that the size of global orders currently awarded to them is less than $50m. In order to
rapidly acquire scale, leading Indian auto component manufacturers are making huge
Investments in creating capacity as well as upgrading technology. Besides the
Greenfield investments, companies are also acquiring capacities closer to global
OEMs to gain ready access to a global customer base.

Capex Plans
(Rs. mn) FY05 FY06 FY07 FY08 FY09E
Bharat Forge 5587 8714 2750 2650 3000
Amtek Auto 4192 10120 3500 4000 4000
Rico Auto 945 1324 1300 850 850
Omax Auto 755 520 600 1100 800
Sono Koyo 261 351 660 1300 1300
Sundaram Fasteners 1259 861 1000 900 500
MICO 1001 3637 3200 3000 2500
Appolo Tyres 1911 1558 1800 3300 1000
Balkrishna Industries 857 1183 1100 1000 400
Total of above 16768 28268 15910 18100 14350

The opening up of the sector over the last decade has caught the attention of global
auto majors as the only market rivaling China in terms of potential market size and
growth opportunity. As the automobile industry has grown and matured, the Indian
auto components industry has also grown tremendously, and is rapidly achieving
global competitiveness both in terms of cost and quality. Infact, industry observers
think that while Indian automobile market will grow at a measured pace, the auto
components industry is poised for a take-off and is one of the handfuls of industries
where India has a distinct competitive advantage.

In the 1990s, economic liberalization allowed foreign automakers such as Hyundai,

Ford, Toyota and GM set up base in India. The local component manufacturers did not
have the requisite size, technology or quality to meet the needs of these international
carmakers. On the other hand, the high import tariffs and price sensitiveness of the
Indian car buyer made it unviable for these companies to import components from
their global suppliers. Therefore, the carmakers had to persuade their overseas
components suppliers to set up local manufacturing base in India. For example,
Delphi followed after General Motors opened its plant in the state of Gujarat in 1995
and Visteon followed Ford in 1998. As these companies developed and stabilized their
Indian operations, they realized the cost advantage of manufacturing components in
India – typically lower by about 30%. They began to explore the possibility of
exporting back these low cost, high quality components to their global factories and
thus reduce their overall costs.

The Government of India allows automatic approval for foreign equity investment up
to 100 per cent for the manufacture of auto components. Manufacturing and imports
in this sector is free from licensing and approvals. There is no local content regulation
in the auto industry. The engineering export promotion council under the aegis of
Ministry of Commerce and Industry, Government of India, over the years has been
engaged in promoting exports of engineering goods including auto parts. Among other
initiatives that have been affected in 2006-07 are:

 Reduction in the duty of raw material to 5-7.5 per cent from the earlier 10 per

 Setting up of the National Automotive Testing and R&D Infrastructure Project

(NATRIP) at a total cost of € 290.85 million for enabling the industry to usher
in global standards of vehicular safety, emission and performance standards.

 Finalization of the Automotive Mission Plan (AMP) 2006-2016 for making

India a preferred destination for design and manufacture of automobile and
automotive components.

Robust production

India’s car production capacity is in for a US$ 2 billion boost. Auto majors have
announced massive investment plans which will push the country’s car production
past the psychological 2 million mark by the end of fiscal 2006-07, up 70 per cent
from 1.4 million units now. Even at 2 million, India, which stood at No.11 among
global car producing nations, will move two steps ahead, past UK (1.6 million) and
Canada (1.35 million). It will be neck and neck with Brazil’s 2-million capacity at
No.8. The automobile industry witnessed a growth of 19.35 percent in April-July 2006
when compared to April-July 2005, as is evident from this year’s production trends.

Automobile Export Trends

800000 2001-02
600000 2002-03
500000 2003-04
300000 2004-05
100000 2005-06
Total Cv's



grand total

total two


Domestic Sales--How is Indian market performing?

Increased affluence, wider selection and the ready availability of car loans is driving
the Indian car market through the roof. During the last six years (200-06), the
production of passenger cars in India increased by more than 100 per cent. India
achieved the sales of 1.11 million vehicles last year (2005). Domestic sales have been
growing at a clipping pace:
 Passenger car sales rose by 22.84 per cent during April-September 2006,
compared to the corresponding period last year.
 The cumulative growth of overall sales of passenger vehicles during April-
September of 2006-07 was 20.73 percent.
 Utility Vehicle (UVs) sales grew at 12.85 per cent during the same period.
 Overall, the two wheeler market grew by 15.49 per cent during the April-
September period of financial year 2006-07, over the same period last year.
 Motorcycles grew by 18.53 per cent, scooters at 0.12 percent and mopeds at
about 6.53 percent over April-September 2005.

 Three wheeler sales grew at 19.90 per cent. Goods carriers grew by 26.16 per
cent and passenger carriers grew at 15.78 per cent during the April-September
2006 period, over the same period last year.
 Overall, the commercial vehicles segment grew at 36.96 per cent. Growth of
Medium and Heavy Commercial Vehicles was 39.92 per cent. Light
Commercial Vehicles also performed well with a growth of 32.86 percent.

Automobile Production and Sales




4000000 Production
Domestic Sales
2000000 Exports

2001-02 2002-03 2003-04 2004-05 2005-06
Production 5410468 6248838 7290456 8527173 9716718
Domestic Sales 5225788 5941535 6810537 7897629 8910224
Exports 184680 307303 479919 629544 806494

India is fast emerging as a manufacturing base for car exports. According to the
Society of Indian Automobile Manufacturers (SIAM), a total of 89,338 vehicles were
exported in September 2006, a 58.07 per cent jump as compared to the same month
last year. While passenger vehicle exports grew at 13.15 per cent, two-wheelers and
commercial vehicle exports grew at 27.80 per cent.

Vehcile Exports are Rising

(Qty in 000 Nos)

500 513

367 2 wheelers
265 Cars &
200 MUV's
180 166 176 CVs
17 30 41
0 11
2002-03 2003-04 2004-05 2005-06
significant growth in auto component industry in both domestic and
export market

production value ($bn) 12

10 8.7
8 6.7
6 4.4
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06
Production Value ($bn)

0.8 0.62 0.57
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

Foreign players in India

Calendar 2006 has seen the entry of many high-end brands into the country. The
Indian automobile market will see at least 30 new launches, spanning everything from
affordable hatchbacks to mid-size models to super luxury high-end cars and SUVs.

• Mercedes, BMW, Porsche, Audi, Bentley and Rolls Royce are already here.
Now, the Italian marquee Lamborghini is also planning to enter the country.
The Italian marquee plans to launch the Gallardo.
• German luxury car maker Audi AG is preparing to drive into India a range of
sporty, lifestyle cars like S8 and RS4 early next year.

• The year 2007 will also mark Audi's entry into merchandising in Indian car
• General Motors launched Aveo this year. GM plans to bring in a sporty variant
of the Chevy Optra to add to its existing line-up.
Following India's growing openness, the arrival of new and existing models, easy
availability of finance at relatively low rate of interest and price discounts offered by
the dealers and manufacturers all have stirred the demand for vehicles and a strong
growth of the Indian automobile industry.

The data obtained from ministry of commerce and industry, shows high growth
obtained since 2001- 02 in automobile production continuing in the first three quarters
of the 2006-07. Annual growth was 16.0 per cent in April-December, 2006; the
growth rate in 2005-06 was 15.1 per cent, the automobile industry grew at a
compound annual growth rate (CAGR) of 22 per cent between 2000 and 2006.

With investment exceeding Rs. 50,000 crore, the turnover of the automobile industry
exceeded Rs. 59,518 crore in 2002-03. Including turnover of the auto-component
sector, the automotive industry's turnover, which was above Rs. 84,000 crore in 2002-
03, is estimated to have exceeded Rs.1,00,000 crore ( USD 22. 74 billion) in 2003-04.

Major Manufacturers of Automobiles in India

 Maruti Udyog Ltd.

 General Motors India
 Ford India Ltd.
 Eicher Motors
 Daewoo Motors India
 Hindustan Motors
 Hyundai Motor India Ltd.
 Telco
 TVS Motors
 Swaraj Mazda Ltd
 TATA motors

Government has liberalized the norms for foreign investment and import of
technology and that appears to have benefited the automobile sector. The
production of total vehicles increased from 4.2 million in 1998- 99 to 7.3 million in
The industry has adopted the global standards and this was manifested in the
increasing exports of the sector. After a temporary slump during 1998- 99 and 1999-
00, such exports registered robust growth rates of well over 50 per cent in 2002-03
and 2003-04 each to exceed two and- a-half times the export figure for 2001-02.


Opposing the belief that the growth in automobile industry has catered only to the top
income-stratum of society, Growth of exports of 32.8 % in the first three quarters of
2004-05, the fastest growth in volumes has come from commercial vehicles as
against passenger cars.

Between 1998-99 and 2003-04, output of commercial vehicles has grown 2.8 times
compared to the 2.2 times increase in passenger cars. Furthermore, two-wheeler
output continues to dominate the volume statistics of the sector. In 2003-04, for every
passenger car turned out by the sector, there were 7 two-wheelers produced. In the
two wheeler segment, there is a greater preference for motorcycles followed by
scooters, with both production and domestic sales of motorcycles increasing at faster
rates than for scooters in the current and previous years. However, mopeds have
registered low or negative growth. Export growth rates have been high both for
motorcycles and scooters.
The road ahead
Exciting times lie ahead for the Indian automotive component industry. Besides the
burgeoning demand from global auto majors, there is also the domestic car industry,
which is growing at a spanking rate of over 16 per cent, driven by a rising consumer
base and affordable loans

The opening up of the sector over the last decade has caught the attention of global
auto majors as the only market rivaling China in terms of potential market size and
growth opportunity. As the automobile industry has grown and matured, the Indian
auto components industry has also grown tremendously, and is rapidly achieving
global competitiveness both in terms of cost and quality. Infact, industry observers
think that while Indian automobile market will grow at a measured pace, the auto
components industry is poised for a take-off and is one of the handfuls of industries
where India has a distinct competitive advantage.

The Future Automotive Growth Potential is Huge

The indian passenger ar makret is far from being saturated
per capita car penetration in 1000

500 480 480 600

440 500
180 147
130 122 200
27 13 12 10 10 7 100






Sri Lanka



Indian auto industry has established one of the largest export hubs for most of the
global players. Several global automotive players have moved their R&D to India
outsourcing research and design elements of the automotive products. R&D expenses
as a percentage of net sales was 0.78 per cent in auto components in 2004-05. Also
India scores over other countries like China and Thailand and has gained acceptance
of global OEMs on account of its quality, design and engineering capabilities and
large pool of low cost, technically skilled and English speaking engineers. Many
Indian firms are working on at least $300-million worth of automotive engineering
design services (AEDS) projects and expected to be a-billion industry by 2010.
Four different types of players are offering these services:

 Captive Centers of global OEMs (GM, Ford, Bosch, Delphi, etc.)

 IT Services companies (Infosys, Wipro, TCS, Satyam, etc.)
 Design Houses (Dilip Chhabria Designs, Geometric Software, Infension
Technologies, Neilsoft, etc.)
 Subsidiary of Indian Auto Companies (Mahindra & Mahindra, Eicher, TVS,

The nature of projects is limited largely to CAD/CAM and modeling and analysis but
eventually Indian companies could design the entire concept with sketches and
detailed depiction of all vehicle features. The changing scenario of the Indian auto
industry in the context of facing challenges and availing of opportunities in the global
markets concerted efforts are needed to create a significance place in the increased
integrated value chain across the geographical reasons.

The auto industry urgently is to be expanded in regard to increase investment and

local resources to match potential. Significant capital is required for capacity
expansion and fuelling acquisitions. Investments should be made in both OEM and
auto components businesses so as to create a low cost model capital and operations
profitable at low scale. Technology and Branding are important for the Indian auto

There is a significant gap between Indian firms and leading global OEMs. One of the
key imperatives for Indian auto companies would be to increase spending on R&D
and Brand building to remain competitive on a global basis. This is driven by shorter
product life cycles and increasing number of variants combined with the need to
strengthen brands in the highly competitive overseas markets. The Indian auto
industry, worth US$ 34 billion in 2006, has grown at a CAGR of 14 per cent over the
last five years with total sales of vehicles reaching around 9 million vehicles in 2005-
06. That number is likely to see a significant boost, given that the first half of 2006-07
has already witnessed a staggering growth rate of 17.12 per cent. Domestic car sales
for the April-September 2006 period stood at an impressive 4.86 million vehicles,
including cars, two-wheelers and commercial vehicles.

According to industry experts, if this trend continues, sales could touch 10 million by
March 2007, clocking an annual growth rate of 20 per cent. In addition, the
Government’s announcement to cut excise duty on small cars will soon see auto India
emerging as the world's largest manufacturing hub for small or compact cars.
Indian Component Industry is fast emerging as an
Attractive OEM/Tier 1 Supplier

Composition of
Exports in 2006

10 1.5 10 Africa
26 Asia
Middle East
36 Oceania
16 Others

OEM/ Tier 1




OEM/ Tier 1

Acquisitions & JV Abroad

Indian companies' overseas acquisitions have been driven by their desire to be among
the largest and least-cost producers, their quest for technology and a search for new
markets. In July 2006, in order to establish a presence in mainland Europe, Amtek
Auto, a manufacturer of automotive components such as engines, transmission and
suspension parts, assemblies and systems, bought 70 per cent stake in Zelter GmbH,
one of the three largest manufacturers of turbochargers housing in the world, for an
enterprise value of euro 28 million.
Following the acquisition of South Korea’s Daewoo Commercial Vehicle Co. in
March 2004 by Tata Motors for $102 million and Bharat Forge’s acquisition of
German firm Carl Dan Pedinghaus GmbH for euro 29 million, Mahindra & Mahindra,
through its subsidiary agreed to acquire 67.9 per cent stake in Jeco Holding AG, one
of the top five forging companies in Germany, for euro 140 million and subsidiary of
Scholz AG. Jeco Holding AG, which focuses on the truck, bus and trailer market,
makes gearboxes, engine and axle pans, hubs,

Global Acquisitions
Acquired By Target Value (Rs. cr)
Bharat Forge Imatra Kilsta AB, Sweden 261
Bharat Forge federal forge, US 41
Bharat Forge CDP Aluminiumtechnik 35.4
Bharat Forge Carl Dan Peddighous 157.5
76% JV with Bleisthal Produktions GmbH,
Sundaram Fasteners Germany 20
Sundaram Fasteners Precision Forging Unit of Fana Spicer, UK 11.9
Sundaram Fasteners Unit of Textron Deutshland Beteilingungs NA
Amtek Group Zelter, Germany 157.5
Amtek Group Sigma Cast, UK NA
Amtek Group GWK, UK 42
Tata Auto Component Wundsch Weidirge, Germany NA
UCAL Fuel Systems Amtec Precision Products Inc, USA 126
Sona Koyo Steering
Systems 21% in Fuji Autotech France 27.7
Clutch Auto (CAL) was incorporated in May 1971 in New Delhi, promoted by Vijay
Krishna Mehta, a technocrat entrepreneur. The company manufactures clutches,
components and spares for the automotive sector. The Company is working regular on
modernization and expansion programs and to improve the productivity and quality of
its products. Its clientele includes TELCO, Ashok Leyland, Maruti Udyog, DCM
Toyota, Escorts Tractors, BEML and state transport undertakings. The company is
concentrating on increasing its capacity for the existing range of vehicles. Products
are upgraded with imported equipment like induction hardening, press tempering and
semi-automatic reveling machines. During the year 2002-03 the Company got patent
for EZ N LITE for heavy commercial vehicles in US and this will give an edge over
competitors and is expected to result in substantial business increase in the years to

Clutch Auto Ltd (CAL) is the largest supplier of clutches to the commercial vehicle
and tractor segment in India. It also caters to the passenger vehicle and
replacement demand and its clientele includes Tata Motors, Ashok Leyland, Maruti
Udyog, TAFE, Toyota, BEML, Escort Tractors and State Transport Undertakings,
among others.

Clutch is a technology intensive business dominated by 6 players in the world, all

operating either as joint ventures or as technology partners or license arrangements.
CAL is the only standalone clutch company in the world, which is testimony to its
technology capability.
CAL has been associated with production of clutch plates and clutch assemblies and
other related components

Products offered
• Diaphragm organic clutch assembly
• Cover organic clutch assembly
• Cover ceramic clutch assembly
Range is 160-352 mm

CAL is present in OEM as well as Replacement market, in addition to export


CAL has at present following OEM’s purchasers


CAL is also present in replacement market and is catering to the

following company’s vehicle
• Maruti800, alto, baleno, esteem, gypsy, omni, wagon-R and Zen (old model)
• TATA indica, indigo, spacio, sumo victa, commercial vehciles
• Ashok Leyland, commercial vehicles
• M&M tractors, ITL-Sonalika
• Eicher-tractors, Hyundai-santro
• Volvo buses, Toyota- qualis
• Chevrolet- tavera
• Military tanks
The company has ventured into the US truck market through the aftermarket route
making it the only offshore company to be able to do so. It plans to be a niche
player in the low volume, high value added heavy-duty clutch segment for class 7
and 8 trucks. This is because, the replacement demand for trucks in US, with a
population of nearly 4.5-5mn units, is nearly as high (250,000 units pa) as the
demand for new trucks. 
CAL invested in technology, research and filed for patents and trademarks for a
number of products that it developed.
Currently it has 11 patents in USA market, either approved or pending; similarly it
has 31 patents in domestic market

Patents Approved Pending Under Filing

USA 1 5 5
Mexico 1
Australia 1

1 7 5

Domestic 15 7 9

Trade Marks
USA 4 9 2
India 11 2 4

Today, the company is the only independent component company from India with
an independent patents and trademarks portfolio.

It has built many innovative products like the ‘Cool Clutch’, ‘Whisper’ and ‘EZ N
Lite’ offering interchangeability unit-to-unit, component-to component with the
same serviceability norms and tools. While the domestic market will ensure steady
revenues to the company; high growth is expected to come from the export
initiatives taken by the company. Presently, 25% of its revenues are on account of

This proportion is expected to rise and contribute to around 50% of revenues in

the next 3-4 years. The Company increased its capacity for clutch discs and clutch
cover assemblies by 122% and 200% respectively in FY05 to meet the growing
demand for its products.
The company has set up a strong distribution network along with product liability
cover for overseas market. It already received orders from Fleet Pride, a leading
heavy-duty class parts distributor in the US.
• CAL is the number one company in production of clutch plates and clutch
• Only company to possess an indigenous know-how of clutch plate
• Obtained approval of TATA motors for the entire range of current and
future products
• Exports to 40 countries
• 56.41% YOY growth in sales revenue
• 81% YOY growth in domestic market
• 71% YOY growth in bottom line

Three year expansion plans:

Company has following expansion plan

• To triple its production capacity to 4 million units by FY10 from current

capacity of 1.4 million units
• Expansion cost to be Rs. 30 crore which will be funded through internal
• Operating margins @ 16% for April December06
• To triple revenues to Rs. 650 crores by the end of FY09-10
• Export contribution to rise 50% from current one third at present
Auto Components-Major players

Auto Components Market

Gearing up
Strong growth in the domestic automobile industry and a
stable 10-15% future growth outlook over the next two years
would drive demand for auto components both in the domestic
OEM and the aftermarket. Exports too are in a scale up mode
for leading players like Bharat Forge, Amtek Auto and MICO.
We believe, a slowdown in key global markets and the fragile
financial health of global OEMs as also Tier-I vendors would
lead to higher outsourcing by these players to low cost auto
component players in the long term. We expect 15% revenue
CAGR and 22% earnings CAGR for our auto component universe
over FY07-09 led by strong revenue and earnings growth for
Bharat Forge, MICO and Balkrishna Industries over the same

Domestic growth on a firm footing, exports looking up:

It is expected that domestic revenue for auto component companies
will remain strong given a stable 10-15% volume growth outlook for
various auto segments. Exports for leading players, too appear to be
scaling up and a slowdown in key global markets and fragile financial
health of global OEMs and Tier-I vendors will only accelerate the pace of
outsourcing to leading auto component players in Low Cost Countries like
India. Amtek Auto has successfully implemented the strategy of acquiring
customer base overseas and outsources the labor intensive operations to
its low cost Indian facilities.

Building capacity to acquire scale:

Lack of scale has prevented Indian auto component players from
winning outsourcing deals exceeding US $50m. Companies are therefore
investing aggressively in capacity build-up and technology upgradation.
Major companies are expected to invest Rs32bn over FY08-09 increasing
new capacity.
Expect strong earnings momentum for leading players:
The expected revenue CAGR is 15% and earnings CAGR is 22% for
auto component market over FY07-09 led by strong growth for Bharat
Forge, MICO and Balkrishna Industries

The major players in Auto-component market are

 Amtek Auto
 Apollo Tyres
 Balkrishna Industries
 Bharat Forge
 Omax Autos
 Rico Auto Industries
 Sona Koyo
 Sundram Fasteners
 Clutch Auto
Strong growth outlook for domestic auto OEMs to boost demand
While auto component companies retain focus on enhancing their overseas
revenues, their domestic businesses too appear on a firm footing with buoyant growth
outlook for the domestic auto OEMs. Favorable demographics (rising income levels
and an increasingly younger population), along with very low vehicle penetration
indicate strong long-term demand prospects for cars and two-wheelers. Strong growth
in industrial production, emergence of new growth drivers like organized retail, and
the ongoing pace of investments and infrastructure development in the country would
drive demand for commercial vehicles. While factors like higher interest rates and a
higher base could check growth rates in the near term, the industry’s prospects
nevertheless remain strong.

Domestic Autombile industry is on a firm footing

figures in $ bn
FY05 FY06 FY07 FY08 FY09 CAGR
Car Sales 981 1052 1269 1427 1618 13
UV Sales 247 269 309 341 394 13
PV Sales 1228 1321 1578 1768 2012 13
MHCVs 212 221 294 329 363 11
LCVs 136 170 223 255 291 14
CVs 348 391 517 584 654 12
Motorcycl 5222 6213 7089 7818 8587 10
Scooters 984 992 976 1078 1202 11
Mopeds 350 376 1078 432 484 11
Two 6556 7581 9143 9328 10273 10
Amtek Auto
Amtek Auto (Amtek) has the twin advantage of presence in both forgings and
castings, two key segments in the global outsourcing space. Given Indian
companies’ edge over other low cost regions owing to their superior engineering
& designing skills and given Amtek’s aggressive capacity expansion plans, expect
sustained growth momentum in its revenues and earnings in the coming period.
At Current Market Price (CMP), the stock trades at 11.4x FY09E consolidated
earnings and 5.7x EV/EBIDTA.

Presence in two key areas of forgings and castings: Amtek’s product portfolio
includes a mix of both forgings and castings products (82:18). Indian companies have
an edge over other low cost manufacturers in the forgings and castings space owing to
their superior engineering and design skills. Further, these processes are highly labour
intensive and are being increasingly outsourced by global majors to low cost

Exploiting synergies from overseas acquisitions: Amtek has successfully

implemented the model of acquiring front-end capacities in proximity to global OEMs
in key markets like USA and Europe, and then outsourcing the labour intensive
operations to India to reduce the overall cost of production. The company expects to
increase the share of exports to overseas group companies to 65% in FY07 against
60% in FY06.

Expect strong 18% earnings growth over FY06-09: Amtek continues to pursue its
growth strategy of a mix of organic and inorganic growth. The expected consolidated
revenue CAGR is 24% for Amtek over FY06-09, leading to an 18% consolidated
earnings CAGR over the same period.
Shareholding Pattern Non promoter
Institutions Promoters
17% 32%

Public & others

Foreign 3%

Key financials (consolidated)*

Year to June 30 FY05 FY06 FY07E FY08E FY09E
Net sales (Rs m) 16605 26451 40242 45499 51011
Adj. net profit (Rs m) 1475 2564 3940 4310 4762
Shares in issue (m) 101 122 138 138 138
Adj. EPS (Rs) 14.6 21 28.6 31.3 34.6
% growth 60.8 44.1 36.1 9.4 10.5
PER (x) 26.9 18.7 13.7 12.5 11.4
Price/Book (x) 4.5 2.7 2.5 2 1.7
EV/EBITDA (x) 14.7 11 7.7 6.7 5.7
RoE (%) 23.6 19.3 19.9 17.8 16.4
RoCE (%) 17.5 13.7 15.7 15.3 15.1

Apollo Tyres
Apollo Tyres (Apollo), with its leadership position in the truck and bus (T&B)
replacement tyre market, is likely to be a key beneficiary of the expected surge in
this segment. The Dunlop SA acquisition offers significant synergies to be reaped
in terms of access to T&B radial tyre technology, a wider product portfolio and
easy entry in new geographies. Apollo is betting big on radialisation picking up
pace in the T&B segment and plans to set up a Greenfield plant targeted at T&B
radials. Though the company’s profitability has improved significantly over the
last two quarters on the back of softening rubber prices, it nevertheless remains
vulnerable to rubber price fluctuations.

Well poised to benefit from higher replacement demand:

Replacement demand for tyres in the CV space is likely to witness a surge
owing to a strong 24% 5-year CAGR in domestic MHCV sales. Further, replacement
demand for tyres is also likely to jump as growth in new truck sales moderates over
the next two years. Apollo, the leader in this space with a share of 35%, is likely to be
a key beneficiary of the expected surge in demand in this segment.
Dunlop SA acquisition offers significant synergies to be reaped:
The Dunlop SA acquisition provides Apollo with ready access to radial tyre
technology, especially T&B radial technology. This assumes significance in the wake
of Apollo’s proposed T&B radial tyre greenfield facility. The acquisition also provides
it with benefits of an extended product line and access to key European markets where
the company has negligible presence.

Shareholding Pattern
Govt Holding
Non Promoter
Institutions 32%

Public & others

Foreign 9%

Key financials (consolidated)*

Year to March 31 FY05 FY06 FY07E FY08E FY09E
Net sales (Rs m) 22,255 26,255 32,923 37,483 41,559
Adj. net profit (Rs m) 676 724 1,134 1,440 1,551
Shares in issue (m) 38 38 46 50 50
Adj. EPS (Rs) 17.6 18.9 24.4 28.6 30.8
% growth -3.9 7 29.4 16.9 7.8
PER (x) 20.4 19.1 14.7 12.6 11.7
Price/Book (x) 2.4 2.2 1.7 1.5 1.4
EV/EBITDA (x) 11 8.5 6.4 6.4 5.5
RoE (%) 11.8 12 14.1 13.2 12.2
RoCE (%) 9.4 11.1 14.6 14.8 14

Balkrishna Industries
Balkrishna Industries (BIL) is the largest exporter of tyres from
India and among the top 10 manufacturers of off-highway tyres
globally. BIL’s strong product development ability and
competitive product pricing (arising from low cost advantage)
has yielded strong revenue growth (28.8% CAGR for FY02- 06),
superior margins (19.2% for 9MFY07) and high return ratios
(RoE of 33.2% for FY06). We expect BIL to deliver revenue and
earnings CAGR of 23% and 31% respectively over FY07-09.
Given strong fundamentals and compelling valuations (4.0x
EV/EBIDTA and PER of 7.0x FY09 estimates),
BIL – the global OTR player: BIL is among the top 10 manufacturers of
OTR tyres globally. The low volume and diverse product varieties as also
low capacity utilization levels typical of the segment have triggered exit of
large players, much to the advantage of BIL. The company’s competitive
strength lies in offering a wide range of tyres at competitive prices lower
on the back of its strong product development ability and lower labour
costs in India.

Superior margins and return ratios: BIL’s margins are expected to

expand primarily owing to a recent softening in rubber prices and a
planned scale up in the high margin tractor radial tyre segment. BIL has
also hiked the prices of its products by 2-3% wef April 2007. Also, BIL plans
to spin off the paperboard and textile processing divisions into fully owned
subsidiaries so as to focus on each business and improve return ratios in
the core tyre business.

Reiterate Outperformer: BIL has a strong product line up that gives it a

jumpstart vis-à-vis new entrants in the OTR tyre segment. Further, a
favorable demand-supply scenario in key global markets
Shareholding Pattern

Non Promoter

Foreign Promoters
24% 54%
Public & others

Key financials
(cons olidated)*
Year to March 31 FY05 FY06 FY07E FY08E FY09E
Net sales (Rs m) 4,880 6,358 8,427 10,663 12,830
Adj. net profit (Rs m) 575 740 814 1,128 1,445
Shares in issue (m) 18.6 19.3 19.3 20.1 20.1
Adj. EPS (Rs) 31 38.3 42.1 56.2 72
% growth 98.1 23.7 10 33.6 28.1
PER (x) 16.3 13.2 12 9 7
Price/Book (x) 5.9 3.4 2.8 1.9 1.6
EV/EBITDA (x) 9.8 8.3 7.1 5.2 4
RoE (%) 43.1 33.2 25.8 26.1 25.2
RoCE (%) 29 23.7 19.7 23.2 25.3

Bharat Forge
Bharat Forge (BFL) has emerged the leader in the Indian auto component space
with an extensive global footprint. Besides the revenue scale up expected from
enhanced capacities, BFL is likely to benefit from enhanced focus on new and
more specialized segments. In addition to a diversified revenue mix, these efforts
would also lead to margin expansion for BFL. We expect 15% revenue CAGR
and 29% earnings CAGR for the consolidated entity over FY07-09.
Capacity utilization to improve significantly:
BFL currently is in the ramp up phase of its enhanced capacity and a sharp
jump in utilization levels over the next two quarters is expected. Besides increased
tonnage, product mix too would improve with a higher proportion of machined

Focus on diversifying revenue sources:

BFL has significantly enhanced its focus on heavy-duty forged components
used in non-automotive industries like railways, construction equipment, oil & gas
and others. These are high value added, high margin components with tremendous
growth potential owing to increasing investments in these sectors. BFL expects the
share of non-automotive business to increase to ~25% in 3-4 years from 17%

Expect strong growth momentum:

We expect a CAGR of 15% in BFL’s consolidated revenues over FY07-09
aided by a 21% CAGR in standalone revenues. Higher revenue contribution from the
standalone entity (vis-à-vis FY07 levels) is likely to lead to margin expansion for BFL
going forward.
Shareholding Pattern

Non Promoter


Public & others

Key financials (consolidated)*

Year to March 31 FY05 FY06 FY07E FY08E FY09E
Net sales (Rs m) 19,934 30,189 41,783 48,418 54,783
Adj. net profit (Rs m) 2,011 2,505 3,027 4,119 5,041
Shares in issue (m) 198 222 235 235 235
Adj. EPS (Rs) 10.2 11.3 12.9 17.5 21.4
% growth 48.5 10.8 14.2 36.1 22.4
PER (x) 33.7 30.4 26.6 19.6 16
Price/Book (x) 11.9 5.6 4 3.4 2.9
EV/EBITDA (x) 17.3 15.7 12.6 9.7 7.9
RoE (%) 46.5 26.1 17.9 18.9 19.9
RoCE (%) 38.9 21.4 17.1 20.4 22.2
MICO is ideally positioned to benefit from the renewed focus of
leading Indian OEMs on diesel cars based on the Common Rail
(CR) platform. MICO is also gaining prominence as Bosch’s
global R&D centre and outsourcing hub for many components.
Expected 18% revenue CAGR and 29% earnings CAGR for MICO
over CY06-08 led by a surge in both domestic and export
revenues. Also, Bosch’s has made an open offer for an
additional 20% stake in MICO (at Rs 4,000 per share) to
facilitate further transfer of critical technology and processes

Leveraging on Bosch’s leadership in CRDI systems:

CRDI-based diesel systems for passenger vehicles are gaining
popularity in India. We believe MICO, with Robert Bosch’s global leadership
in CRDI systems, is well placed to capitalize on this opportunity. MICO
currently supplies CRDI systems to leading OEMs like (Maruti Udyog and
M&M) and is likely to cater to Tata Motors’ CRDI platforms based on Fiat’s
diesel technology (globally, Fiat uses Bosch’s CRDI systems).

Gaining prominence in Bosch’s global plans:

MICO is emerging as a global R&D and competence centre for Bosch
Group worldwide as also a manufacturing hub for many components.
Already, a number of production lines for components like injectors,
nozzles, single cylinder pumps, regulators, etc have been transferred from
Bosch’s overseas locations to MICO. Thus, besides the growth potential in
the domestic market, MICO stands to benefit from Bosch’s global plans.
Strong growth prospects:
MICO’s growth prospects appear promising in the domestic market
in view of increasing focus of Indian OEMs on CR systems-based diesel
Shareholding Pattern

Non Promoter

Public & others


Key financials (consolidated)*

Year to DEC 31 FY05 FY06 FY07E FY08E FY09E
Net sales (Rs m) 24,169 30,892 39,098 46,323 54,391
Adj. net profit (Rs m) 3,670 3,350 3,921 5,257 6,531
Shares in issue (m) 32.1 32.1 32.1 32.1 32.1
Adj. EPS (Rs) 114.3 104.5 122.1 163.8 203.4
% growth 44.1 -8.6 16.9 34.1 24.2
PER (x) 33.7 36.9 31.6 23.6 19
Price/Book (x) 9.9 8 6.1 5 4
EV/EBITDA (x) 19 17.5 13.6 10.6 8.5
RoE (%) 33.8 23.9 21.8 23.1 23.4
RoCE (%) 42.2 29.3 28.7 29.4 30.1

Omax Auto
Omax Auto (Omax) is working on reducing its exposure to Hero
Honda, which accounts for ~62% of its revenues. Commencing
December 2007, Omax plans to undertake chassis
manufacturing for Tata Motors’ MHCVs. The project, at full
potential, would generate annual revenues of Rs2.4bn besides
higher margins vis-à-vis Omax’s current margins. Omax has
lowered its operating cost base in the last few quarters and
going forward, it expects to derive cost benefits on steel
purchases from Omax Steel. Omax also stands to benefit from
higher capacity utilization of its two new plants.
Diversifying the revenue base:
Omax is setting up a new chassis manufacturing unit for Tata
Motors at the latter’s Lucknow plant. The first phase of the project, likely
to go on stream by December 2007, offers an annual revenue potential of
Rs1.2bn (Rs2.4bn on completion by FY10). Omax’s supplies to non-Hero
Honda clients like TVS, Sundaram Clayton and Mitsubishi are expected to
scale up, which along with higher exports from the Binola plant, would
diversify the revenue base.

Cost reduction measures paying off:

Omax has reduced its operating costs by pruning the excess
temporary labour and switching over to more economical power sources.
these measures are expected to have yielded net savings of 70bp in FY07.
Further, Omax expects to save 5% on its steel procurement from the newly
set up steel plant Omax Steel (one-third of the production to be sourced by

Expect strong growth momentum:

Omax’s diversification strategy is likely to bring stability in revenues as
well as margins owing to reduced dependence on a single client – Hero
Honda (~62% of revenues in FY07).

Shareholding Pattern
Non Promoter
Institutions 12%

Public & others

24% Promoters

Key financials
Year to March 31 FY05 FY06 FY07E FY08E FY09E
Net sales (Rs m) 5,298 5,786 6,954 8,501 9,844
Adj. net profit (Rs m) 203 201 238 302 345
Shares in issue (m) 21 21 21 21 21
Adj. EPS (Rs) 9.5 9.4 11.1 14.1 16.1
% growth -1.2 -1.1 18.6 26.7 14.3
PER (x) 8.8 8.9 7.5 5.9 5.2
Price/Book (x) 1.8 1.6 1.4 1.2 1
EV/EBITDA (x) 5.1 5.5 4.3 4.1 3.8
RoE (%) 23.6 19 19.6 21.3 20.8
RoCE (%) 16.1 13.3 15.7 16.7 16.7

Rico Auto (Rico), deriving ~60% of revenues from Hero Honda,
would likely be impacted by a slowdown in the domestic two-
wheeler industry due to a high inventory build up. FCC Rico
(Rico’s 50:50 JV) would, however, benefit from higher off take
from HMSI (~40% of FCC Rico’s revenues) as volumes surge (up
30% yoy in April 2007) post the launch of Shine and the new
Honda Unicorn. While we expect Rico to face margin pressure
from Hero Honda, higher contribution from FCC Rico (high-
margin business) could offer some respite.

Likely slowdown in off-take from two-wheeler players:

Rico’s domestic business would be impacted due to sluggish outlook
for the two-wheeler industry, particularly for Hero Honda (60% of Rico’s
revenues). However, FCC Rico (Rico’s 50:50 JV) is likely to witness a revival
in offtake from HMSI (~40% of FCC Rico’s revenues) after the launch of
Shine and the new Honda Unicorn.

Passenger car components foray – a new revenue stream:

Rico, by way of a licensing and technological assistance agreement
with Teksid Aluminium of Italy, plans to foray into Aluminium Engine Blocks
and Engine Heads business for passenger cars. Rico would supply engine
blocks and cylinder heads for Tata Motors’ upcoming small car project. This
project opens up a new growth vista for Rico besides lowering its
dependence on the two-wheeler component business.

Expect 15% earnings CAGR over FY07-09:

Expected 13% CAGR in Rico’s consolidated revenues and 15% CAGR in
consolidated earnings over FY07-09. We expect some margin cushion for
the company due to increased contribution from FCC Rico. Stock trades at
PER of 10.9x and EV/EBIDTA of 4.8x FY09 estimates.
Shareholding Pattern

Non Promoter

Public & others

Key financials
As on March 31
2007 FY05 FY06 FY07E FY08E FY09E
Net sales (Rs m) 6,798 7,871 8,988 10,209 11,425
Adj. net profit (Rs m) 498 439 393 458 518
Shares in issue (m) 107 123 126 126 126
Adj. EPS (Rs) 4.6 3.6 3.1 3.6 4.1
% growth 33.5 -22.9 -12.5 16.3 13.2
PER (x) 9.7 12.5 14.3 12.3 10.9
Price/Book (x) 4.3 2.2 2 1.8 1.6
EV/EBITDA (x) 6.3 6.1 5.9 5.4 4.8
RoE (%) 50.9 24.4 14.7 15.2 15.7
RoCE (%) 31.4 21.8 16.9 16.9 17.1
Sona Koyo
Sona Koyo has witnessed significant value growth with the
launch of C-EPS systems and higher share of power steering
systems in sales mix. Sona Koyo is also developing steering
columns for CVs to scale up its presence in the segment. The
company is striving to cut its dependence on Koyo in the
export markets. It also plans to increase localization level of
power steering systems to achieve margin expansion. Expect
strong 29% revenue CAGR and 22% earnings CAGR for Sona
Koyo over FY07-09.

Improved product offerings leading to value growth:

Inclusion of C-EPS systems in the product range has strengthened
Sona Koyo’s portfolio besides leading to significant value growth. With this,
the share of power steerings in total revenues has jumped significantly
(55% in FY07 from 28% in FY06). Sona Koyo is also working on developing
highly specialized steering columns for HCVs.

Expect margin recovery on import substitution: The shift in Sona

Koyo’s product mix towards power steerings has adversely impacted its
margins due to high import content. However, Sona Koyo plans to localize
70% of C-EPS components, which should lead to margin expansion.

Excellent business prospects, attractive valuations:

Led by higher value growth from supply of C-EPS systems, expect
21% revenue CAGR and 23% earnings CAGR for Sona Koyo over FY07-09
(after factoring in equity dilution).
Shareholding Pattern
Non Promoter
4% Promoters

Public & others

Key financials
As on March 31
2007 FY05 FY06 FY07E FY08E FY09E
Net sales (Rs m) 2,975 3,397 5,808 7,109 8,545
Adj. net profit (Rs m) 167 165 276 383 459
Shares in issue (m) 88 88 93 97 103
Adj. EPS (Rs) 1.9 1.9 3 3.9 4.5
% growth 37.6 -0.8 58.4 32 13.7
PER (x) 27.6 27.8 17.6 13.3 11.7
Price/Book (x) 6.9 6 4 2.9 2.3
EV/EBITDA (x) 16 14.6 10.3 8 7
RoE (%) 27.4 22.8 28.5 26.1 22.7
RoCE (%) 17.8 14.6 17.9 17.9 17.2
Sundram Fasteners
Sundram Fasteners’ (SFL) diversification strategy is paying off.
Exports scale up and entry into new product segments (pump
assemblies and engine components) has generated
incremental revenues for the company. SFL posted impressive
27% consolidated revenue CAGR over FY04-06 despite pricing
pressure in key markets.

Realizations capped while input costs rise:

SFL faces pricing pressure in the domestic as well as export
markets. While realizations in key product categories like high tensile
fasteners and coated metal parts have remained flat, cost of inputs has
escalated at a CAGR of 13% over the last five years. Consequently, SFL’s
revenue growth has been primarily volume driven.

Export volume growth remains strong:

SFL has recorded 41% CAGR in exports over FY02-06. Exports would
scale up further as SFL commences regular production of certain pipeline
products. SFL plans to set up a 100% EOU near Chennai by FY08. Exports
from the JV Sundaram Bleistahl (74% equity with SFL) would also increase
gradually. We expect 24% CAGR in exports for SFL over FY06-09 with
exports accounting for 37% of standalone revenues (30% in FY06).

Expect 31% earnings CAGR over FY06-09 :

Expected 22% revenue CAGR for SFL over FY06-09, aided by
contribution from new product lines. Despite largely flat operating
margins, earnings would grow at a faster clip (31% CAGR over our forecast
period), primarily due to operating leverage. At CMP, stock trades at 10.6x
FY09 consolidated earnings and 7.4x EV/EBIDTA.
Shareholding Pattern

Non Promoter
Institutions Holding
18% 4%

Foreign Promoters
0% 50%

Public & others


Key financials (consolidated)*

As on March 31
2007 FY05 FY06 FY07E FY08E FY09E
Net sales (Rs m) 9,899 11,317 15,381 18,104 20,697
Adj. net profit (Rs m) 659 589 897 1,134 1,311
Shares in issue (m) 210 210 210 210 210
Adj. EPS (Rs) 3.1 2.8 4.3 5.4 6.2
% growth 12.9 -10.7 52.3 26.5 15.6
PER (x) 21.2 23.7 15.6 12.3 10.6
Price/Book (x) 4.9 4.3 3.8 3.1 2.6
EV/EBITDA (x) 12.6 13.1 10 8.5 7.4
RoE (%) 25.4 19.4 25.8 27.8 26.9
RoCE (%) 18 14.6 17 18 18.5
Clutch auto
Company is India's largest clutch manufacturer & Exporter today. Company
has TS 16949 accredited by TUV, ISO 9002, QS 9000 and QS 9000: 1998
certifications. Company has 3 decades of undisputed Leadership history.
Company supplies OE to Maruti, Mahindra, Tata- Mercedes, Ashok Leyland-
IVECO, PTL, Escorts, New Holland, Eicher, TAFE-Messey Ferguson,
Sonalika-International Tractors, JCBL, Bajaj Auto, greaves & BEML.
Company is India's largest exporter of clutches, exports to 40 countries,
85% to Americas. Company also has Largest after market distribution
network in India. It is Major supplier to Indian Defence Establishments. It
also provides State-of-the-art testing facility for Clutches. Company has set
up R & D center recognized by Govt. of India. Clutch Auto Ltd (CAL) is the
largest supplier of clutches to the commercial vehicle and tractor segment
in India. It also caters to the passenger vehicle and replacement demand
and its clientele includes Tata Motors, Ashok Leyland, Maruti Udyog, TAFE,
Toyota, BEML, Escort Tractors and State Transport Undertakings, among

Technology intensive business:

Clutch is a technology intensive business dominated by 6 players in the
world, all operating either as joint ventures or as technology partners or
license arrangements. CAL is the only standalone clutch company in the
world, which is testimony to its technology capability.

The company has ventured into the US truck market through the
aftermarket route making it the only offshore company to be able to do so.
It plans to be a niche player in the low volume, high value added heavy-
duty clutch segment for class 7 and 8 trucks. This is because, the
replacement demand for trucks in US, with a population of nearly 4.5-5mn
units, is nearly as high (250,000 units pa) as the demand for new trucks.

CAL invested in technology, research and filed for patents and trademarks
for a number of products that it developed. Today, the company is the only
independent component company from India with an independent patents
and trademarks portfolio. It has built many innovative products like the
‘Cool Clutch’, ‘Whisper’ and ‘EZ N Lite’ offering interchangeability unit-to-
unit, component-to component with the same serviceability norms and

Strong Domestic and Export market:

While the domestic market will ensure steady revenues to the company,
we expect high growth to come in from the export initiatives taken by the
company. Presently, 25% of its revenues are on account of exports. We
expect this proportion to rise and contribute to around 50% of revenues in
the next 3-4 years.
The company increased its capacity for clutch discs and clutch cover
assemblies by 122% and 200% respectively in FY05 to meet the growing
demand for its products. The company has set up a strong distribution
network along with product liability cover for overseas market. It already
received orders from Fleet Pride, a leading heavy-duty class parts
distributor in the US. Expect the company to witness a CAGR of 53.3% in
sales and 83.6% in profits between FY05 and FY08.
Shareholding Pattern

Non Promoter Promoters

Corporate 17%

Public & others

Institutions Foreign
11% 8%

Key financials (consolidated)*

As on March 31 2007 FY05 FY06 FY07E FY08E FY09E
Net sales (Rs m) 728 929 1,414 2,351 3,348
Adj. net profit (Rs m) -4 57 137 248 353
Shares in issue (m) 88 88 133 163 163
PER (x) -384 26.2 16.5 11.1 7.8
Price/Book (x) 4 3.5 2.4 1.8 1.5
EV/EBITDA (x) 27 14.4 10.5 6.9 4.7
RoE (%) 25.4 19.4 25.8 27.8 26.9
RoCE (%) 6 11.5 15.3 20.3 25
1. The projections made in the study are subject to change as, Industry is exposed to
market risk from changes in interest rates, foreign exchange rates, commodity
prices and strong competitive pressures

2. The operations of the auto component industry are directly dependent on the
Indian automotive industry, which is cyclical in nature, this poses a serious threat
to the small companies
1. Potential for synergies between companies
2. Avoid cyclical nature of economy through scale of operations
3. Enter in the export markets as Indian car and other vehicles are gaining acceptance

All the companies which have been analyzed in the project are leaders in their
respective sectors. These companies have outperformed the respective
benchmarks and are giving healthy returns over a period of time, however given
the vagaries of the cyclical nature of parent industry and present scenario in
European markets, the auto-component sector is well poised to grow in future.