Disclaimer:

The information contained in this publication is of a general nature and is not intended to address the circumstances of any
particular individual or entity. The document has been prepared with the help of various sources believed to be reliable, but
no representation or warranty is made to its accuracy, completeness or correctness. Whilst due care has been taken in the
preparation of this publication and information contained herein, Mazars takes no ownership of or endorses any findings or
personal views expressed herein or accepts any liability whatsoever, for any direct or consequential loss howsoever arising
from any use of this publication or its contents or otherwise arising in connection herewith.
C
ontents
Introduction

About this survey 4

3

Foreword 5

Executive summary 8

Detailed review

i. Growth 11

ii. Profitability and predictions 21

iii. Expansion: new markets 25

iv. Challenges 31

v. Consumer trends 35

About Mazars 41
“Car sales zoom 26% to all-time high in January”
-- Hindustan Times, February 9, 2011

“Auto sales scale a new high in February 2011”

-- Hindustan Times, March 10, 2011
Welcome to our first survey based report on the automotive sector in India.

On the canvas of the Indian economy, the automotive industry has covered
substantial ground to occupy a prominent place. Due to the subterranean
forward and backward linkages with several other industry sectors, the
automotive sector has a strong domino effect across various sectors and is
further propelling inclusive growth in the Indian economy.

The dynamic Indian automotive industry has ably demonstrated this catalytic
ability by producing a wide variety of world class vehicles in the form of
passenger cars, light, medium and heavy commercial vehicles, multi-utility
vehicles such as off-roaders, scooters, motorcycles, mopeds, three wheelers,
tractors etc., even at a time when the global economy was reeling under a
depressed business environment.

Continuous and somewhat irreversible economic liberalization since the early

1990’s in India has resulted in making the country one of the prime business
destinations for many global automotive players. The automotive sector in
India is currently growing at around 18% per annum and the future prospects
of the automotive sector are also reflective of the economic resilience of the
country.

As a part of its thought leadership initiatives, Mazars has analyzed some

pertinent developments in the Indian automotive sector and conducted a
survey to gauge the mood of a wide variety of automobile companies, on
what lies in the road ahead for them. Our analysis of this survey also features
perspectives of some extremely well respected entrepreneurs and professional
experts from the automotive sector on various aspects such as growth,
profitability, Merger & Acquisitions (“M&A”), structural changes, customer,
technology, and workforce trends - aspects which are already transforming this
industry in India.

In publishing this report, we are deeply indebted to all respondents of the

survey and other experts (who contributed with their views) for the generosity
of their time, ideas and perspectives to see it through to a conclusion. In the
process, through this publication, we have sought to bring to light some
important aspects which will provide valuable information for automotive
organisations – both with a history and with future interests in India.

I am confident that you will find this useful.

David Chapman
Mazars India

INTRODUCTION

Mazars Thought Leadership Series | 3

 ABOUT THIS SURVEY

A special task force from Mazars was formed to

undertake research on the Indian automotive sector
and conduct brainstorming sessions with several
auto sector experts in order to identify and dwell
deeper into factors and major areas of concern for
the sector in India.

Areas relating to growth, profitability and

predictions, exports, expansion into new markets,
market challenges and customer trends were
identified as key in order to ascertain the progress,
issues and future prospects.

The “survey questionnaire” also encapsulated the

troubled times of the global economic recession and
its impact on the Indian automotive sector. It was
designed to also bring out some key precautionary
and corrective measures taken by the automotive
companies in India to prevent the sector from the
recent global economic meltdown.

This publication has also been developed to provide

clarity to some questions that are increasingly being
asked and brings industry issues into perspective of
future trends and challenges.

Through the survey we reached out to over 300

companies in the automotive sector in various
verticals like auto manufacturers, auto components,
auto ancillary, auto dealers and Tractors.

The “survey questionnaire” focused on 20 key

aspects and the questionnaire was structured to
address specific issues in various areas. Responses
from the respondents (who included business
heads, Chief Financial Officers, Chief Technology
Officers and other key stakeholders) have been
collated and analysed by Mazars to identify and
highlight industry concerns and issues; and most
importantly their expectations in the coming years.

The adjacent charts provide a snap-shot of the

respondent profiles, the number of years for which
their organisations have been in existence in India
and the size of their organisations.

One-third of the respondents are from the auto

component vertical and nearly one-fourth are from
the automotive manufacturing vertical.

Approximately half of the respondents are large auto

sector players with turnovers in excess of Rs.1000
crore and 54% of them are from organisations who
have been present in the Indian market for over a
decade.

4 | Indian Automotive Industry Survey

 FOREWORD
Segment wise production trend of
automobiles in India (in ‘000s)
“Despite the economic
slowdown in 2008
and 2009, the Indian
automobile sector
continued with its
growth story, especially
in the passenger cars
segment.”
Strong steps to de-license the automobile industry were made in India in July 1991
with the announcement of the New Industrial Policy. Within this, the passenger car
industry was de-licensed in 1993. With such a thrust on progressive reforms, no
special industrial license is currently required for setting up of units for manufacture
of automobiles except in some special cases. The norms for Foreign Direct Investment
(“FDI”) and import of technology too have been progressively liberalized over the years
for manufacture of vehicles (including passenger cars), in order to make this sector
competitive globally.
At present, 100% FDI is permissible under the automatic route and this includes
passenger cars. The import of technology/technological up-gradation with a royalty
payment of 5% without any limit on the duration and a lump sum payment of
USD 2 million is also allowed under the automatic route in the automotive sector.
With the gradual liberalization of the automobile sector since 1991, the number of
manufacturing facilities in India too has grown. India today has over 15 manufacturers
of passenger cars & multi utility vehicles, over 10 manufacturers of commercial vehicles,
over 15 manufacturers of two and three wheelers and over 5 manufacturers of tractors
besides over 5 manufacturers of engines, all of global repute.
The automotive industry had an investment of about USD 10 billion in 2002-03 which
has gone up to more than USD 16 billion in the current year. The industry has already
attained a turnover of more than USD 32 billion in 2009-10 and provides direct and
indirect employment to over 13 million people. The contribution of the automotive
industry to GDP has risen from 2.77% in 1992-93 to more than 5% in the recent years
and the automotive industry is currently making a contribution of 17% to the overall
indirect tax collection by the Government of India (“GoI”).
Despite the economic slowdown in 2008, 2009 and for some part of the current year
the Indian automobile sector continued with its growth story, especially in the passenger
vehicles segment. The passenger vehicle market, which constitutes nearly 80% of
vehicle sales, demonstrated immense growth potential as the passenger vehicles stock
stood at around 11 per 1,000 people in 2008. Anticipating the future market potential,
the production of passenger vehicles is forecasted by experts to grow at a Compounded
Annual Growth Rate (“CAGR”) of around 10% from 2009-10 to 2012-13. India now
occupies the seventh position globally in automobile productions at 1,40,49,830 units
during 2009-10. In 2009 itself, India emerged as the Asia’s fourth largest exporter of
automobiles, behind Japan, South Korea and Thailand. Production of passenger cars in
India too has seen a tremendous growth at a CAGR of 18.4% over the last seven years.
According to data obtained from the GoI, during the period from April to December
2009, the passenger vehicle segment, two-wheeler segment, three-wheeler segment
and commercial vehicle segment have all recorded an impressive growth rate of 24.55%,
19.70%, 16.04% and 15.10% respectively over the corresponding period of the previous
year.
Industry experts predict a CAGR growth of around 14.5% in the domestic volume of
sales of passenger vehicles in the ensuing five years. Other segments, such as two-
wheelers, multi-purpose vehicles and light commercial vehicles are also expected to
witness fast growth in the coming 3-5 years. As India treads its path to become an
export hub for Asia and Europe, it is also emerging as one of the favourite investment
destinations for automotive manufacturers.
The auto component market has also seen a major revival since the slowdown in
2009-10 and experts have projected that this is expected to grow at a rate of 18% to
attain a turnover of USD 28 billion in the ensuing year, with about a 32% increase in
exports. Investments in the component sector are also projected to cross USD 12 billion
according to experts.
Mazars Thought Leadership Series | 5
 FOREWORD

Some startling facts about automotive industry in India - at a glance:

l Second largest two wheeler and ninth largest car manufacturer in the world.

l Ranks fifth in the production of commercial vehicles.

l Largest three wheeler market in the world.

l Fourth largest passenger car market in Asia.

l Seventh largest automobile producer in the world.

l Asia’s fourth largest exporter of automobiles.

l Manufactures largest number of tractors in the world.

l World’s largest manufacturer of two wheelers is located in India.

“We expect the small car segment to grow

by 20% year over year. That is the growth
that is sustainable. We can expect double-
digit growth for the next 4-5 years. Then, you
have to wait and see what the double-digit
growth is: whether it is 10-15% or 15-20% or
beyond that... it depends on a number of other
factors.”

Michael Boneham
President and Managing Director
Ford India

The Market Players

India has come a long way from the days of a handful of vehicle manufacturers to become a global hub for
manufacturing. The ensuing table facilitates an objective assessment of significant automotive companies in India.

Passenger cars Commercial vehicles Two wheelers Three wheelers

Maruti Suzuki Tata Motors Hero Honda Bajaj Auto
Tata Motors Ashok Leyland TVS Piaggio
Hyundai Swaraj Mazda Bajaj Auto Mahindra & Mahindra
Mahindra & Mahindra Volvo Royal Enfield Motors TVS Motors
Honda MAN Kinetic Motors Force Motors
Toyota AMW LML India Scooters India
Hindustan Motors ITEC Suzuki Panchnath Auto
General Motors Force Motors Yamaha Devendra Automobiles
Fiat Mercedes-Benz Mahindra & Mahindra
Ford Hyundai Honda Motorcycles
Volkswagen Mahindra Navistar
Audi Eicher Motors
BMW
Mercedes-Benz
Nissan
Skoda
Volvo
Sonalika (ICML)
Premier Motor

6 | Indian Automotive Industry Survey

 “The government aims to give full support
to the automotive small and medium scale
enterprises, and particularly to technology
upgradation. The nation is fast becoming
a manufacturing hub for passenger cars,
especially small cars”

Jyotiraditya M. Scindia
Minister of State for Commerce and Industry
Government of India

Advantage India
yy India holds enormous potential in the automobile
sector which includes the automotive and auto
ancillary segments, owing to its technological, cost
and manpower advantage.
yy India has a well-developed, globally competitive
auto ancillary sector and established automobile
testing, research and development centers.
yy Automotive companies can leverage on India’s
acknowledged skills in information technology.
yy India enjoys a natural advantage and is among the
lowest cost producers of steel in the world.
yy India is also geographically advantaged to have
proximity to other Asian markets and emerging
markets of Africa. Additionally, shipments to Europe
are relatively cheaper than from countries like Brazil
and Thailand.
yy India is a favorite destination for investments
owing to the low skilled labor cost compared to
many developing economies in the world. Every
year almost 0.4 million engineers graduate from
different engineering colleges of India adding to its
qualified manpower base.
yy The GoI has earmarked nearly USD 200 million for
human resource skill development initiatives across
industry sectors with the formation of the National
Skill Development Corporation.
yy The total value of exports by 2015 is expected to
touch USD 10 billion for vehicles and is likely to
be between USD 20 billion and USD 25 billion for
components.
yy India has demonstrated a stable government,
leading to greater security over policy initiatives.

Mazars Thought Leadership Series | 7


The automobile industry is currently one of the fastest
growing industries globally. The automobile industry
made its silent entry in India in the late nineteenth
century. Since the launch of the first car in 1897, the
Indian automobile industry has come a long way. The
industry has registered a growth of 28% year-on-year
(“YoY”) during 2010-11. With more than 2 million new
automobiles rolling out on the Indian roads each year,
the industry is set to grow further.
As far as the profit is concerned, experts expect a
very good growth in the coming year. In the ensuing
financial year alone, over 35 new cars and variants are
lined up for launch in the domestic passenger vehicle
segment. These launches would provide significant
volumes to the growth of this segment which itself
occupies 16% of total vehicle market in India, that is
currently led by the two wheelers. India was marginally
impacted by the global economic meltdown and even
though this sector was severely impacted in some of
the developed economies, the growth of the sector
in India was inspiring. Though there were production
closures in other countries, new product launches
marked the Indian automotive business in past two
years.
27%
of the respondents had an average annual
growth rate of 15 to 20% in the past three
years
Considering the present enhancement in the buying
power of an average Indian consumer, it is more likely
that this figure is going to be much higher in the case
of passenger car manufacturers. In fact, more than
half of the respondents feel that the order booking in
their respective organisations has increased this year
compared to the same period last year.
8 | Indian Automotive Industry Survey
EXECUTIVE SUMMARY
About three-fourth of the respondents foresee a
growth in the range of 15% to 30% in the coming
financial year itself. This optimism is a result of
certain unique factors that have so characteristically
become the hallmark of the Indian consumers. India’s
demographics indicate that about 60% of population
is currently below 35 years of age. With rising income
levels, consequent higher disposable income,
availability of financing coupled with new product
launches, strong growth in the passenger car market is
imperative in the ensuing years.
About 75% of the respondents are optimistic about
the utilisation of capacity of their respective plants in
the coming year as compared to the previous years,
thus increasing their profitability. Auto component
manufacturers are upbeat on their growth prospects
and attribute the same to market drivers such as
vehicle penetration and a favourable economy which is
driving the demand growth. The survey results show
that the growth of the market players would not only
come through higher sales volume, but also through
the expansion route both in India and abroad.
52%
of Indian respondents feel that, Indian firms
will expand both domestically and globally
More than half of the respondents indicated that
their business will expand both domestically (capacity
expansion, new plants, mergers etc.) and globally in
the coming years.
“Mazars has analyzed some key issues and policy
initiatives while also examining trends and best
practices (including those which can provide
insights on what lies in the road ahead) in the Indian
automotive industry, in order to produce
this important publication”
Viraf Mehta
Mazars India
EXECUTIVE SUMMARY

60%
of the respondents feel that M&A and related
investments in the sector will rise.
The survey results show that almost 60% of the
respondents were of the view that the expectations on
account of M&A and investments have risen post the
economic slowdown in the automotive sector. New
joint ventures (“JV”)s and acquisitions are expected
soon in the industry and this would result in India
being one of the important markets for leading global
players including the luxury segment passenger car
manufacturers.
The journey of growth is not a smooth drive but is
marred by hurdles and challenges on its way which
creep in time and again. In our survey, we tried to
understand these challenges faced by the industry.
About two-third of the respondents felt that inadequate
infrastructure, technology (availability and cost of
implementation) and likely roll back of the fiscal
stimulus package are challenges that need to be
addressed for the growth to be sustainable.
Majority of the industry feels that the GoI should
allocate more towards infrastructure development for
the auto, auto component and ancillary manufacturers.
Also, similarly, with improved road infrastructure in
the country, the sale of vehicles would also get a
thrust. Other fiscal incentives such as tax holidays,
exemptions etc. would also help the industry to grow at
a faster pace. It may be mentioned that the Automotive
Mission Plan 2006-16 (“AMP”) of Ministry of Heavy
Industries & Public Enterprise, GoI is a major initiative
taken by the GoI for this sector in the recent times.
The dynamics of the market and new trends of the
consumers demand that such policies be thoroughly
implemented in the true spirit for the objectives to
be met.
desire, buying capacity and the demand-supply
balance. It was seen that fuel efficiency is the
major driver of customer preference for a particular
vehicle in India. Consumers are inclined towards
fuel efficient automobiles, followed by the brand
value of the manufacturer. In the market where over
two-thirds believe that the Indian consumer remain
cost conscious and are driven by considerations of
value-for-money, fuel efficiency and affordability are
key decision making factors.
90%
feel that the Indian passenger vehicle market
would be dominated by the small and
compact hatchbacks
About 90% of the respondents feel that going
forward, the Indian passenger vehicle market would
be dominated by small and compact hatchback
cars and India would emerge as a hub to small car
manufacturing. The respondents are optimistic about
this segment and believe that this segment will grow
at a higher rate of 35% in the next three years. At the
same time around 69% of the respondents have
a positive outlook towards a steady growth in the
premium car segment in the Indian market.
“Some of the important trends driving the overall
growth of the automotive industry are good GDP
growth, higher consumer confidence, increased
spending on infrastructure and thrust on rural
employment. We see the momentum
to continue in the coming years”
Bharat Dhawan
Mazars India

The consumers are the growth drivers of the

automobile industry. India has the second highest
population, but at the same time has one of the lowest
vehicular penetration in the world. With a growing
population and higher earnings, the potential of the
auto market is huge. This is even supported by finance
schemes available in the market. We analysed as to
how the respondents perceive the Indian consumer
trends to be in the coming times. This was based on
parameters such as consumer preference,

Mazars Thought Leadership Series | 9

 DETAILED REVIEW

10 | Indian Automotive Industry Survey

THE GROWTH
 Q1 What has been your organisation’s
average annual growth rate (in terms
of sales) in the past 3 years?

27%
had an average annual growth
rate of 15% - 20% in the last
three years

While commenting on
the growth in the auto
components sector,
Sunandan Kapur, Vice
Chairman, Krishna Maruti
Ltd. said – the components
industry is also expected
to drive the growth of the
engineering sector in view
of its strong downstream
and upstream linkages with
many other segments of the
engineering sector like raw
materials, capital goods and
intermediate products.
While 35% of the respondents reported a growth rate in the region
of 10% - 15% for their organisations, 27% had grown by almost 20%
Year on year (“YoY”), over the last three years. Such growth came
at a time when for a considerable portion of past two years the
global economy went through a severe recession and where large
automotive manufacturing countries like Japan and USA reported a
negative growth.
52% of the respondents who reported a strong growth rate, were
from the auto components and ancillary sub segment.
With a helping hand of the GoI’s stimulus package, the automobiles
industry has recorded a growth of 27%. The industry has already
recorded sales of 12.3 million units, the highest ever, making the
current financial year one of the most successful in its history. In
February 2011 itself, domestic passenger car sales touched a record
of 1,89,008 units beating the comparable previous sales records.

12 | Indian Automotive Industry Survey

Q2 How was your organisation impacted
during the recent recession?

49%
feel the global recession had
a marginal impact on their
business

Commenting on the impact
of recession in the Indian
automotive Industry, Monish
Chatrath, Mazars India said –
the last three years have been
Despite the recent recession creating turmoil for several economies
including some developed ones which saw forced shutdowns,
buyouts and significant restructuring, India’s automotive industry
came into forefront for all the right reasons. These include the
acquisition of global mega brands at one end of the spectrum and
the production of the cheapest car in the world on the other.

dramatic for the automotive India’s automotive sector has responded to the challenging global
sector worldwide. While scenario by reengineering its efforts, focusing on innovative
marketing strategies and technical collaborations, while relying on
the manufacturers in India the buoyant domestic demand.
did not have to go through
closures and sell outs that Such buoyancy was evident with 49% of the respondents stating
that the global recession only marginally impacted their businesses.
we saw in some of the most
developed economies, it is
true they were under severe
pressure to maintain a
respectable bottom line and
the growth that was being
taken for granted did not
seem to be certain any more.

Mazars Thought Leadership Series | 13

 Q3 What measures did your organisation
take to steer through the recession?
34%
of the respondents
renegotiated vendor prices
to cut costs during the slow
down
While OEMs renegotiated
vendor contracts and
bargained for reduced
prices as initial first
measures to cut costs
during the slowdown,
for manufacturers like us
the focus was clearly on
management of overheads.
This had to be undertaken
in a planned and phased
manner to ensure that we
remain geared to seize
market opportunities
associated with the upturn
– said Rohan Talwar,
Managing Director, Allied
Nippon Ltd.
14 | Indian Automotive Industry Survey
The automotive industry in India responded quickly and decisively to the
global meltdown with several companies cutting down production targets
and reducing offtakes, while also focusing on the order lead time and going
back to their vendors to renegotiate prices. Several entrepreneurs not only
questioned every item of expenditure before a decision to incur was taken but
also worked towards ensuring that nothing would be spent simply because
it was being done earlier or because it was budgeted. There are two reasons
cited for this rationale - one, costs of various services had actually fallen or
hence could be negotiated and secondly costs (in relation to exports) were the
only aspect within their control.
34% of the respondents renegotiated vendor prices to cut costs during the
slow down, thus sharing the cost burden with their suppliers.
Unlike several developed economies (USA and the European countries)
which witnessed large scale shutdowns, only 13% of the respondents actually
downsized their staff in their respective organisations.
None of our respondents reported shutting down any business units during
the recessionary period in India. This was made possible due to the support
from the GoI, its incentives and other policy measures which have all long
helped nurture the development of the industry from a market that was once
confined to a handful of outdated models. With high levies making imports
unviable for most of the respondents, companies were encouraged to set
up entire automotive ecosystems, complete with their accompanying flotilla
of component firms, thus leading to the creation of hubs such as Gurgaon
(Maruti Suzuki India Ltd, Hero Honda Motors Ltd), Sriperumbudur (Hyundai
Motor Co. Ltd, Ford Motor Co.), Pune (Tata Motors Ltd, Mercedes-Benz) and
Pantnagar (Tata Motors, Ashok Leyland Ltd).
Q4 How do you expect your organisation to
grow (in terms of average annual sales)
over the next three years?

30%
anticipated an average annual
growth over 20% in the next
three years

The next big transformation
could be the shifting of
innovation in terms of
research and development
centers of excellence, to
The Indian automobile sector is expected to hit the fast lane of
growth driven by factors like a strong economic rebound, increase
in availability of finance and new product launches both by existing
domestic and global players an those entering the market. The
models available in Indian showrooms are mostly the latest ones
available anywhere in the world.

India, as the market grows
in importance – says Monish
Chatrath, Mazars India, who
has been advising several
large automotive companies
on their business strategy.
Our research also illustrates positive expectations of growth as 30%
of respondents anticipate a growth of over 20% showing signs of
a healthy road ahead. At the same time 31% of the respondents are
optimistic of a growth rate in the region of 15% - 20% in the next 3
years.
According to various reports, the projected size of the Indian
automotive industry for 2015 varies between USD 122 billion and
USD 160 billion and this includes approximately USD 35 billion from
exports itself. This will translate into a contribution of 10-11% to
India’s GDP by 2015, which is double the current contribution.

What is equally significant is that another significant pocket of

the market which relates to outsourcing of engineering services is
developing very rapidly and is expected to play a pivotal role in the
growth of the Indian automotive industry.

Mazars Thought Leadership Series | 15

 Q5 At what rate do you expect the Indian
automotive sector to grow in the next
financial year?

73%
are confident of a growth rate
of 16% to 30% for the auto
sector in India in the next
financial year

The budget of 2011-12 had a marginal impact The Indian automobile sector is expected to hit the fast lane
on the Indian auto sector. Following are of growth driven by factors like a strong economy, increase in
some of the highlights of this budget for the availability of finance and new product launches by existing and
Auto sector global players including those who have recently entered the market.
yy Increase in MAT rate from 18% to 18.5% Experts expect that the auto sector will report a sequential spurt in
yy No change in Central Excise Duty and revenue growth on high volumes and innovative pricing in the near
hence, it is very unlikely that prices of term. The substantial growth in volumes is expected to boost sales
vehicles would go up due to the Budget. growth of the automotive sector.
yy Surcharge rate reduced from 7.5% to 5%
for domestic companies and from 2.5% The level of success of new launches, rising income levels and
to 2% for foreign companies having a availability of finance both in the two and four-wheeler segments,
turnover of more than Rs. 1 crore are likely to determine the sales trajectory of the auto players in the
yy Dividends received from a foreign near future.
subsidiary proposed to be taxed at 15%
(plus applicable surcharge and cess)
in the hands of resident corporate
taxpayers. Expenditure in relation to such
income is not allowed to be deducted
yy Contributions to approved scientific
research programmes such as National
Laboratories, Universities, and Institutes
of Technology for Scientific Research, to
get a weighted deduction of 200% as
against 175% under section 35(2AA)
yy Excise duty is reduced to 5% from 10%
on kits for conversion of fossil fuel
vehicles to hybrid vehicles

16 | Indian Automotive Industry Survey

Q6 How is your organisation faring today on
the current order book size compared to
last year?

53%
felt that there will be a spurt
in the order book size for
vehicles in FY 2012 vis a vis
the previous year

Speaking of the sectors
growth, C Ramakrishnan,
President and Chief Financial
Officer, Tata Motors said
– the Indian auto Industry
is currently growing at a
remarkable pace and has
emerged as a hot investment
destination for global auto
players. The automotive
sector remains in a cycle for
around five to six years of
duration. We are standing at
the beginning of one such
cycle and hope this cycle
sustains for a longer time and
stays in a much better and
stronger way.
The resurgence of the economy and the rising income levels have
triggered a good growth in car sales. The calendar year of 2011 has
already witnessed a robust growth in car sales, after the relatively
moderate growth last year, especially in markets like Chennai, Delhi,
Mumbai, Chandigarh, Ahmedabad, Bangalore and Pune.
53% of the respondents felt that there will be a positive growth in
the order book size this year when compared to last year and this
expectation holds good particularly for the Original Equipment
Manufacturers (“OEMs”) and auto component manufacturers.
The positive growth in the Indian auto sector can be attributed
to some unique factors that define the Indian market. From
availability of latest brands to higher disposable income of the
Indian consumer, the market is fast changing. The consumer
demographics are transforming and changing to a youth oriented
society, with almost 65% of population below the age of 35 years.
This is also making India one of the most favourable destinations to
introduce latest vehicles that cater to the youth.

Mazars Thought Leadership Series | 17

 Q7 How is your organisation faring on
capacity utilization in this quarter,
compared with the same quarter last year?

75%
are optimistic about their
profitability to grow in this
quarter as compared with the
previous year

For most part of the recent slowdown, the Indian automotive

component segment dealt with high inventory from decline in
exports. At that stage, several auto component organisations were
unsure of their expansion plans.

Though clichéd, that is now history. A shade over 75% of the

respondents are now optimistic about the utilization of capacity
of their respective plants when compared to last year. With the
economy bouncing back and the OEMs stepping up production, it is
back to business as usual, but with a difference.

These companies have not only bounced back but have increased
their production levels. In most cases where the respondents had
resorted to cutting shifts and reducing the number of working
days, not only are they back to peak production levels but have
also increased the salaries and bonuses of their staff. Many of
the other industries have also shown a definite sign of recovery,
especially in the IT and general industries, and with this there is a
perceptible increase in the disposable incomes. Consequently there
is also a spurt in demand for passenger cars and two wheelers and
respondents in the OEM segment have corroborated the same.

The Indian passenger car sales have risen substantially and India
today is among the top ten leading markets. This is despite the
anxiety of an upward swing of inflation and the impact of the current
policy intervention on interest rates.

18 | Indian Automotive Industry Survey

 “According to projections for 2020, the
passenger car segment of the Indian
automobile market is likely to reach a size
of 9.3 million units and it will become the
third largest global car market,”
J D Power, March 15, 2011*
*press Release
*press Release
PROFITABILITY
AND
PREDICTIONS
 Q8 In terms of business volumes, what is
your perspective on the performance of
organisations in your industry segment
in the ensuing year?

58%
feel that their industry
segment will be stronger in
the ensuing year

Addressing the factors
fueling growth in the auto
components sector, Jatinder
Mehta, CEO, Omax Autos
Ltd. elaborated – thanks to
India’s cost competitiveness
in terms of labour and
established manufacturing
base the Indian auto
components industry has
made a specific niche in
the global automobile
world. Today, India is not
only eyed as the hub for
automobile production but
also the epicenter to source
components as well.
Given the high level of expectation owing to increase in demand
in the auto sector, majority of the respondents felt that, their
businesses would be stronger in the next financial year. The most
optimistic sentiment was voiced by auto component manufacturers
with 58% of them seeing a stronger growth.
Among the sectors in the automotive Industry, the auto component
sector is rapidly adding capacity to meet the growing demand in
India. According to experts, while the auto component consumption
in 2008-09 was impacted by the slowdown in the Indian economy,
this vertical, has recovered smoothly and witnessed an upsurge in
consumption, especially in the second half of the current fiscal year.
Regulatory incentives by the GoI, increase in exports, introduction
of new models as well as variants coupled with rising income levels
of average middle class population and comfortable repayment
options are expected to continue to drive demand in the automotive
sector in the ensuing 2-3 years.

22 | Indian Automotive Industry Survey

Q9 If you feel the performance of the
industry would be stronger in the
ensuing year than present, what
according to you is the main reason for
the improvement?

35%
believe that the increase
in revenue growth in the
following year will be driven
by an increase in the market
demand

While commenting on the
industry performance, Anil
Kulkarni, Mazars India said
– many joint ventures have
been set up in India with
foreign collaboration, both
technical and financial with
leading global manufacturers.
There is little doubt therefore
that the next 3 years would
see a number of automotive
companies developing and
executing strategies for
sustainable growth and value
creation on an International
platform.
Almost 35% of the respondents believe that the increase in their
revenue growth in the following year will be due to an increase in the
market demand driven by an enhanced level of vehicle penetration,
and greater disposable incomes. At the same time, most of the
respondents were not so optimistic about a rise in exports as only
18% of the respondents felt that exports will lead to growth in the
following years.
Availability of skilled manpower with engineering and design
capabilities has resulted in many global players leveraging on this
advantage by increasingly outsourcing activities like design and
Research & Development (“R&D”) to their Indian arms. According
to industry estimates, automobile manufacturers have invested
more than USD 2.3 billion on R&D alone in the last five years. This
also leads to greater profitability and one of the best examples is the
success of the latest offering from the Japanese car manufacturer
Toyota which has been designed for India.
The GoI has made significant recent announcements relating
to the National Automotive Testing R&D Infrastructure Project
(“NATRIP”), in which the GoI plans to invest USD 17 billion to
strengthen the automotive R&D infrastructure in India. These
feature tax holidays for investments exceeding Rs. 500 crores,
one-stop clearance for FDI proposals and 100% tax deductions for
export profits.

Mazars Thought Leadership Series | 23

 EXPANSION:
NEW MARKETS
 Q10 What is your outlook towards M&A in the
Indian automotive industry in the next
one year?
59%
said that there will be a strong
focus on M&A
Commenting on the trend
Sumit Khosla, Mazars
India said – with the Indian
automotive Industry fairing
well globally, the new wave of
Indian M&A is being powered
by a desire for growth, usually
rapid growth and often global
growth.
26 | Indian Automotive Industry Survey
While the year of 2009-10 may have been relatively weak in terms
of overall transactions, the resounding auto sales in 2010-11 are an
indicator of the good times ahead. Experts believe that we would
see a number of automotive companies seeking expansion through
M&A as part of their strategy for sustainable growth and value
creation.
Companies in India are also expected to continue to garner their
financial muscle in order to make strategic and/or opportunistic
cross-border acquisitions.
The survey shows that expectations on account of M&A and
investments have clearly risen. From a mere single JV between
GoI and Suzuki in the 1980’s India has come a long way today to
have eleven large JV’s relating to manufacturing of cars and related
investments in the sector including Honda-Siel and Toyota-Kirloskar.
The Indian automotive and the auto component sectors have also
seen significant out-bound cross-border M&A activity in the recent
past.
59% of the respondents expect to see that in entirety there will be a
strong focus on investments and M&A activities in the ensuing year.
Q11 Are you looking to expand your reach to
new overseas markets in the next 3 years?
52%
respondents are bullish of
their expansion plans in the
next three years
Even as global markets
recover, there is a resurgence
in both distressed and non-
core opportunities under
discussion. That being said,
deals are being envisaged
with creative terms. For
those with the ability to
consummate transactions,
the current market
environment creates great
opportunities for strategic
buyers to gain product,
geographic and customer
extensions – said Miguel De-
Fontenay, Global Consulting
Leader, Mazars.
In pursuit of technological advances, several of the respondents
have been in discussion for JVs, through which they can gain access
to technical know-how and then apply it to their products. However,
much of the interest from emerging markets has yet to translate
itself into completed deals. Cash-strapped strategic buyers from
overseas have, for most part of the downturn period, remained
focused on survival, while private equity firms exercised caution
and in some cases were unwilling to commit capital without debt
financing.
There has been an improvement in M&A activity in the current year,
when compared with the previous year.
Our research shows that of the automotive companies, the ones
that are most likely to leverage M&As are those that have stronger
operating models and cash positions. Several respondents have also
expressed their need to develop a competitive advantage through
consolidation of scale and expertise.
As many as 52% respondents are optimistic of their expansion plans
in the next three years. Regarding target markets, the respondents
voiced that Indian companies are now aggressively looking at
Europe, North America and some parts of Asia.
Mazars Thought Leadership Series | 27
 Q12 How are you looking at business
expansion in the next three years?

54%
are considering expansion
to develop a competitive
advantage through capacity
expansion and setting up of
new facilities

Given the dynamic growth we are seeing
in the two wheeler and passenger
car segments, the auto component
manufacturers are stretching their current
facilities to a maximum output while
keeping an eye on costs and margins;
this they are doing with a re-look into a
‘make’ or ‘buy’ strategy for components/
child parts and also through imports of
raw materials where ever possible from
best buy sources, primarily in china.  The
recent price hikes in steel are getting
tougher to pass onto OEM’s who are
consistently demanding cost down efforts
from suppliers with increasing volumes
and therefore the suppliers are investing
into new technologies and penetrating
new markets for their products. We also
see vertical integration as a strong trend
and with this new opportunities for growth
for component manufacturers, with some
tier 2 and tier 3 suppliers integrating and
transforming into tier 1 organisations
– commented Mr. Vidur Talwar,  Joint
Managing Director, QH Talbros Ltd.
Auto makers in India are putting capacity expansion plans back in
top gear and on the back of a revival in the sales of cars, trucks and
two-wheelers.
Experts believe this is only the beginning of a trend that will see the
country add 2-2.5 million units in manufacturing capacity in the next
four years. However, massive expansion plans have also inevitably
given rise to fears of an excess in production capacity, albeit in the
short term.
The GoI expects the auto sector, which includes component makers
and ancillary units, to account for USD 35-40 billion in investment
between 2006 and 2016. This is consistent with the Automotive
Mission Plan (“AMP”), which lays down the sector initiatives and
their impact for a period of 10 years till 2016. The AMP, which
is prepared by GoI, is a document that sets out the goals of the
industry and the work plan to achieve those targets.
The respondents have also described that when it comes to M&A in
automotive sector, major players in India are continuing to drive and
build on their strengths and capabilities to manufacture products of
global standards at competitive rates. The cost advantage that India
has over the developed markets are driving these companies to
expand both locally as well as globally.

28 | Indian Automotive Industry Survey

Q13 How is this expansion likely to be
funded?

60%
plan for expansion through
internal accruals

The respondents have indicated that the Indian auto sector is

still relatively optimistic about its growth plans and prefers to
rely on internal accruals for deals with 60% of them planning to
use existing cash reserves whilst the remaining plan to fund their
expansion partly by private equity funds and financial institutions.

Engendered in this sentiment is a recoupling of M&A activity with

supportive financing conditions and a return of confidence to the
board room post the economic slowdown.

Mazars Thought Leadership Series | 29

30 | Indian Automotive Industry Survey
CHALLENGES

Mazars Thought Leadership Series | 31

 Q14 What are the major challenges being
faced by the Indian automotive industry?
29%
feel that the biggest
impediment for growth of
the sector is inadequate
infrastructure facility in the
country
Highlighting the issues which
needs to be addressed to
overcome these challenges,
Mr. C K Dave of Maruti
Suzuki India Ltd. said –
having quality manpower,
infrastructure improvements,
and raw material availability
also play a major role in
achieving value for money
for the customers. Access
to latest and most efficient
technology and techniques
will bring competitive
advantage to the major
players.
32 | Indian Automotive Industry Survey
Along with the growth opportunities, the Indian automotive industry
presents several challenges. About 29% of the respondents feel
that the biggest impediment for growth of the sector is inadequate
infrastructure facility in the country. Also, increase in competition
from imported products mostly in the ancillary vertical and pricing
were considered as significant challenges by about one-third of the
respondents.
Experts believe that the key to success in the industry lies in the
ability to improve labour productivity and capital efficiency while
being cost efficient and addressing the challenges of pricing
pressures by competition at the same time. Also, infrastructure
development in India must keep pace with the growth of the
automotive industry.
The GoI is drawing up the AMP that aims to make India a global
automotive hub. The objective is to draw an innovative plan of
action with full participation of the stakeholders and to implement
it in mission mode to meet the challenges coming in the way
of growth of industry. Through the AMP, the GoI also plans to
provide a level playing field to the players in the sector and to lay a
predictable future direction of growth.
Q15 What should the GoI focus on priority
to drive the growth for the auto sector in
India?

40%
of the respondents believe
the GoI should prioritize its
investment to improve the
infrastructure for the sector

40% of the respondents believe that the GoI needs to facilitate the
development of infrastructure to further propel the growth of the
sector. Most of these respondents feel that the GoI should prioritize
its investment to improve the infrastructure.

The biggest challenge for the sector by far is the poor road
infrastructure. India’s road network, comprising of a modest
national highway system (that is only 2% or less of the total roadway
length) is inadequate and dilapidated which can barely keep pace
with the auto industry’s rapid growth. Most roads are single-lane
roads built in the 1950’s and 60’s. Traffic laws are not well enforced
leading to one of the highest per-capita accident rates in the world.
Introduction of bigger and more powerful vehicles could further
accentuate this situation if the infrastructure does not improve.

There has been an increase in travel times due to increased traffic

and bad roads in major cities. The respondents believe that their
cost advantage will be eroded if India’s promised improvement in
infrastructure fails to translate.

24% of the respondents feel that the GoI should also provide further
tax incentives to promote and develop growth in the auto sector.

Mazars Thought Leadership Series | 33

34 | Indian Automotive Industry Survey
CONSUMER
TRENDS

Mazars Thought Leadership Series | 35

 Q16 Do you believe that the Indian domestic
market will be dominated by small/
compact hatchbacks in the next 3 years?

87%
feel that India is poised to
become a leader in small cars
segment in the next 3 years

An overwhelming majority of respondents felt that the Indian auto

market would develop as one of the world’s leading small car
markets in the next three years.

Technical know how, relatively lower costs, stable growth, favourable

government policies, a large and integrated supplier base are some
of the key aspects which are expected to foster India’s growth as a
major small car manufacturer.

A similar sentiment is highlighted in a recent report by experts who

have gone to add that India will become the world’s largest producer
of A-segment small cars by 2013.

Prospects of small car exports have grown at a CAGR of 21%

during the last 5 years and are expected to more than double by
2013-14. This growth has been enabled by increased manufacturing
competitiveness across the board, driven by continuous
improvement in quality and productivity

36 | Indian Automotive Industry Survey

Q17 According to you, what are the parameters
based on which the average Indian
consumer decides on a particular vehicle?

66%
feel that Indian consumers
remain economical, cost
conscious, and driven by value-
for-money and hence, fuel
efficiency and affordability are
their key decision factors

Valued added features, more
lucrative ways for dealers
to retain sales margin and
guaranteed residual values
of cars sold will emerge
With the soaring fuel prices, consumers in India are more inclined
towards fuel efficient cars and the survey results further validates
this sentiment. 66% of our respondents reveal that Indian
consumers are economical, cost conscious, and driven by value-
for-money and hence, fuel efficiency and affordability are their key
decision factors.

as some of the means to
retain and increase market
share in this extremely price
sensitive market segment
– commented Yadur Kapur,
Managing Director, Deutsche
Motoren while talking about
the emerging trends in the
auto sector.
The survey also shows that buyers are becoming brand conscious
specially those in the elite class. 23% of them feel that brand value
plays an important role for the customers today for purchase of a
vehicle.
The survey also show that mass market consumers make product
selections based on the price competitiveness, fuel efficiency and
credit availability.

Mazars Thought Leadership Series | 37

 Q18 Do you see the demand for premium
segment cars i.e. in the range of Rs. 20
Lac and above likely to increase in the
next 3 years in India?

69%
of the companies surveyed
see a huge market for the
premium car segments in the
next 3 years

Commenting on the growth
of the luxury car market in
India Kamal Mokdad, from
the global automotive expert
team at Mazars said – the
luxury car market is poised
for exponential growth. While
India remains predominantly
a cost-conscious market,
profitable niches are available
for products which address
specific needs. Customers
paying top money for fancy
cars expect fancy service too.
Premium car makers find
that while it’s easy to serve
the metro car buyer, those in
the hinterland are a different
proposition.
The luxury passenger cars segment in India has witnessed an
impressive growth in demand, especially in recent years. The survey
reveals that 69% of the respondents see a huge market opening for
the premium car segments in the next 3 years .
Luxury customers are no more confined to only the metros in India.
Upcoming metros and several tier 2 and 3 cities are experiencing
growth in the luxury car market in a big way.
Growth in the luxury segment has been faciliated by the Indian
economy which has grown at nearly 9 percent on average in the last
four years. With the entry of new players and launches from the likes
of BMW, Mercedes-Benz, Porsche and Audi, the luxury car market
is on a continuous growth and experts believe that India is expected
to become one of the world’s largest market for luxury cars. The
total market for luxury cars was about 18,000 units last year, and
is expected to double in the next two-to-three years. However,
the introduction of higher import duties for luxury cars imported
through the Completely Knocked Down (“CKD”) unit route in the
Union Budget of 2011-12 may prove a dampener in the growth of
this segment.

38 | Indian Automotive Industry Survey

Q19 Which vehicle segments do you foresee
maximum growth in the next 3 years?
35%
of the respondents feel that
the small car segment will
witness maximum growth
Commenting on the growth
of the tractor market in India,
Mr. Nikhil Nanda, Joint
Managing Director, Escorts
Ltd. said – the Indian Tractor
industry is positioned in a
market with over 700 million
farmers. With India hitting
GDP growth levels of 8-9%
p.a., farming practices will
be impacted significantly.
In the years ahead, we
see steady increases in
tractor penetration and
greater adoption of farm
mechanization practices. The
opportunities presented in
this agricultural space will
be huge as India modernizes
and takes steps to enhance its
food security for its people.
 
Several two-wheeler buyers are transitioning from two to four
wheelers. With cheaper options like Tata Nano available in the
market and a availability of loan facilities, India is marching towards
being a four wheeler country. 35% of the respondents feel that the
small car segment will witness maximum growth in next 3 years.
Another interesting trend to note is that the tractor volumes are
expected to grow in India. For the year 2011-12 the agricultural credit
flow target has been set at Rs. 4,75,000 Crore. The Indian tractor
market, thus, is expected to grow in future and remain one of the
biggest tractor markets in the world. The results show that 19% of
the respondents are expecting a growth in the tractor market in the
next 3 years.
Production of both two-wheelers and three-wheelers are expected
to double to 2.2 crore units by 2015 and reach 3 crore units by 2020
driven by current low penetration levels, expanding rural sales and
growth in exports.
Experts believe that production of commercial vehicles will cross the
22 lakh-units mark in the same period. In addition, the four-wheeler
passenger vehicle market has grown impressively as a result of the
progressively changing requirements of the new middle class.
Mazars Thought Leadership Series | 39
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