Analysis of Automobile sector -India 2011

Research Methodology (MGT 506)

Analysis of Automobile sector India

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Analysis of Automobile sector -India 2011

ACKNOWLEDGEMENT

We would like to express our sincere gratitude to our project guide, Dr. T. J. Joseph. We were privileged to experience a sustained enthusiastic and involved inte rest from his side. This fuelled our enthusiasm even further and encouraged us to boldly step into what was hazy and unexplored expanse for us. We would also like to thank Dr. Mihir Dash for his guidance towards analysis skills. Last but not least, we would like to thank all the faculty me mbers for giving us their valuable insights into the industry.

Archa Richa Amit Shanki Shrikant

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Analysis of Automobile sector -India 2011

DECLARATION
We hereby declare that the work presented in this project titled Analysis of Automobile sector-India submitted towards completion of research project in third Term by Section-Finance-B of MBA at the Alliance University-School of Business, Bangalore. It is an authentic record of our original work pursued under the guidance of Dr. T. J. Joseph.

Slno 1 2 3 4 5

Name Richa Archa Amit Shanki Shrikant

ID 10SBCM0347 10SBCM0436 10SBCM0491 10SBCM0232 10SBCM081

Signature

Place: Bangalore Date: 03-03-2011

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Analysis of Automobile sector -India 2011

Table of Contents

Slno
1 2 3 4 Introduction Industry Structure Industry Trends PEST Analysis

Topic

Page No
5 6 9 11

Industry Conduct and Practices Distribution Strategy Pricing, Promotion, R&D and Products Marketing Intensity 5 Technology Intensity Foreign Exposure Leverage of the firm Working Capital Ratio Industry Pe rformance Growth Analysis 6 Profitability Trend Accounting based measures 7 8 9 10 Competition Analysis (Porters five forces model) Future Outlook Conclusion Sources of information 30 31 32 34 36 37 38 23 26 28 29 18 20 22

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Analysis of Automobile sector -India 2011

Introduction
Automobile sector is the lifeline of a nations path to prosperity and constitute to about 4.14% of GDP [1]. The automobile sector consists of light commercial vehicles (LCV) and medium commercial vehicles (MCV). India has been one of the preferred destina tions due to its low labour and material cost. However, cost on technology is still high with respect to the MNCs. With rapid increase in middle class, the demand for LCV has gone up by 40%
[2]

. India is a

price-conscious economy and choices are substituted by public transport including railways and Buses. The era of green revolution marks the introduction of green vehicles. However, the growth of green vehicles will be slow unless encouraged by government
[3]

. Manufactures place great

faith in dual- fuel technologies than in battery-powered alternatives because of the lack in infrastructure support.

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Analysis of Automobile sector -India 2011

Industry Structure

Number of Players Total Market Size Nature of Competition Industry Concentration

10 117331.84 Crores Oligopoly High

Number of Playe rs HCV LCV Ford India

[4]

Ashok Leyland Eicher Motors Force Motors SMS ISUZU Tata Motors

Hindustan Motors Honda Siel Cars Hyundai Motor Maruti Suzuki

Nature of Competition The nature of competition for in automobile sector is Oligopoly due to following reasons: Few firms
o

There are a total of 10 Automobile firms in the India according to Capitaline database. However other firms not listed in Capitaline database include premium MNC firms like Daimler group, BMW group, Volkswagen group, Toyota, Nissan and Ferrari

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Analysis of Automobile sector -India 2011 Capital intensive sector acts as a barrier o The automobile sector is capital intensive. It requires huge investments for operations and so its difficult to enter the market Potential for product differentiation is high o The product variety is high and varies in terms of Fuel efficiency Pricing Size Brand Name Technology

Industry Concentration Herfindahl Index is a measure of size of the firms in relationship to the industry an indicator of the amount of competition among them.

Where, H = Herfindahl Index. Si = Contribution of each individual firm to Industry sales. n = Number of firms. According to Herfindahl index, the concentration of Indian Automobile industry is high (2599.40).

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Analysis of Automobile sector -India 2011 Relative Market Share

0.37

Relative Market Share

8.85

1.14

0.70 Ashok Leyland

29.55

Eicher Motors Force Motors SML ISUZU Tata Motors Ford India
36.75

Hind.Motors Honda Siel Cars Hyundai Motor I

16.72
3.48

Maruti Suzuki

0.61

1.83

The market leader in Indian Automobile industry is Tata Motors leading by 36.75% of market share followed by Maruti Suzuki with 29.55% and Hyundai Motors by 16.72%. Tata motors include both HCV and MCV whereas Hyundai and Maruti Suzuki belong to LCV group. Ashok Leyland has 8.85% of market share and belongs to HCV group. The remaining firms contribute to 8.85% of market share with Honda Siel occupying 3.48% of market share.

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Analysis of Automobile sector -India 2011

Industry Trends
Growth

The commercial vehicles have grown steadily from 2004-2007, until recession struck the Indian economy due to the cascading effect of American economy, which led to decline in sales and reached to -5% in 2007-2008. However, with Indian economy bouncing back in second half of 2009, Domestic sales volume increased significantly
[11]

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Analysis of Automobile sector -India 2011 Affordability

According to research conducted by KPMG, the average Personal disposable income of a US citizen is $36380 and an average price of a car in US is $27000. This is in contrast to the Indian economy where the average Personal disposable income of an Indian citizen is $1080 as compared to the average price of a car, which is $8500. However when compared to China, India has low Personal disposable income but the average price of a car in china is double to that available in India. With the breakthrough in price level by Tata Nano, people buying two-wheeler would instead buy a car. The increasing number of educated people entering the working age bracket will provide a healthy demand for private light transport.

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Analysis of Automobile sector -India 2011 Luxury Car Sales

According to SIAM, the luxury car sales have grown significantly over the last three years. On one side India is home to price-conscious citizens, however on the other side it has citizens who are status conscious. While the luxury car volumes are only about one percent of the total passenger vehicle sales in 2009-10, the cumulative annual growth rate (in volume) of nearly 40 percent over the last two years suggests that this share is bound to grow.

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Analysis of Automobile sector -India 2011 Rural Demand

The rural demand over the past three years have p icked up significantly. With huge untapped potential of increasing sales volume, the rural market would be an important part of growth of Indian Automobile industry. The untapped demand segments (rural markets, youth, women and luxury cars) are expected to play a significant role in the growth of Automobiles.

LCV/MCV

According to the SIAM and ICRA, LCVs have outperformed HCVs in sales for the past 7 quarters. The sale of HCV reached a peak of 95000 in Q4FY08 but saw a decline in the next quarter. With the market conditions getting better and economy reviving from recession, LCV saw a quarter on quarter growth from Q3FY09 to Q2FY10.
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Analysis of Automobile sector -India 2011

PEST Analysis

PEST stands for Political, Economic, Social and Technological factors that serve as Macroenvironmental factors used to analyse an industry.

Political factors

Reform phase

o The automotive industry, which saw a negative annual growth rate of 10.1% in
the vehicles segment in the year 1991-92, recovered in the subsequent years of the post-reforms period. The passenger car segment with the highest untapped growth potential saw the most hectic activities from the foreign automotive firms.

o By mid-1990s, several foreign players had entered into the Indian passenger
car market by mainly setting up JVs with the local firms Mercedes-Benz with TELCO (1994), General Motors with HML (1994), Daewoo with acquisition of DCM-Toyota (1995), Honda Motors with Siel Ltd. (1995), Ford with M&M (1996), Hyundai with a 100%-owned subsidiary (1996), Fiat with Tata Motors (1997) and Toyota with Kirloskar Group (1997). In the CV segment, Tata in collaboration with Vectra Motors (1997) and Volvo with its 100%-owned subsidiary (1997) made their foray into the Indian market.

o Auto Policy 2002 allowed automatic approval of foreign equity investment

upto 100% for the manufacture of automobiles and auto-components. With regard to the tariff structure, the policy proposed to fix the import tariffs in a way that the actual production within the country was facilitated over mere assembly, without providing undue protection at the same time. Also, environmental and safety standards as an integral and important part of modern automotive industry received due attention.

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Analysis of Automobile sector -India 2011

Stability of Government

The political instability of the country has a very strong impact on the automobile industry. Fluctuations happen in the automobile industry with any kind of small and big political news, like if there is a news that a particular political party has withdrawn its support from the ruling party.

If the government is not stable, then it will adversely affect any industry. The government imposes many restrictions and taxes on the automobile industry. With the change in government there will be change in the taxes levied on the industry also. India has been politically instable in the past but it is a politically stable now-a-days.

Inte rnational trade regulation

At present 100% FDI is permissible. The import of technology or technological up gradation on the royalty payment of 5% without any duration limit and lump sum payment of USD 2 million is also allowed under automatic route in this sector. The industry provides direct and indirect employment to nearly 15 million people.

Economic factors Impact of monetary policy

o There is a tremendous impact of monetary policy on Indian automobile

industry, because of which many automobile companies of both LCV and HCV segments faced huge loss in terms of sales and profit.

o Inflation is the main cause of this downfall of profits of the companies,

because of the recent inflation faced by country; India has taken a decision to raise the interest rates as a part of monetary policy. Hence all the food prices were increased, and all the commodities prices were increased. Therefore there
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Analysis of Automobile sector -India 2011 was a huge impact on the buyers decision of any commodity. Similarly in the automobile industry, an ordinary man, who has a desire to buy a car or any vehicle cannot afford to buy, hence there was a sudden downfall of profits in the Automobile sector.

Population

As the Population increases, the demand increases, which in turn leads to increase in production and output. Population and Production are directly proportional to each other. So, the population affects the automobile industry. As quoted by the CEO of Tata Group If you look at the Tata Nano, people buying two-wheeler bikes who have a bit more disposable income and can now afford to buy a car instead. I think youre going to see a doub ling of sales over the next three to four years and I think thats going to be driven by both domestic demand and by India becoming a small car export hub

Social factors Income distribution

o Income distribution is how a nations total economy is distributed amongst its

population. Expensive cars are used as status symbols to display ones wealth by the high class people. The amount demanded increase with an increase in their price and decrease with a decrease in their price. This happens with the consumers whose income is high and forms the upper strata of the society.

o In countries where most people are poor and very few people are rich, there
will be maximum demand for high price luxury cars by the rich class people and in countries where most people derive an average income, there will be more demand for small and medium sized cars which most people can afford.

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Analysis of Automobile sector -India 2011 Fashion and Fads

o Fashion and Fads also influence the choice of the buyers. Innovations and new
technologies give rise to new models of automobiles. Fashion conscious consumers always look for the most latest model of the car to possess the most current model.

o As fashions and fads always keeps changing consumers choice of cars also
keeps on changing. Changed lifestyle of people, leads to increased purchase of automobiles, so automobile sector have a large customer base to serve. Indian customers are highly discerning, educated and well informed. They are price sensitive and put a lot of emphasis on value for money, preference for small and compact cars.

Green Revolution

Increasing fuel prices is bestowing a tough time to everyone. But car manufacturers have come up with the solution to overcome this problem. Many auto makers turning their vehicles green by rolling out hybrid cars.

Honda Siel has launched the Indias first hybrid car the Honda Civic Hybrid. As hybrid cars are something new to India and people have little knowledge about it. Hybrid cars are 47 per cent more fuel efficient than its petrol counterpart.

REVA is the only electric car that flaunts on the Indian roads but will soon be seen with its rivals. Electric cars are affordable and easy to maintain. The car turns out to be 40 per cent cheaper than a conventional petrol car. Though the green cars will be expensive, it will definitely give tough competition to the petrol version cars. If the revolution gets its victory, then India will soon be a country with less pollution.

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Analysis of Automobile sector -India 2011 Technological factors

More and more emphasis is being laid on R & D activities carried out by companies in India. The Government of India is promoting National Automotive Testing and R&D Infrastructure Project (NATRIP) to support the growth of the auto industry in India. Technological solutions helps in integrating the supply chain, hence reduce losses and increase profitability.

Internet makes it easy to collect and analyse customer feedback the entry of global companies into the Indian market, advance technologies, both in product and production process have developed.

While young automakers from the developing world will certainly continue to gain both technological and market experience, established international car companies still have considerable advantages in technological, management, and marketing that should give them a solid advantage in the BRIC countries for some time to come.

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Analysis of Automobile sector -India 2011

Industry Conduct and Practices

Distribution channel

1 2
3 4

Stockist

Dealers
Sub Dealers Booking Agents

Stockist: Stockists are people who undertake to maintain stocks of automobiles. They may act as the wholesalers of vehicles having large stocks. The automobiles manufactured are stored in large numbers and as and when needed the stocks are transferred to the dealers .The stockists generally represent 3 to 4 districts in a state. In a particular state there are stockists in the main districts of the state.

Dealers: The vehicles are shipped to the regional branch and from there, to the authorized dealers of the companies. The dealer represents the district or the main city. The customers can directly approach the dealers who have good amount of stocks and can purchase the desired vehicles. They maintain stocks less in number as compared to the stockists but a large number of sales is undertaken from them only. The dealers are located in the main city of a particular state.

Sub-dealers: Sub-dealers deal in small scale and have fewer stocks of vehicles in comparison to the dealers. They represent a particular area in a particular city. They are located in main areas of
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Analysis of Automobile sector -India 2011 the city so as to be in the reach of a large number of customers. The customers can approach these easily as they are located at the main areas of the city.

Booking Agents: Booking Agents are individuals working on free lance basis. Free lance basis means that persons sell their service to employers without long-term commitments to their employers. They generally work under the terms of the contract of sale and have a prior target of accomplishment of a certain number of customers. They are responsible for reaching the customers and for completing the process of sale.

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Analysis of Automobile sector -India 2011 Marketing Strategies

Pricing
o

The prices are fixed keeping in mind a number of factors such as market conditions, costs incurred, profit percentage desired by the company and dealers profit. They adopt penetration pricing when they are introducing a new model of a car. Penetration pricing is a pricing strategy of setting a relatively low initial entry price so as to attract new customers, to increase market share, rather than to make profits in the short run. Generally this type of pricing strategy is very often adopted by Tata Motors

Companies also use reference pricing strategy in which their products are sold at a price which is just below its main competing brand. Another type of pricing strategy followed by the major automobile compa nies is premium pricing strategy. Premium pricing strategies is the strategy of consistently pricing at, or near, the high end of the possible price range to help attract status conscious consumers. Honda uses this type of pricing strategy. Its cars are costlier than the other cars in the same segment. It targets people who are status conscious and belong to the high class society

Psychological pricing is also another pricing strategy adopted by the automobile companies. Certain prices have a psychological impact .The retail prices are often expressed as odd prices, a little, less than the round numbers. Hyundai follows this kind of pricing strategy

Promotion
o

The automobile industry in India makes use of various tools of promotion to increase their sales. Personal selling, advertising, sales promotions, public relations all form part of their promotion strategy. There is a minimal personal selling involved. The Sales Officers at the dealerships collect prospective customer databases and perform cold calling to attract customers

Advertising is another tool by which they promote their brands. Advertising is a form of commercial mass communication designed to promote the sale of a product or service. Companies are responsible for the advertising of their

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Analysis of Automobile sector -India 2011 products. The dealer does play any role in the advertising. The various media used for advertising are T.V., Newspapers, Magazines, Workshops and seminars, banners, booklets, and pamphlets Hoardings, and Internet etc. The dealer conducts point-of-purchase displays to advertise the products. The advertisements done by the companies help the dealer to capitalize on the market
o

The purpose of sales promotion is to supplement and coordinate advertising and personal selling. Sales promotions are designed to persuade co nsumers to purchase immediately by providing special incentives such as cash rebates, prizes, extra product, or gifts. The companies conduct intensive sales promotion during festivals. Public Relations is a management function that creates, develops, and carries out policies and programs to influence public opinion or public reaction about an idea, a product, or an organization. The companies take serious measures to maintain good public relations

R&D o The R&D efforts of the automotive industry are primarily focused on technologies that will make automobile as environmentally compatible, as economically and as safe as possible. The Department of Heavy Industry, under the Ministry of Heavy Industries and Public Enterprises, is the main agency in India for promoting the growth and development of the automotive industry. The department assists the industry in achievement of its expansion plans through policy initiatives, suitable interventions for restructuring of tariffs and trade, promotion of technological collaboration and up-gradation as well as research and development.

Legal tactics

o Companies focus at the tactical level to develop strict goals, which the middle
management accomplishes. All tactics strive to foster the cost leadership while in the meantime catching up with technology.

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Analysis of Automobile sector -India 2011 Marketing/Advertising Intensity

HCV
0.07 0.06 0.05 0.04 Eicher Motors Force Motors SML ISUZU

0.03
0.02 0.01

Tata Motors

0
2005-03 2006-03 2007-03 2008-03 2009-03 2010-03

Force Spent Rs 52.47 Cr

[4]

in 2005 on advertisement and reduced in the subsequent years.

SML ISUZU increased its marketing intensity in the HCV segment. Tata spent considerably less owing to its already established brand image and quality.

LCV
0.0900 0.0800 0.0700 0.0600 0.0500 0.0400 0.0300 0.0200 0.0100 0.0000
2005-03 2006-03 2007-03 2008-03 2009-03 2010-03

Ford India Honda Siel Cars Hyundai Motor Maruti Suzuki

Ford India has been aggressive in marketing (Data from 2006-2010 is not available in Capitaline database). Hyundai has the market dominance with 16.72%
[4]

and intensive

marketing through Shahrukh Khan as its brand ambassador. Honda has increased its spending year on year.

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Analysis of Automobile sector -India 2011 Technology Intensity In-house R&D HCV
7.00%

6.00%
5.00% 4.00% 3.00% 2.00% 1.00% 0.00% Ashok Leyland Eicher Motors Force Motors Tata Motors

2005-03

2006-03

2007-03

2008-03

2009-03

2010-03

Product innovation is the key to a companys survival. Force Motors spending declined from Rs 56.49 Cr in 2006-2008 to Rs 22.1 Cr in 2008 [4]. Tata Motors saw a rapid increase in R&D spending owing to Nano (cheapest car in Indian market). Eicher Motors have been stable in their R&D spending as compared to volatility in other competitors spending.

LCV
0.70% 0.60% 0.50% 0.40% 0.30% 0.20% 0.10% 0.00% 2005-03 2006-03 2007-03 2008-03 2009-03 2010-03

Hind.Motors Hyundai Motor I Maruti Suzuki

Hyundai has been focusing on putting more variants in the small car segment to compete with other small car players in the market. Maruti Suzuki and Hindustan Motors increased their R&D expenses after recession.

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Analysis of Automobile sector -India 2011 Technology Imports

HCV
2.50%

2.00%
1.50% 1.00% Ashok Leyland Eicher Motors Force Motors Tata Motors

0.50%
0.00%

2005-03

2006-03

2007-03

2008-03

2009-03

2010-03

Tata Motors has been consistently spending on technology imports. It increased its technology imports from Rs 107.88 Crores in 2005 to Rs 331.03 crores in 2010
[4]

. Ashok

Leyland signed a joint venture with John Deere Construction Company to manufacture backhoes and wheel loaders and will market backhoes, wheel loaders and excavators in India
[6]

Ashok Leyland brings to the table its expertise and broad, pan-India distribution network while John Deere will provide its technical know-how and vast experience in the construction equipment business. Ashok Leyland in association with Australia developed a 6-cylinder, 6litre 92 kW BS-4 engine [6] for operation with Hythane. Hythane is a blend of natural gas and hydrogen which improves efficiency, while retaining the low emission characteristics of CNG.

Eicher Motors signs a joint venture partnership with AB Volvo comprising of Eicher Motors entire truck and bus operations and the Volvo Groups Indian truck sales and service operations [7].

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Analysis of Automobile sector -India 2011 LCV

6.00%
5.00% 4.00% Ford India 3.00% 2.00% 1.00% 0.00% 2005-03 2006-03 2007-03 2008-03 2009-03 2010-03 Honda Siel Cars Hyundai Motor I Maruti Suzuki

Honda spent considerably in technology import in 2009. The year saw the launch of Hondas Accord V6 and Jazz [8]. Maruti Suzuki hiked its spending on technology import in 2009. The technology spending lead to an increase in mileage of A-star from 19.6 km/l to 39.48 km/l. Maruti Suzuki also unveiled the K12M engine for hatchback Ritz [9].

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Analysis of Automobile sector -India 2011 Foreign/International Exposure Export Intensity HCV
18.00%

16.00%
14.00%

12.00%
10.00% 8.00% 6.00% 4.00% 2.00% 0.00%

Ashok Leyland Eicher Motors Force Motors Tata Motors

2005-03

2006-03

2007-03

2008-03

2009-03

2010-03

Ashok Leyland bags US$ 10.5 million deal in 2009 for supplying 139 vehicles to Honduras armed forces for humanitarian purposes [6]. Tata motors recorded a growth of 10.4% in exports in 2006 [5].

LCV

60.00%
50.00% 40.00% 30.00% 20.00% Ford India Hyundai Motor I Maruti Suzuki

10.00% 0.00%
2005-03 2006-03 2007-03 2008-03 2009-03 2010-03

Exports for Hyundai grew at 96.8% whereas domestic sales grew at 19.3% for the year ending 2008
[10]

. At a time when economy was going through recession, innovative schemes

and a large network helped Hyundai to boost sales.

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Analysis of Automobile sector -India 2011 Import Intensity

HCV
20.00% 18.00%

16.00% 14.00%
12.00% 10.00% 8.00% Ashok Leyland Eicher Motors Force Motors SML ISUZU Tata Motors

6.00% 4.00%
2.00% 0.00% 2005-03 2006-03 2007-03 2008-03 2009-03 2010-03

Force motors has been heavy in imports as compared to its net sales as compared to Tata motors and Ashok Leyland, but the imports dipped from 2009-2010.

LCV
60.00% 50.00%

40.00%
30.00% 20.00% 10.00%

Hind.Motors Honda Siel Cars Hyundai Motor I

Maruti Suzuki

0.00% 2005-03 2006-03 2007-03 2008-03 2009-03 2010-03

Honda launched Civic hybrid by marking the first hybrid car to be launched in India. Launched in 2008, Civic hybrid received an overwhelming response. Hyundai focused less on imports and more on exports due to large operations centers with cheap labor available in India.

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Analysis of Automobile sector -India 2011 Leverage of the Firm

HCV
2.50 2.00

Ashok Leyland Eicher Motors Force Motors SML ISUZU Tata Motors

1.50 1.00
0.50 0.00 2005-03 2006-03 2007-03 2008-03 2009-03 2010-03

Eicher Motors and Ashok Leyland have been able to maintain a balance in debt and equity structure as compared to Tata motors, SML ISUZU and Force motors whose debt increased significantly from 2007 to mid 2008 and gradually declined thereafter. This was due to economic recession affecting the steel industry and demand for vehicles.

LCV
4 3.5 3

2.5 2
1.5 1 0.5 0 2005-03 2006-03 2007-03 2008-03 2009-03 2010-03

Ford India Hind.Motors Honda Siel Cars Hyundai Motor I Maruti Suzuki

Hyundai motors show an increase in leverage from 2006 to 2009 on account of funding new operation facilities in India and increasing the plant capacity to meet the demand. Ford India shows a considerable decline in its debt for the period 2006-2009. Maruti Suzuki has been balancing its leverage in an efficient way and keeping it low as compared to other competitors.

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Analysis of Automobile sector -India 2011 Working Capital Ratio HCV

0.400 0.300
0.200 0.100 0.000 2005-03 -0.100 -0.200 2006-03 2007-03 2008-03 2009-03 2010-03

Ashok Leyland
Eicher Motors Force Motors SML ISUZU Tata Motors

Working capital defines how efficient is one firm in meeting its current obligation. SML ISUZU has efficiently managed its working capital. Tata Motors shows a negative working capital. This is due to high current liabilities as compared to its current assets.

LCV
0.200

0.150
0.100 Ford India Hind.Motors Honda Siel Cars 2005-03 2006-03 2007-03 2008-03 2009-03 2010-03 Hyundai Motor I Maruti Suzuki

0.050
0.000

-0.050
-0.100

-0.150
-0.200

We see a decline in working capital of all the LCV firms. This is due to increase in current liabilities as compared to current assets.

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Analysis of Automobile sector -India 2011

Industry Performance
Growth Analysis

HCV
60% 40% 20% 0%

Ashok Leyland Eicher Motors

2006-03 2007-03 2008-03 2009-03 2010-03

-20% -40%
-60% -80% -100%

Force Motors SML ISUZU

Tata Motors

** Data for Eicher Motors is not available after 2009

The HCV firms have seen a gradual growth after sales dipped in 2009. The development in infrastructure, increase in FDI, employment have created opportunities for HCV firms to recover their losses in recession.

LCV
80% 60% 40%

Ford India Hind.Motors Honda Siel Cars

2006-03 2007-03 2008-03 2009-03 2010-03

20% 0%
-20% -40% -60% -80%

Hyundai Motor I Maruti Suzuki

Hindustan Motors has been a debt laden company. Its current liabilities exceed current assets and spending on R&D is too low. Hyundai Motors saw a 53% growth in its sales in 2009 as compared to 26% in 2010.

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Analysis of Automobile sector -India 2011 Profitability Trend HCV

1200%
1000% 800% 600% 400% 200% Ashok Leyland Eicher Motors Force Motors SML ISUZU Tata Motors 2006-03 2007-03 2008-03 2009-03 2010-03

0% -200%
-400%

PAT for Force motors jumped from 2.72 Crores in 2005 to 30.13 Crores in 2006. The companies profits dipped in 2007 and gradually increased in 2009. All others are gradually picking profits as compared to their previous performance.

LCV
150%
100% 50% 0%

Hind.Motors 2006-03 2007-03 2008-03 2009-03 2010-03 Honda Siel Cars Hyundai Motor I Maruti Suzuki

-50%
-100% -150% -200%

-250%

The LCV firms saw a steep decline in PAT from 2008-2009. However, the firms have been in a recovering spree after 2009 owing to improved economic conditions.

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Analysis of Automobile sector -India 2011 Accounting based measures

Return on assets HCV

40% 35% 30% 25% 20% 15% 10% 5% 0%
-5% Ashok Leyland Eicher Motors Force Motors SML ISUZU Tata Motors

2005-03

2006-03

2007-03

2008-03

2009-03

2010-03

EBDIT over total assets for all firms except Force motors have been increasing after 2009. Force Motors sees volatility in its earnings which doubled from 2005 to 2006, went in losses in 2008 and recovered in 2010. LCV
50%
40% Ford India 30% 20% 10% 0% Hind.Motors Honda Siel Cars Hyundai Motor I Maruti Suzuki

-10%

2005-03

2006-03

2007-03

2008-03

2009-03

2010-03

All firms show steady returns on assets except debt laden Hindustan motors and Maruti Suzuki whose total assets increased by 28% from 2009 to 2010.

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Analysis of Automobile sector -India 2011 Return on sales HCV

40%

35%
30% 25% 20% Ashok Leyland Eicher Motors Force Motors Tata Motors

15% 10%
5% 0% -5% 2005-03 2006-03 2007-03 2008-03 2009-03 2010-03

Force motors shows volatility in return on sales as compared to other firms, showing stable returns on sales.

LCV
20%

15%
Ford India 10% Hind.Motors Honda Siel Cars

5%
0%

Hyundai Motor I Maruti Suzuki 2005-03 2006-03 2007-03 2008-03 2009-03 2010-03

-5%

The LCV market is ahead of the HCV market and so is the return on assets as compared to HCV. Ford shows a high return on sales as compared to other firms. However, Hindustan Motors shows negative return due to low R&D and high debt.

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Analysis of Automobile sector -India 2011

Competition Analysis PORTERS FIVE FORCES

Porters five forces developed by Michael E. Porter provide a framework for analysing the industry with respect to five criteria. The five forces determine the competitive intensity and attraction of a market. We look at the Automobile sector and analyse it with respect to the five forces of Porters model.

Threat of ne w entrants o Automobile industry is a capital intensive industry and requires huge investments with respect to operational facilities. It also requires huge funds to keep up with research and development that is necessary for the innovation requirements. o However considering the global players and their innovative designs, they pose a threat to the local players. The upcoming segment is that of a niche market comprising of the hybrid cars.

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Analysis of Automobile sector -India 2011 Bargaining powe r of supplie rs o The bargaining power of suppliers is very low in the automobile industry. There are so many suppliers to this industry; manufactures can easily switch to another supplier if it is necessary. The Automotive sector comprises of powerful buyers who are able to dictate their terms to suppliers. o According to Automotive component manufacturers association of India, there are more than 600 companies forming majority of auto component output in organized sector in India. They operate on quality system based on ISO 9001:2000.

Bargaining powe r of Customers o Buyers in Automobile sector have a wider set of choices. They can easily switch to their competitor product by scaling them relatively on price and quality. o India has more than 20 foreign players in Automobile sector. This spoils the customer for wide variety ranging from high-end cars such as Lamborghini, Ferrari, and Rolls-Royce to low-end cars such as Tata Nano, Omni, Swift and Alto. Internet helps the customers to evaluate their requirements and assist them in finding the best option.

Threat of substitute product o Threat of substitute product is moderately low. Substitute products depend on the
geographic location of the costumer. Potential threat can be Indian Railways, Public transport and suburban rail.

Competitive rivalry within an industry

o Rivalry among the competitors is very strong in Automobile sector. Constant innovation with respect to design, technology and models has led to fiercely competitive market.

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Analysis of Automobile sector -India 2011

Future Outlook
The environmental impact of global warming has caused a worldwide concern. Companies are spending heavily on alternative technologies to come up with green technologies. The depletion of the oil wells in Middle East also is a major concern for Automobile sector. The recent hike in crude oil prices due to Egypt and Libya crisis marks danger to the stab le supply of oil and smooth functioning of an economy because oil is the root to an economys growth. The prices of oil affect the prices of all other commodities leading to switching from personal vehicles to public vehicles. Companies such as Honda and Toyota have come up with environment friendly technology. With increasing competition in the local market, India consumers will be spoilt for more choices since the FDI in Automobile allowed in 100%. However considering all other factors, Infrastructure continues to be a major worry for the Automobile sector as its the prime platform of its existence. The improvement in infrastructure-roads and highways would lead to an increase demand.

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Analysis of Automobile sector -India 2011

Conclusion
The analysis of heavy commercial and light commercial vehicles in the Automobile sector with respect to industry conducts, performance and Porters five forces helps us to conclude that Tata is the leader in the HCV segment whereas Maruti Suzuki is the leader in LCV segment. However Hyundai seems to be a close competitor of Maruti due to increase sales and better technology. The penultimate profit is to the customer who seeks value for money, comfort and excellent service support. Taking into account the capital intensive nature of Automobile industry, we conclude that there is a lot of potential in the industry. If you have the environment friendly technology which can differentiate from other competitors then you are bound to make an impact.

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Analysis of Automobile sector -India 2011

Sources of Information
Sl. NO
[1]

Reference Site
http://www.indiainbusiness.nic.in/ ACMA report 2010 KPMG Report on Indian Automobile industry 2010 Capitaline database http://www.tatamotors.com/ http://www.ashokleyland.com/ http://www.eicherworld.com http://www.hondacarindia.com/default.aspx http://www.marutisuzuki.com/ http://www.hyundai.com/in/en/main/ http://www.siamindia.com/

[2] [3]

[4]

[5]

[6]

[7]

[8]

[9]

[10]

[11]

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