Auto Ancillaries Sector Analysis Report 

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• The fortunes of the auto ancillary sector are closely linked to those of the auto sector. Demand swings in any of the segments (cars, two-wheelers, commercial vehicles) have an impact on auto ancillary demand. Demand is derived from original equipment manufacturers (OEM) as well as the replacement market.
• Margins in the replacement market and exports are higher than the OEM market. The OEM market is very competitive and component manufacturers have to compromise on margins to bag bulk orders. Moreover, delivery schedules and quality standards have to be adhered to very strictly.
• Auto ancillary face pricing pressure from OEMs. In order to negate that these players have a challenge of continuous cost reductions through innovations to stay innovative.
• The Indian economy demonstrated its resilience by absorbing dramatic change brought in by demonetisation and introduction of GST and has regained its status as the fastest growing major economy during the current calendar CY18.
• RBI's efforts to keep inflation in check. All growth drivers of the economy viz. public and private capital expenditure, domestic consumption, exports, and foreign direct investments continue to gain in strength.
• The auto-components industry accounted for 2.3% of India's Gross Domestic Product (GDP) in 2017- 18. During 2017-18, 1.5 million people directly and 1.5 million people indirectly were employed in the auto-components industry.
• The country's growth sectors are well charted – transportation, infrastructure and energy efficiency; each of these is undergoing massive change driven by automation, connectivity and digital transformation. With stability and good governance at the center, India is on a sustainable growth curve. Change is an opportunity to shape the future.
• The Indian auto-components industry has experienced healthy growth over the last few years. The auto-component industry of India has expanded by 18.3% to reach at a level of US$ 51.2 billion in FY 2017-18.

• Supply
• Low for high technology products. Unorganized sector dominates the domestic component market due to excise benefits. Generally, excess supply persists.
• Demand
• Linked to automobile demand. Export demand is linked to the increasing acceptance towards outsourcing.
• Barriers to entry
• Capital, technology, OEM relationships, customer service, distribution network to meet replacement demand.
• Bargaining power of suppliers
• Low with OEMs. Relatively high in the replacement market.
• Bargaining power of customers
• Companies operating in the export market face competition at a global level. At the domestic level, market structure is fragmented for a large number of ancillary products. Most companies adopt low cost and differentiation strategies. In some products (like batteries), only two or three companies control over 80% of the market.
• Competition
• Will intensify, as global players will enter the market leading to consolidation. Dereservation of SSI will result in access to capital and technology.

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• The Passenger Vehicle Industry domestic sales grew at 8% during the year, as compared to 9% in the previous year. The rise in fuel prices, inflation and an increase in interest rates dampened slightly, the enthusiasm generated by the slew of new model launches by leading OEMs.
• After a slow 4% growth last year, the Commercial Vehicle Segment bounced back strongly with a 20% growth in domestic sales.
• In the 3/4 Wheeler market, domestic sales grew at nearly 12% compared to 6% last year. Two-Wheeler sales have seen a robust growth at 15% compared to a modest 7% growth last year.
• Revenues have risen at a CAGR of 6.8% from US$ 26.4 billion in FY08 to US$ 51.2 billion in FY18.
• Domestic OEM supplies contribute 55.9% of the industry turnover followed by exports (26.2%) and domestic aftermarket (17.8 %).
• Exports of automobile components from India in FY18 stood at US$ 13.5 billion. As per Automobile Component Manufacturers Association (ACMA) forecasts, automobile component exports from India are expected to reach US$ 80 billion by 2026. The Indian auto component industry aims to achieve US$ 200 billion in revenues by 2026.

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• India is expected to become the 4th largest automobiles producer globally by 2020 after China, US & Japan. The auto components industry is also expected to become the 3rd largest in the world by 2025.
• With the launch of "Make in India" initiative, the government is expected to vitalise a substantial investment in the auto component sector. Auto component sector is expected to invest around US$ 4.5 billion for upgradation of products & keeping up with the new industry regulations.
• India's projected production is around 8.7 million passenger vehicles per year by 2020 (with most of them being compact cars).
• Many MNC's like Ford, Hyundai, Toyota & GM are launching new vehicle models due to their earlier success in the Indian market.
• The auto-components industry is expected to follow OEMs in adoption of electric vehicle technologies. The global move towards electric vehicles will generate new opportunities for automotive suppliers. The mass conversion to electric vehicles may generate a US$ 300 billion domestic market for EV batteries in India by 2030.

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Related Links for Auto Ancillaries Sector
Quarterly Results | Sector Quote | Over The Years