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Auto: Going global!
Sep 15, 2005

Last two years have witnessed a number of joint ventures/acquisitions by Indian automobile manufacturers. Similarly, almost every Indian auto manufacturer is trying to set up manufacturing/assembly lines in different regions across the globe and widen its geographical reach. In this article, we shall analyse the export performance of the companies under Quantumís research coverage (hereafter referred to as QIS companies) and what is in store for them going forward. The companies included here are Tata Motors, Ashok Leyland, Maruti, M&M, Punjab Tractors, Hero Honda, Bajaj Auto and TVS Motor and these account for 80% of the industry volume sales. To begin with, during the period FY01 to FY05, the Indian automobile industry grew at a CAGR of 15% led by a 39% CAGR in exports. However, the QIS companies have outperformed the industry growth on the exports front with a 49% CAGR.

QIS Companies
A snapshot...
Units FY01 FY05
Domestic 3,690,072 6,433,198
% total 97.8% 94.0%
Exports 82,934 410,224
% total 2.2% 6.0%
Total 3,773,006 6,843,422
Segmental performance
Segment Domestic* Exports*
Commercial vehicles 12.4% 29.6%
Passenger cars 15.5% 34.9%
Two/Three wheelers 15.3% 59.3%
Tractors -7.8% 25.1%
Total 14.9% 49.1%
* CAGR FY01-FY05

Despite a robust export performance over the last 4 years, the share of exports is merely 6% for QIS companies in FY05 (2% in FY01). This is on the lower side as compared to the overall industry at 3% in FY01 and 7% in FY05 because of the inclusion of certain unlisted auto companies, which have a high export base. However, on an individual basis, while exports account for merely 2% of the total units for Hero Honda and M&M, the contribution in the case of Bajaj Auto and Ashok Leyland stands at 12%.

Two wheeler Domestic* Exports*
Bajaj Auto 8.3% 59.2%
Hero Honda 25.8% 61.0%
TVS Motor 9.0% 57.3%
* CAGR FY01-FY05
As can be seen from the table above, there has been an all-round performance on the exports front. However, the two/three-wheeler segment has been the star performer. This is primarily due to favourable global conditions in which the Indian players are operating. Firstly, Indian two-wheeler manufacturers are technologically competent when compared to global standards. Further, of the global market size of 37 m two-wheelers, around 90% belongs to sub-200cc bikes, which is the forte of the Indian manufacturers. Though Chinese and Japanese bikes currently dominate the global markets in the sub-200cc segment, the former are not technologically competent while the latter are comparatively expensive. This has enabled Indian players to access the overseas markets, especially the ASEAN region and South African countries. It should be noted that though the performance of the two-wheeler players considered here is more or less the same, for Bajaj Auto, it has been on a higher base (Bajaj Auto accounting for more than 50% of the total exports of the three players in both FY01 and FY05).

Passenger cars Domestic* Exports*
Maruti 11.1% 33.7%
Tata Motors 25.6% 32.1%
M&M 22.3% 134.9%
* CAGR FY01-FY05
In the passenger car segment, while Maruti has the benefit of the worldwide network of Suzuki Motors of Japan, Tata Motors started concentrating on its exports business since FY03 with a re-designed strategy to increase its geographical reach. This was the outcome of a significant fall in its exports in FY02 and FY03. Similarly, M&M gave thrust to its exports business post the launch of its Scorpio model (which was launched as a global product). Apart from this, M&Ms performance has been on a very low base. Further, in the passenger car segment, Maruti accounts for 78% of the total exports of the three players while Tata motors accounts for 17% of the exports.

Tractors Domestic* Exports*
M&M -7.8% 25.1%
Punjab Tractors -10.0% 7.0%
* CAGR FY01-FY05
In the tractor segment, the performance of M&M has been the result of a change in strategy of the company to increase its geographical spread in order to insulate against the cyclical nature of the industry, largely in India. In fact, exports have enabled M&M to curtail the impact of the decline in the demand for tractors post FY01 until FY04.

Commercial vehicles Domestic* Exports*
Tata Motors 22.3% 17.9%
Ashok Leyland 12.4% 29.6%
* CAGR FY01-FY05
In the commercial vehicles space, Ashok Leyland has outperformed the market leader Tata Motors. This is partly due to an extraordinary export order of 3,346 units (46% of the exports of FY05).

Whatís in store?
Going forward, there exists tremendous potential for Indian manufacturers. To put things in perspective, in the last few years, the Chinese government has given a significant thrust on the use of tractors for agricultural purpose (by providing subsidy on purchases of tractors from specified manufacturers). This could directly benefit M&M, as it is one of the recognised manufacturers in China. Similarly, the potential for two-wheelers has already been stated earlier. In the passenger car segment, with stricter emission norms and rising crude prices, governments across nations are promoting the use of fuel-efficient compact cars (segment A and B). Indian players like Maruti and Tata Motors already have the requisite technology to manufacture these vehicles. Thus, to sum it up, we believe that the Indian auto manufacturers are aptly geared to capitalise on this global opportunity.

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