Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Auto Ancillaries Sector Analysis Report 

[Key Points | Financial Year '19 | Prospects | Sector Do's and dont's]

Grab Now: 3 Tech Stocks to Boost Your Wealth

  • 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.
  • The Auto Ancillary sector is closely linked to Automobile Industries. The Indian Auto Ancillary industry is one of the crucial industries in India with higher growth prospects. Some examples of Auto Ancillary industries are: Tyre industries, Battery, Gears, Engines etc.
  • The Indian lead-acid battery industry is ~Rs 300 billion in size and has been growing at a CAGR of 10-12%. The battery industry is evolving, led by cyclical slowdown in the auto battery segment as well as competitive pressures in the industrial battery segment.
  • Demand of auto ancillary mostly arises from OEM's (Original Equipment Manufacturers) and from replacement market. Examples of OEM's are: Two-wheeler, three-wheeler, commercial vehicles etc.
  • The rapidly globalizing world is opening newer paths for the transportation industry, especially while it makes a shift towards electric, electronic and hybrid cars, which are deemed more efficient, safe and reliable modes of transportation.
  • Over the next decade, this will lead to newer verticals and opportunities for auto-component manufacturers, who would need to familiarize with the change via systematic research and development.
  • The automobile industry in India is world's fourth largest, with the country currently being the world's fifth largest manufacturer of cars and seventh largest manufacturer of commercial vehicles in 2019.

How to Research the Auto Ancillaries Sector (Key Points)

  • 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

top ↑

Financial Year '19

  • As per IBEF, the auto-components industry accounts for 2.3% of India's Gross Domestic Product (GDP). Auto Components industry exports, which is currently valued at US$ 13.5 billion, is expected to grow at an annual rate of 23.9% to reach US$ 80 billion by 2026. USA, Germany, Turkey, UK, and Italy are the top destinations for exports.
  • The auto components sector has been observing robust growth with a turnover of US$ 51.2 billion in FY19 and turnover is anticipated to reach US$ 200 billion by FY26. India's exports of auto components could account for as much as 26% of the market by 2021.
  • Overall, domestic automobiles sales increased at 6.7% CAGR between FY13-18 with 26.3 million vehicles being sold in FY19. Indian automobile industry has received Foreign Direct Investment (FDI) worth (US$ 22.35 billion) between April 2000 and June 2019. 5% of total FDI inflows to India from April 2000 to June 2019 went into the automobiles sector.
  • India is emerging as global hub for auto component sourcing. A cost-effective manufacturing base keeps costs lower by 10-25% relative to operations in Europe and Latin America. Relative to Chinese suppliers, India is geographically closer to key automotive markets like the Middle East and Europe.

top ↑

Prospects

  • Market growth in the Indian mobility industry for both people and goods has a very large potential given the geographical spread, size of population and the current low penetration. Growth in the goods mobility segment is being driven by the need to establish strong supply chains between producers and markets. Improvements in road infrastructure would help this area of business.
  • These projections could be attributed to the sustained rise in consumption and a gradual revival in investments, especially with a greater focus on infrastructure development. The improving macroeconomic fundamentals have further been supported by the implementation of reform measures, which has helped foster an environment to boost investments and ease banking sector concerns. Together, these augurs well for a healthy growth path for the economy.
  • GST and new segments would drive consolidation in the replacement market of automotive and inverter batteries, leading to a strong growth of 12-15% for the organized players.
  • Electric vehicles (EVs) are unlikely to displace lead-acid batteries (LAB), as these are still preferred for SLI (starter, lighting, and ignition) applications.
  • The Indian government has also set up an ambitious target of having only electric vehicles being sold in the country. The Ministry of Heavy Industries, Government of India has shortlisted 11 cities in the country for introduction of electric vehicles (EVs) in their public transport systems under the FAME (Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles in India) scheme. The first phase of the scheme has been extended to March 2019 while In February 2019, the Government of India approved the FAME-II scheme with a fund requirement of Rs 100 billion (US$ 1.39 billion) for FY20-22.
  • Despite the global scenario, the Indian economy remains one of the fastest growing. In fact, the effects of the external shocks were contained in part by India's strong macroeconomic fundamentals and policy changes (including amendments to the policy/code related to insolvency and bankruptcy, bank recapitalization, and foreign direct investment).

top ↑

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

Views on News

BOSCH Announces Quarterly Results (1QFY21); Net Profit Down 143.0% (Quarterly Result Update)

Sep 22, 2020 | Updated on Sep 22, 2020

For the quarter ended June 2020, BOSCH has posted a net profit of Rs 1 bn (down 143.0% YoY). Sales on the other hand came in at Rs 10 bn (down 64.3% YoY). Read on for a complete analysis of BOSCH's quarterly results.

EXIDE INDUSTRIES Announces Quarterly Results (1QFY21); Net Profit Down 80.4% (Quarterly Result Update)

Aug 24, 2020 | Updated on Aug 24, 2020

For the quarter ended June 2020, EXIDE INDUSTRIES has posted a net profit of Rs 440 m (down 80.4% YoY). Sales on the other hand came in at Rs 15 bn (down 44.3% YoY). Read on for a complete analysis of EXIDE INDUSTRIES's quarterly results.

AMARA RAJA BATTERIES 2019-20 Annual Report Analysis (Annual Result Update)

Aug 18, 2020 | Updated on Aug 18, 2020

Here's an analysis of the annual report of AMARA RAJA BATTERIES for 2019-20. It includes a full income statement, balance sheet and cash flow analysis of AMARA RAJA BATTERIES. Also includes updates on the valuation of AMARA RAJA BATTERIES.

SKF INDIA 2018-19 Annual Report Analysis (Annual Result Update)

Dec 16, 2019 | Updated on Dec 16, 2019

Here's an analysis of the annual report of SKF INDIA for 2018-19. It includes a full income statement, balance sheet and cash flow analysis of SKF INDIA. Also includes updates on the valuation of SKF INDIA.

More Views on News

Most Popular

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

Can the Nifty Fall to 10,200? (Fast Profits Daily)

Sep 24, 2020

The Nifty has reached an important support level today. If it breaks then we could see further downside.

I Believe These Stocks Will Deliver the Most Outsized Returns in 2021 and Beyond (Profit Hunter)

Sep 23, 2020

Rules of the racetrack can help you bag the biggest gainers of the coming decade.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

COMPARE COMPANY

MARKET STATS