The Changing Aftermarket Industry And How Indian Automotive Ancillaries .

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The changing Aftermarket Industry andhow Indian Automotive ancillaries canbenefit from arising opportunitiesPrepared for:SingexPrepared by:Spire Research and ConsultingDate:28th September 20191

AgendaTopic1Automotive Market1aOverview1bSegmentation of four wheelers1cTire Industry-Overview1dTire Industry-Key Players2Automotive Aftermarket2aOverview & Trends2bOnline E-retailing2cSafety & Security2dAuto Components Export3Summary2

Automotive Market – Overview3

Automobile Industry in India – OverviewThe automobile industry in India is the world’s fourth largest vehicle market. In 2018 India was the world's 4th largestmanufacturer of cars and 7th largest manufacturer of commercial vehicles.Indian automotive industry (including component manufacturing) is expected to reach INR16-18 trillion (USD251-283billion) by 2026.Size of the market FY19602.52.2240203235393944in MillionsIn l Revenue of Auto ComponentsSource: SIAM Society of Indian Automobiles.2017-20182018-2019Number of Automobiles Sold in India4

Automobile Industry in India – OverviewDomestic sales are dominated by large number of two wheeler vehicles. In 2017, India surpassed China to becomethe world’s biggest market for two wheelers.A total of 21.1 million units were sold last year, which comes down to 58,000 units every day.Automobile Domestic SalesTrends FY194% 3%13%81%Source: SIAM Society of Indian Automobiles.Two WheelersPassenger VehiclesCommercial VehiclesThree Wheelers5

Automobile Industry in India – Segmentation offour wheelersIndian Market has been known for the market for hatchbacks. Even the government has implemented rules to allowthe development of cars under 4 metres, as they attract lesser duty and other taxes. Petrol engines smaller than 1.2litre and diesel engines that are under 1500cc, have a lesser excise duty. This helps to increase fuel efficiency and alsoreduce pollution.Automobile Domestic Sales Trends2018Total Number of CommercialVehicles Sold in 201824%50%1,007,31926%HatchbacksSUV's and MUV'sSedans6

Tire Industry: OverviewKey Figures for FY2018:No. of Tyre Companies in India: 41No of Tyre Plants in India: 62Industry Turnover 2018-19 (est.): INR63000 crore (USD9 Bn)Exports 2018-19 (est.): INR12890 crore (USD1.8 Bn)Distribution across variouschannelsDistribution of exports/sales ofTyres manufactured in India 55%40%20%0%38%2011Aftermarket30%2018Truck & BusPassenger Vehicle (PV)2/3-WheelerTruck & BusPassenger Vehicle (PV)2/3-WheelerOthersOEM exports7

Tire Industry: Key Players and Plant Locations Kankroli, RajasthanBanmore, Madhya PradeshMysore (2), KarnatakaSriperumbudur, Tamil NaduHaridwar, UttrakhandBalasore, Orissa SIPCOT Thiruvallur, Tamil Nadu Dhar, Madhya PradeshPune, Maharashtra Mumbai, MaharashtraHalol, GujaratAmbarnath, MaharashtraNasik, MaharashtraNagpur, MaharashtraSriperumbudur, Tamil Nadu* Chennai, Tamil NaduArkonam, Tamil NaduTrichy, Tamil NaduPuducherryMedak, TelanganaPoda, GoaKottayam, KeralaBaruch, Gujarat* Bahadurgarh, Haryana Modipuram, Uttar Pradesh Rudrapur, UttarakhandMadurai, Tamil Nadu Baliabhgarh, HaryanaAurangabad, Maharashtra Limda, GujratPerambra, KeralaKalamessey, KerelaOrgadam, TamilndaduChittor, Andhra Pradesh* 8

Overview and TrendsAutomotiveAftermarketOnline E-retailingGovernment RegulationsAuto Components Export9

Automotive AftermarketThe Automotive Aftermarket refers to the manufacturing, retailing and installation of all vehicle partsafter the sale by the OEM (Original Equipment Manufacturer).The automotive aftermarket is broadly divided into three sectors:Automobile Aftermarket FY191%1%Organized SingleBrand OutletUnorganizedMBOs/ WorkshopsOrganized MultiBrand OutletsOnline Platforms46%52%The post warranty vehicle ( 4 years) service market was mainly captured by small independentgarages i.e. the unorganized sector because of the huge cost differences (of after warrantyservices) between authorized and local garages.Automotive AftermarketProducts/ServicesReplacement PartsReplace the original stockcomponents which are worn outin due course of time.AccessoriesMade for comfort, convenience,performance, safety, or customization,and are designed for an add-on.10

Automotive AftermarketThe total aftermarket has grown at a CAGR of 14% over 2013-2018. The vibrant automotive sectordrives the growth of the automotive aftermarket in India and is estimated to grow at INR75,000crore by fiscal year 2020.Major Players by Segments:Product-wise share inaftermarket turnover (FY18)EngineComponents, 18%Electricals,18%Suspension andBraking,15%DriveTransmission andSteering,21%ElectronicComponents, 3%CoolingRubberSystems,Compone8%nts, 3%Consumables andMiscellaneous, 14%Engine &Engine PartsGoetze, Rane EngineValves, Ucal Fuel Systemsetc.Transmission &steering partsSona Koyo SteeringSystems, Rane NSKSteering Systems.Suspension &braking partsBrakes India, Rane BrakeLining, Jamma Auto & JaiParabolic and GabrielIndia.ElectricalLucas TVS, Denso, DelcoRemy ElectricalsEquipmentLumax, PremiereInstruments & Controlsand Jay Bharat Maruti.11

Overview and TrendsAutomotiveAftermarketOnline E-retailingGovernment RegulationsAuto Components Export12

Trends in Automotive Aftermarket: Online EretailingAt present, the automotive aftermarket sale channels is fronted by traditional stores and garages.This majorly falls (53% in FY2018) under the unorganized sector.Taking in consideration factors such as increase in the spending capacity, changing consumerbehaviour, penetration of technology, e-commerce and most importantly; need for an organizedmarket. Online e-retailing will soon be a business disruptor for this sector. It has already beenobserved in western countries and developed markets.6%US Online sales of auto parts andaccessories venue from online sales of auto parts2020**Projected13

Trends in Automotive Aftermarket : Online EretailingIn 2014, the online auto aftermarket in India was estimated at around USD20 million (less than onepercent of the overall parts aftermarket at a retail level) and is expected to increase at a CAGR of7%, valued at USD26 million in 2018 and is projected to reach USD30 million by 2020. There are hugeopportunities to explore in the B2B space due to speedy growth of organized and independentworkshops along with customers being positively disposed towards them.Recent advancements in the online automobile aftermarket include:Online autoparts has raised INR2crore from Singapore-basedAnthill Scale Ventures, US-basedEsvee Technologies, ChennaiAngels and other high net-worthindividuals (HNIs).Boodmo – an onlinemarketplace for autocomponents (Ukrainancompany) – has ventured intothe Indian Markets. It aims toorganize the replacement partsmarket and make the shoppingprocess easier and convenient.Recently raised a funding ofINR8 crore, adding up to a totalof INR35 crore.New Delhi-based Cross RoadsIndia Assistance, popularlyknown as CRIA, has acquiredbased, amarketplace and aggregator forthe after sales automotive space.14

Trends in Automotive Aftermarket : Online EretailingThese Online Markets are now offering completerange of auto components from OEM spares toprice effective alternatives:CarAccessoriesBrakingSystemAdvantages compared to offline stores:ConvenienceFreedom of ersSuspensionSystemsUnassigned iceFair PointsMaintannce/ServiceParts15

Overview and TrendsAutomotiveAftermarketOnline E-retailingGovernment RegulationsAuto Components Export16

Government RegulationsThe government of India has revised/introduced new regulations for passenger safety and pollution checks forautomobiles. Some are already in place, while upcoming norms have also been preponed.Deadline for airbags was preponed by 6 months and BS VI scheduled in 2023, has been preponed to 2020.1st April, 20181st April, 2018GovernmentABS( Anti-braking system) fortwo wheelers/cars for existingmodels.ABS (Anti-braking system) fortwo wheelers/cars for all newmodels.Airbags mandatory for all newmodels/existing post 2017.2024FE Regulations 2April, 2020BS VI emission norms17

Trends in Automotive Aftermarket : Safety &SecurityOne of the key concerns in the automobile sector is the rising safety and security standards. IndianGovernment put in place new regulations for automobile manufacturers. Consumers have alsorealized the importance and relevance, where a growth in demand has been observed off late.2WPVCVTotal Automotive Industry: Technologies and Segment ScopeReverse Parking SensorIn Car Entertainment(ICE) SystemAnti- Lock Braking System (ABS)Driver Information System (DIS)Body Control Module (BCM)ImmobilizersTelematicsTyre Pressure Monitoring System (TPMS)Airbag ElectronicsLED based HeadlampsElectric Power SteeringTechnologieslikeAnti-lockBraking System (ABS) andReverse Parking Sensors (RPG)have very high penetrationacross vehicle segments and areexpected to generate revenueof INR16,000 crores by FY 2020.Remote Vehicle Diagnostic Sys.Automatic Transmission (AMT,DCT,CVT)Electric and Hybrid Vehicles18

India emerging as a global hub for sourcingauto partsGovernment Initiatives :The target for this sector is to cross the USD100 billion mark with exports reaching USD35-40 billion andUSD20-22 billion in revenue from overseas assets. Initiatives that are taken by the government toencourage the growth of this industry include :1. The Automotive Mission Plan 2016-26 (AMP 2026)Direct Incrementalemployment – 3.2million2. Voluntary Vehicle Fleet Modernizationprogramme (V-VMP)Vehicles Scrapping Policy 2018Export USD80billionExport USD80billionTurnover USD200billionAMP 2026 under one of it’s five mainobjectives, seeks to increase the netexports of the Indian Automotive industryseveral fold. It recognizes that the IndianAutomotive industry (both vehicles andauto components) has the potential toscale up exports to the extend of 35-40%of its overall output over the next 10years (FY16-26).Metal ScrapThis policy offers incentives worth 8-12%of the cost of a new vehicle forsurrendering the old one. It would beable to generate steel scrap worth USD1,728 million domestically every yearwith the set-up of organized shreddingcentres; in addition to providingenvironmental and energy efficiencybenefits.19

India emerging as a global hub for sourcingauto partsAfter the implementation of such government initiatives:Several global tier-I suppliers have already French tyre manufacturer Michelin announcedannounced plans to increase procurement of plans to produce 16,000 tonnes of truck and busauto parts from their Indian subsidiaries.tyres from its Indian facility this year, a 45% risefrom last year.Auto components maker Bharat Forge Ltd (BFL),has formalized an agreement with Rolls-RoyceHoldings Private Limited Company (Plc), whichwill supply BFL with critical and high integrityforged as well as machined components.Everstone Capital – a Singapore-based privateequity (PE) firm – has purchased 51% in Indianauto components maker SJS Enterprises for anestimated USD51.35 million.20

Trends in Automotive Aftermarket : Safety &SecurityOther technologies which may/can expect growth are:Afternewregulations,ICRAestimates 90% increase in thepenetration by 2019. The domesticpassenger vehicle market has soldclose to 3.64 million units in the lastfinancial year.The global market for automotiveTPMS(Tire-pressuremonitoringsystem) is anticipated to reflect aCAGRofover6%2016-24.Government making it mandatory inpassenger cars and higher focus onenhancing fuel efficiency attractgrowth.India In-Car Entertainment marketrevenue is projected to grow at aCAGR of 5.3% during 2015-21. Audiosystem firm Harman is expects arevenue of USD1 billion by 2022.Indian Vehicle Telematics market isprojected to touch USD300 mn by2021. It also becoming an importantpart of CV industry because it iswidely used by aggregators like Ola,Zoomcar and Revv.A recent study by Future MarketInsights (FMI) predicted that theautomotiveglobalremotediagnostics market will grow at aCAGRofapproximately18%through 2028.Vehicle immobilizers are findingincreased application in PV as wellas CV. Automobile giants like TVSand Maruti also increased theelectrical components per vehicleand added immobilizers for AntiTheft functionality.21

Overview and TrendsAutomotiveAftermarketOnline E-retailingGovernment RegulationsAuto Components Export22

Automotive Aftermarket – Auto ComponentsExportThe automobile components industry contributes towards 25.6% to the manufacturing GDP and 3.8% tothe national GDP, providing indirect employment to 1.5 million people. It has the capacity andaccessibility to export to other auto components across key global automotive markets like Japan,Korea and Europe. The total value of exports for the year 2018 was USD13.50 billion. Following are theadvantages India has over it’s competitors when it comes to export of auto components:1. Geographical Proximity2. Improved Product Quality3. Increased Investment & Government Initiatives.Share of Indian Auto Component Exports – Top10 Countries FY17Brazil, 2.60%Mexico, 2.80%U.A.E., 2.80%USA, 22%France, 3%Thailand, 3.30%Italy, 4.10%U.K., 5.10%Turkey, 6.20%Germany, 7%23

Automotive Aftermarket – Auto ComponentsExportIndia’s exports of auto components increased at a CAGR of 5.77%, during FY14-FY18, with the value of autocomponent exports increasing from USD10.2 billion in FY14 to USD13.5 billion in FY18.Moreover, the number of automobiles being exported grew by 18% during FY14-18.Value of auto component exports FY19TotalRevenue 20142015201620172018100%80%60%40%20%0%Domestic RevenueExports24

Automotive Aftermarket – Auto ComponentsExportHighest component is captured by “brakes and servo-brakes” which also accounts for a highpercentage as it is one the most commonly worn out components of car. Second most soldcomponent are “Gear boxes” which also account for higher percentage as it is comparativelyexpensive component.Component Wise Global Exports of AutoComponents FY18Brakes andservobrakes;partstherof, 23%Gear boxes, 19%Other oarts andaccessories ofbodies(includingcabs), 7%Drive axles withdifferential w/nprovided withother transmitters,17%Bumpers andparts thereof, 5%Steering wheels,steering columnsand steeringboxes, 8%Clutches andparts thereof, 3%Radiators, 2%Road wheels andparts andaccessoriesSuspension shockthereof, 8%absorbers, 7%25

Summary Automotive market in India is currentlyprogressing towards a positive growth pathgiventhecurrentopportunitiesandchallenges.The factors which contribute to its growth areprimarily – Government Regulations - Regulations relatedto the introduction of new safety features thatencourage the manufacturing of new safetycomponents along with ensuring their quality.Changing Automotive ecosystem - Theemergence of new sales channels like online eretailing and multi brand outlets (MBOs) areplaying a key role in changing purchasebehaviour of the end customers.In summary, we believe that Indian AutomobileAftermarket & Indian Automobile ComponentAftermarket is better placed and expected togrow. Another major factor which ensures thisgrowth is that we are serving a lot of businessesin emerging countries outside India. This minimizesthe risk of slowdown due to any dependency ondomestic market. One of the example is tyremanufacturing and components industry whichhas shown tremendous growth in exports in pastfive years.26

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The total aftermarket has grown at a CAGR of 14% over 2013-2018. The vibrant automotive sector drives the growth of the automotive aftermarket in India and is estimated to grow at INR75,000 crore by fiscal year 2020. Automotive Aftermarket Drive Transmissi on and Steering, 21% Engine Compone nts, 18% Electricals, 18% Suspensio n and Braking, 15 .

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