The Auto industry consists of the following products segment and key companies
4 Wheelers (cars, UV etc) – Maruti, Hyundai, Tata motors, Ford etc. This is a fast growing sector of the market with the most action. Rising incomes and easier credit has resulted in growth in the industry. India is also developing into a Hub for exports especially for small and compact cars. This sub-sector is characterised by high competition and aggressive marketing. The key player is maruti with around 51% market share. The last 3-4 years have seen growths in excess of 15-20%. In addition competition is increasing in this segment with aggressive growth plans from Maruti, Tata motors and other foreign majors such as Toyota, GM, Hyundai etc. I have been looking at some of the companies in this sector and there are some good ideas. I will be posting on a few later.
2 wheelers (scooters, Bikes etc) – This has been a growth sector for the last decade. The annual volume is almost 8 Mn units making india one of the largest markets in the world. Bikes account for the majority (around 70 %??) of the demand with the rest taken by scooters and mopeds. The bike segment consists of the entry level bikes which are price sensitive, the mid-segment called the deluxe segment which is dominated by hero honda’s splendour and the top segment. The top segment has high growth currently, lower pricing pressure and shared between bajaj auto and hero honda. This sector has seen slowing down of growth recently and pressure on margins due to increase in raw material costs and increased competition.
Commercial vehicles ( LCV, MCV and HCV) – This sector is dominated by tata motors followed by Ashok leyland. The LCV and HCV sectors are seeing good growth due to development of infrastructure and the transportation model moving towards hub and spoke. The less than 16 ton segment is however seeing its share of the pie shrink. Competition is expected to increase due to foreign players such as Iveco and others. The latest quarter has been weak for the commerical vehicles sector. . The commerical vehicle industry is quite cyclical in nature and the companies in that sector are making an effort to reduce the impact by increasing the service, spares and export component of the business. The two companies in this sector Tata motors and ALL seem to be fairly priced. I will be posting on Ashok leyland soon.
Basic financials of the industry
The industry is characterised by economies of scale. The net margins are low (4-5%) and not likely to increase much due to competition and raw material pressures. The industry has a ROC of 20%+ and moderate compeititive advantages due to Entry barriers from scale, brands and first mover advantage. Rivalrly is not intense as yet, however competition is likely to increase when demand slows and foreign competition intensifies.
A more detailed Analysis of auto industry is updated in the worksheet (Business analysis_working_aug 2007) under ‘AUTO AND ANCILLARIES’