Contents

Indian Automotive Sector ........................................................................................................................................2 Overview .............................................................................................................................................................2 Value Chain of automobile industry .....................................................................................................................5 Industry Dynamics ...............................................................................................................................................7 Market Segments ............................................................................................................................................7 Macro-Factors Affecting the auto-industry.......................................................................................................9 Government Policies and Regulations ................................................................................................................10 Outlook .............................................................................................................................................................12 Auto Ancilliary .......................................................................................................................................................13 An Overview ......................................................................................................................................................13 Investments ...................................................................................................................................................14 Exports ..........................................................................................................................................................15 Auto Components Industry Value Chain.............................................................................................................16 Industry Dynamics .............................................................................................................................................17 Market Segments .......................................................................................................................................... 17 Macro-Factors Affecting Industry ...................................................................................................................21 Government Policy and Regulations ..................................................................................................................21 Outlook .............................................................................................................................................................23 Business Model .................................................................................................................................................25

Indian Automotive Sector

Overview
The automotive Industry in India is now working in terms of the dynamics of an open market. Many joint ventures have been set up in India with foreign collaboration, both technical and financial with leading global manufacturers. Also a very large number of joint ventures have been set up in the auto-components sector and the pace is expected to pick up even further. The Government of India is keen to provide a suitable economic, and business environment conducive to the success of the established and prospective foreign partnership ventures. The Indian auto sector was the place to be in for global OEMs right from the early 2000s. At a penetration of less than ten cars per 1000 persons, the upside was enormous. While many manufacturers were not making huge profits, they did not want to miss out on what could eventually be amongst the top five markets by volume. As the middle class India started to buy to its potential and as the roads became better, the anxiety in companies was not around will we sell. It was more around do we have the capacity and brand position to convert opportunity into revenues.

Value Chain of automobile industry

The value chain in most cases consists of following : Tier3 suppliers:- these are basically small workshops that provide small or may be recycled components or may be consumables to TIER2 Supplier. The company usually does not deals directly with them but could if some regulatory requirements are to be fulfilled. TIER2 Supplier:- they provide much sophisticated products to TIER1 like metal rods or fabrics that go on producing the axle rods or carpets. The quality of component they produce could affect the quality of the vehicle. TIER1 Suppliers:- These are the biggest in operations as compared to the rest and supply the product directly to the OEM for manufacturing. The company takes a stock of the quality of component supplied. Components could be gear boxes, pistons or unmachined blocks which the company could process further depending on its requirement, hence it could not be the final product. OEMs:- the OEMs actually coordinate with the suppliers for part development and only deal with designing and assembly of parts. They are the centralized agencies in the overall process. The processes followed are 1. 2. 3. 4. 5. Procurement of Steel Blanking Welding Painting Assembly ( components are assembled during these operations) a. Of engine b. Of vehicle 6. Quality Check 7. Stocking 8. Delivery

Dealer:- After the product is made it is supplied to the dealer by the OEM depending upon his request who acts as an interface between the OEM and the customer Finance and insurance:- increasing the OEMs are entering into this field due to Shrinking margins in the core business More returns from this business

Besides this the company can aid in the procurement of the vehicle and increase its sales. 2nd hand retailers:- They procure the used vehicle from the customers and sell them in the 2nd hand car market. Increasingly this market is also expanding and many OEMs have opened shop in this sector also

Scrappage Yards:- though not popular in india many foreign nations have the policy of scrapping once the useful life of the product is over. The product is crushed and the recycled material are used again. The non recyclable are incinerated. Transport Agencies:- they are the transport agents that cater to the transport needs of the OEMs. Repair and Spare Market:- The dealers usually deal with the repair of the vehicle even though most users do not prefer them due to high costs. The spare market caters to a huge volume of components.

Raw Material Tier 2 Supplier Tier 1 Supplier OEM Dealer Customer

Tier 3 Supplier Market Segments

Transport Agencies

Finance, Insurance

2nd hand retailers

Scrappage yards

2nd hand buyers

Repair and spare market

Industry Dynamics Market Segments

The industry is categorized in the broadly in the following segments 1.Passenger Vehicles ( PVs ) Passenger Cars UVs MPVs 2.Commercial Vehicles (CVs) M&HCVs Passenger Carriers Goods Carriers LCVs Passenger Carriers Goods Carriers 3.Three Wheelers Passenger Carrier Goods Carrier 4.Two wheelers Scooter/Scooterettee Motor cycles/Step- Throughs Mopeds Electric Two Wheelers 5.Agriculture Machinery However these can further be divided on the basis of length, engine capacity, tonnage, seating capacity and like Eg:- the Passenger vehicle market is segmented on the basis of length of the vehicle as the government has some restrictions based on the overall length of the vehicle and the taxes are varied based on this criteria A : Passenger Cars - No. of seats including driver not exceeding 6(differentiation based on seating capacity) A1: Mini - (Upto 3400 mm) A3: Mid-size (4001-4500 mm) A4: Executive (4501-4700 mm) A5: Premium (4701-5000 mm) B: Max.Mass upto 3.5 tonnes B1: No. of seats including driver not exceeding 7 B2: No. of seats including driver exceeding 7 but not exceeding 9 (7+1 & 8+1) Differentiation based length of the vehicle.

Similarly the Commercial Vehicles are segmented on the basis of Tonnage and seating capacity Eg M3 Category:More than 8+1 seats & Max. Mass exceeding 5 tonnes (Passenger Carrier) A: Max. Mass exceeding 5 tonnes but not exceeding 7.5 tonnes B: Max. Mass exceeding 7.5 tonnes but not exceeding 12 tonnes C: Max. Mass exceeding 12 tonnes but not exceeding 16.2 tonnes D: No. of seats including driver exceeding 13 and Max. Mass exceeding 16.2 tonnes

2 Wheeler market is segmented on the basis of big wheel size and engine capacity Eg A: Scooter/Scooterettee : Wheel size less than or equal to 12'' A1: Engine Capacity less than 75 cc A2: Engine Capacity 75 cc and above but less than 125 cc A3: Engine Capacity 125 cc and above but less than 250 cc

B: Motorcycle/Step- Through : Big Wheel size more than 12'' B2: Engine Capacity 75 cc and above but less than 125 cc B3: Engine Capacity 125 cc and above but less than 250 cc B4: Engine Capacity 250 cc and above

Macro-Factors Affecting the auto-industry

Economic Policies. a. Entry of new competitors because of low trade barriers b. FTAs or agreements with nations to reduce the trade barriers c. Petrol Pricing d. Monetary policies which promote low / high interest rates depending upon parameters like inflation etc. e. Exchange Rates Agreements and partnerships amongst automobile majors Ecological and physical forces 1. Environmental care a. Emission Norms b. Fuel Efficiency Norms 2. Infrastructure in Cities/ Trains/ Planes a. Improvement of automobile infrastructure (roads, parking lots and complementary public transportation. Socio Cultural effects and Consumer behavior 1. Age distribution a. Age of ownership of a car has dropped from 39 to 32 years indicating more preference on vehicles with unique designs and features 2. Family plans 3. Consumer Behaviour/ Spending culture / Budget 4. Social expectations

Government Policies and Regulations

Safety and Emission Implementation of Bharat Stage norms- requiring manufacturers to tweak or build new engines and Petroleum producers to improve the quality leading to price hikes Setting up of state of the art testing facilities across India by National Automotive Testing and R&D Infrastructure Project (NATRIP) and increased safety norms. Move to the international model of leving higher road tax on older vehicles in order to discourage their use In order to facilitate faster upgradation of environmental quality, the Govt. will consider having a terminal life policy for commercial vehicles alongwith incentives for replacement for such vehicles. Use of ethanol blended petroleum would require the OEMs to change or tweak the engines accordingly Government to notify fuel efficiency standards for vehicles under the Energy Conservation Act of 2002 by 2011

Taxes and Rebates R&D policy decision to promote in-house R&D might be reflected in fiscal policy as tax-break to firms for their expenditure on R&D. weighted tax deduction of more than 125% was decided for R&D activities of vehicle and component manufacturing Approval of foreign equity investment upto 100% for the manufacture of automobiles and autocomponents. Policy proposed to fix the import tariffs in a way that the actual production within the country are facilitated over mere assembly hence develop India as hub for small Cars Excise Duties :o The recommendation of promoting passenger cars of length upto 3.8 meters through excise benefits o Decision to hike up excise duty by 2% Vehicle manufacturers will also be considered for a rebate on the applicable excise duty for every 1% of the gross turnover of the company expended during the year on Research and Development carried either in-house under a distinct dedicated entity Freeing up of petrol prices and the subsequent rise in petro prices could impact the sales. Government decisions to reduce the import barriers of certain auto-components would help the OEMs shore up their production volumes In order to facilitate faster upgradation of environmental quality, the Govt. will consider having a terminal life policy for commercial vehicles alongwith incentives for replacement for such vehicles.

A number of tax incentives have been provided to benefit the investments in the country FTAs with ASEAN nation could lead to some OEMs moving to countries like Thailand for production where the costs are lower than in India thus impacting the local OEMs.

Govt.Spendings on different sectors Increased allocation on infrastructure development of the country will help in the sales of automobiles o Road Development o Rail Development o Port Infrastructure o Power Improvements in the above infrastructures would also help in the exports Policies like NREGA and others to distribute the wealth and develop rural india would increase the sales in the rural market.

Outlook
Short Run 1. Demand to increase on back of good monsoons and onset of festival season. 2. Capacity constraints at Auto ancilliary units could impact the sales and production besides Maruti Suzuki also faces the production constraints which are improbable to be removed till 2012 when the new plant comes up. 3. Introduction of new models by Toyota and Honda in A2 segment and by Volkwagen in A3 could boost the sales 4. Withdrawl of Cash- for Clunkers scheme operating in Euro region could further impact the exports of Maruti and Hyundai which have led them to look for African and Latin nations 5. Shortage of skilled manpower could prove a detriment to the companies trying to increase their production. Long Run 1. Development of new factories would ease the capacity crunch currently faced by OEMs. 2. Forecasts of a double Dip recession could impact the sales 3. Stress on R&D by major automobiles giants will lead to products specifically designed for Indian Consumers. 4. Development of Delhi Mumbai corridor and other infrastructural programmes would boost the exports and help in easy transport of vehicles. 5. With companies like TATA and M&M increasing looking for export markets as production bases through acquisitions of others companies the sales of these companies is bound to increase 6. Increased entry by car majors could erode the profitability and margins in the industry where the margins are already very low. 7. Global OEMs could leverage their tie- ship with local suppliers to source components for their global operation from India and with global scenario improving this trend would be visible across. 8. Govt. decision to spend $ 1 trillion on infrastructure sector would benefit the majors operating in the HCV/LCV segment. 9. Still a high level of inflation could indirectly affect the sales due to tightening of monetory policies. 10. Prices of raw materials and petrol would play a significant role on how the sector shapes up as their demand would increase with the economies moving out of recession. 11. With increasing stress on exports by CV majors the outlook seems to be positive.

Auto Ancilliary
An Overview
The Indian auto component industry is one of India's sunrise industries with tremendous growth prospects. From a low-key supplier providing components to the domestic market alone, the industry has emerged as one of the key auto components centres in Asia and is today seen as a significant player in the global automotive supply chain. India offers the advantage of low manufacturing costs due to economies of scale, low design, research and labour costs and local sourcing of tools and components. The size of the auto components industry has been estimated at US$ 22 billion in 200910, growing at a compound annual growth rate (CAGR) of about 16.3% % over the previous five years. The industry is expected to grow to US$ 40 billion by 2016. The industry is highly fragmented with more than 6,400 players present in the market Only 600 constitute the organised sector and contribute more than 77% of the countrys total production of auto components Large Indian players contribute about 43% of the total production, while foreign companies such as Magna, Visteon, Valeo, Bosch, Federal-Mogul Corporation, Denso, etc., contribute 15% Exports from the auto component industry are estimated to be worth US$ 3.2 billion in 2009-10, according to the ACMA report

Auto Component Industry Production, 2001-2011 (In USD Bln.)

Investments
Investments in the auto component industry are estimated at US$ 9.0 billion in 2009-10, according to ACMA The investments have increased steadily over the past 10 year period, increasing from USD 2.3 billion in 2001-02 to USD 9.0 billion in 2009-10

Auto Component Industry Investment, 2001-2010 (In USD Bln)

Exports
There has been a geographical market shift i.e. from supplying components to markets in developing countries to exporting them to developed markets o Europe accounted for 40.4 % of India's auto components exports in 2009-10, followed by Asia with 23.8 % and North America with 22.6 %. The industry has witnessed a shift in the composition of exports over the years, with the original equipment manufacturer (OEM/TIER 1) segment accounting for 80 % of exports in 2009-10 o The share of the aftermarket segment in auto component exports stood at 20% in the same year
Auto Component Exports-Imports, 2003-2010, by Value (USD Bln)

Auto Component Exports, 2009-2010, by Geography 100%= USD 3.2 Bln

Auto Components Industry Value Chain

Till the mid 1990s, Indian components manufacturers were serving to a low demand and low volume domestic market with most of the components supplied to the aftermarket and to a few OEMs and Tier 1s. The post-liberalisation era has seen many global auto majors GM, Ford, Hyundai, Toyota etc. enter the Indian market to set up their manufacturing units and thus serve the domestic market and also export components for their vehicles manufactured in the developed markets. Increasing competition from global majors and a steady growth in the domestic passenger car market showed the way forward for the components manufacturers. To meet the product specifications of global players, the Indian components manufacturers embraced advanced manufacturing technologies and improved capacities and thus moved up the value chain. As the domestic auto components industry evolved, it witnessed a few notable trends like: Global Quality and Service Benchmarking Indian manufacturers have been successful in their pursuit to meet global manufacturing and quality standards with many companies winning the coveted Deming prize in the last decade. Outsourcing Most of the global Tier 1s and OEMs have their manufacturing centres in India and they source components from India for their global requirements Globalisation - Several top Indian companies have expanded their footprint to other parts of the globe through acquisitions in the US and Europe

Industry Dynamics Market Segments

1. Engine parts comprise the largest product segment of the auto components industry with a 31 % production share. The sub-segments include pistons, piston rings, engine valves, carburettors, fuel-delivery and cooling systems and powertrain components.

Major players The four major players in the pistons sub-segment include Goetze, Shriram Pistons & Rings, India Pistons and SamkrgPistons, while RaneEngine Valves, KAR Mobiles and Shriram Pistons & Rings lead the engine valves sub-segment. Ucal Fuel Systems and Spaco Carburettors & Escorts Auto Components are prominent players that manufacture carburetors. In diesel-based fuel injection systems, Mico, Delphi, TVS Diesel System and Tata Cummins are the major players. 2. Transmission and steering parts comprise the second-largest product segment in the Indian auto components industry, with a 19 % production share. The sub-segment comprises gears, wheels, steering systems, axles and clutches. Major players Sona Koyo Steering Systems, Rane Madras and Rane TRW Systems are the key players in steering systems. Bharat Gears, Gajra Bevel Gears and Eicher are some of the major players in the gears sub-segment. Two international companies, GrazianoTrasmissioni and SlAP Gears India, have set up their base in India. Clutch Auto, Ceekay Daikin, Amalgamations Repco and Luk Clutches are the major players in the clutch sub-segment. RaneBrake Lining and Rico Auto are the key players manufacturing clutch-facings. GKN Driveshafts (India) and Delphi cater to the drive shaft requirements of passenger cars and SonaKoyo Steering Systems services to the commercial vehicle segment. 3. Suspension and braking parts is the third-largest product segment with a 12 % production share. The primary sub-segments comprise brakes, brake assemblies, brake linings, shock absorbers and leaf springs.

The demand share of the replacement market in this segment varies from 30 to 70 %, depending on the product. Major players Brakes India, KalyaniBrakes and Automotive Axles are the three major brake system suppliers in the country. Rane Brake Lining, SundaramBrake Lining, Hindustan Composites and Allied Nippon dominate the brake linings sub-segment. Jamna Auto and Jai Parabolic are the major manufacturers of leaf springs. Gabriel India, Delphi and Munjal Showa are the key manufacturers of shock absorbers.

4. Equipment is the fourth-largest product segment with a 10 % production share. The primary sub-segments include headlights, halogen bulbs, wiper motors, dashboard instruments, switches, electric horns and other panel instruments. The demand share of the replacement market in this segment varies from 30 to 70 %. Major players Lumax, Autoliteand Phoenix Lamps are the key players in the headlights sub-segment. Premiere Instruments and Controls is the leading player in the dashboard sub-segment. Jay Bharat Maruti, OmaxAuto and JBM Tools are the major players in the sheet metal parts sub-segment. 5. Electrical Parts is the fifth-largest product segment in the auto components industry, with a 9 % production share. The primary sub-segments comprise starter motors, generators, distributors, spark plugs, ignition coils, flywheel magnetos, voltage regulators and electric ignition systems (EIS). The demand share of the replacement and export markets is low at about 25 %, while that of the OEM segment is about 75 %. Major players Lucas TVS, Denso, Delco Remy Electricals and Nippon Electricals are the key players in this segment. 6. Others (segment) is one of the fastest growing within the automotive components industry, with a 19 % production share. The segment includes components such as sheet metal parts, pressure die castings, plastic moulded components, fan belts and hydraulic pneumatic equipment.

Major players Phoenix Lamps, Autolite, Hella India and Lumax are prominent players manufacturing sheet metal parts.

Segments Engine Parts Transmission & Steering Parts Suspension & Braking parts Electrical Equipment Tyres Others

Leading companies Ucal Fuel, MICO, Lucas Sona Koya, ZF, Steering Gabriel, Munjal Showa Exide, MICO Motherson Sumi, Lumax MRF, Apollo, Bridgestone Rico Auto, Sundram

Auto Component Industry Revenue Split, 2009-2010, by Component Group

Macro-Factors Affecting Industry

Since the components industry is mostly dependant on the Auto industry for its demand, the macro-economic factors affecting the industry are similar to that already discussed in the Auto section of the report.

Government Policy and Regulations

The increased commitment towards road infrastructure development is expected to increase the network of highways and interstate roads. For personal segments such as cars and two-wheelers, it is expected to increase connectivity in rural and upcountry area which will help generate more demand in these regions. Further, the roads and highway development will be conducive to inter-city cargo movement, a key enabler for CV demand.

1. The National Strategy for Manufacturing The policy drawn up by the National Manufacturing Competitiveness Council (NMCC), has identified the automobile and auto components sector as one of the key areas for priority action. The government has undertaken a number of initiatives to promote growth in this sector such as: a) Auto Policy 2002 The policy emphasizes on low emission fuel auto technologies and availability of appropriate auto fuels to take auto manufacturing to a self-sustaining level. Foreign equity investment up to 100 % for manufacturing of auto components is permitted through the automatic route. Manufacturing and imports in this sector are free from licencing and approvals. b) Automotive Mission Plan (AMP) 20062016 The AMP 20062016 aims to make India a preferred destination for designing and manufacturing automobile and automotive components. It proposes to increase the output to US$ 145 billion and account for more than 10 % of the countrys GDP. The plan envisages additional employment for 25 million people by 2016. c) National Automotive Testing and R&D Infrastructure Project (NATRiP) The government has set up NATRiP at a total cost of US$ 388.5 million, to enable the industry to adopt and implement global standards of vehicular safety, emission and performance standards. NATRiP will focus on enhancing the industrys competitiveness by providing low-cost manufacturing and product development.

2. Department of Heavy Industries and Public Enterprise Initiatives such as increase of the deduction limit for Research and Development (R&D) in the sector from 150200%, increased budgetary allocation for R&D activities and lowering of the duty regime have been undertaken to further strengthen the capability of the sector. The department has also suggested the creation of a fund, worth US$ 0.2 billion (INR 10 billion), to modernisethe auto components industry by providing an interest subsidy on loans and the purchase of new plants and equipment.

3. De-reservation of items for small scale sector This will include extension of deemed export benefits to intermediate suppliers of auto components against the duty free replenishment (DFR) scheme in the governments EXIM Policy for 200405 . It is aimed at benefiting all auto component manufacturers to enable them to avail of duty drawbacks, refund of terminal excise duties and an advance licence for duty free import of input.

4. Other incentives These include reduction of excise duty on smaller passenger vehicles and reduction in the duty levied on raw material to 5 to 7.5 % from the earlier 10 %. Emission norms and environmental standards, in line with those of developed world, and enforcement of Euro IV and Bharat Stage IV emission norms, have fostered the growth of the Indian auto components industry. By lowering Customs duty on some critical parts or sub-assemblies of electric vehicles, the Minister is encouraging the vehicle manufacturers working in this area to promote clean technology.

Outlook
According to the ACMA-EY Vision 2020 study, India is expected to witness strong growth in vehicle production across all segments by 2020. Passenger vehicles - projected to be 5 million units by 2015 and over 9 million by 2020 driven by domestic demand and as a global hub for exports of small cars Commercial vehicles volumes of over 1.4 million by 2015 and over 2.2 million by 2020. Small Commercial Vehicles (SCV), a relatively new segment, expected to grow 28% annually over the next few years Two and three wheelers expected to double to 22 million units by 2015 and reach 30 million by 2020 driven by low penetration levels, expanding rural sales and growth in exports Tractors projected to be over 0.7 million by 2015 and over 1 million by 2020 with steady growth expected in domestic and export volumes Construction equipment likely to grow 2.5 times to 0.1million units by 2015 and almost double to 0.18 million by 2020 driven by the infrastructure sector The Indian auto component industry can potentially grow to over USD 110 billion by the year 2020 driven in tandem with the surge in vehicle production in the country. Of this, the domestic turnover can grow to USD 80 billion and exports scale up to another USD 29 billion. The auto component industry can thus be an engine of Indias economic and manufacturing sector growth, potentially contributing 3.6% of GDP by 2020, up from the current 2.1%. To achieve this potential the auto component industry would require investments of over USD 35 billion during the period. It will also create employment opportunity for over 1 million skilled people. Increasing cost pressures is driving OEMs towards low cost country (LCC) sourcing. In order for the Indian component manufacturers to stay competitive, among other things, they will have to move up the value chain. Many different regions around the world are fast becoming centres for LCC sourcing; India will have to be wary of these. The Indian component industry must raise capital strengthen balance sheets; scale capacities manage costs and flexibility of new assets; build R&D competence - product development, design and frugal engineering capabilities; and build robust organizations - to manage significantly increased complexities and risks associated with growth

Business Model
Ashok Leyland Ltd ALL is the second-largest commercial vehicle manufacturer in India. The Hinduja Group holds 51% stake in the company through a holding company Hinduja Automotive, UK. ALL has six manufacturing plants at four locations in India: Ennore (Tamil Nadu), Hosur (Tamil Nadu), Alwar (Rajasthan) and Bhandara (Maharashtra). The company is focused on the M&HCV segment and has a significant presence in the bus segment.
Ashok Leyland Sales Break-up, by Value, FY 2010

100% = Rs 8,035 Cr

Ashok Leyland CV Volume Break-up, by type, FY 2010 100% = 64,075 Units

Ashok Leyland CV Volume Break-up, by geography, FY 2010 100% = 64,075 Units

Quarterly Outlook 1) Being the second largest player in commercial vehicle segment, Ashok Leyland is well positioned among the players. Going forward, the company is expected to post good numbers due to positive factors like the increase in the freight rates, huge spending on infrastructure space and availability of finance

2) Ashok Leyland will able to cater to the northern market more effectively with its new plant in Uttarakhand. The company has already started production from this plant, where it is also enjoying the benefits on excise duty and income tax 3) Ashok Leyland was missing in LCV segment, but with the JVwith Nissan, it will be able to get the traction in the LCV segment. The company will introduce three models in LCV segment by 2HFY11

Bharat Forge Ltd Bharat Forge Ltd., the flagship company of the US $ 2.4 billion Kalyani Group, is a leading global Full Service Supplier of forged and machined - engine & chassis components. It is the largest exporter of auto components from India and leading chassis component manufacturer in the world. Its manufacturing facilities are spread across 11 locations and 5 countries - four in India, three in Germany, one each in Sweden, USA and two in China.

Bharat Forge Sales Break-up, by Value, FY 2010 100% = Rs 1,940 Cr

Bharat Forge Sales Value Break-up, by Geography, FY 2010 100% = Rs 1,940 Cr

Quarterly Outlook 1. The strong growth in the domestic automotive segment along with the rising demand in the export market has been a strong supporter for the companys growth. In FY10, the company had spent Rs 85 crore in the restructuring of its subsidiaries. This has started to show positive results with all its major subsidiaries including FAW China contributing positively to the bottomline of the company. The operations in the US market have seen completion of the restocking cycle. Going forward, this would signal a further demand pick-up and rise in production. 2. The management has a strong growth outlook for the coming quarters with the machining mix envisaged to improve by around 50% from the present levels along with further improvement in topline contribution from the non-automotive segment from the present 33% levels. 3. The management has also guided on the order visibility for its JV with Alstom from Q3FY10 onwards. The facility being developed would have a high degree of indigenisation providing additional leverage to handle competitors. 4. The company is also in talks with various OEMs domestically and internationally to promote the REVOLO product developed in a JV with KPIT Cummins towards better emission controls and high fuel efficiency at a cost effective price

Hero Honda Motors Ltd Hero Honda Motors Limited is engaged in manufacturing of two wheelers motorcycles and scooters. Hero Honda bikes are manufactured across three manufacturing facilities. Two of these are based at Gurgaon and Dharuhera. The third manufacturing plant is based at Haridwar, in the state of Uttrakhand. The Company is a joint venture between India's Hero Group and Japan's Honda Motor Co. The Company offers a range of bikes starting from CD Dawn, CD Deluxe, Splendor Plus, Splendor NXG, Passion and Passion Pro. The 125 cubic centimeter segment offers Glamour, Super Splendor and Glamour F1. It also has an offering called Achiever in 135 cubic centimeter segment. In the 150 cubic centimeter and above the Company offers brands like Hunk, CBZ X-treme, Karizma and the Karizma ZMR. It also offers a 100 cubic centimeter scooter, Pleasure.
Hero Honda Sales Break-up, by Volume, FY 2010 100% = Units 4.55 mn Hero Honda Sales Volume Break-up, by Geography, FY 2010 100% = Units 4.55 mn

Quarterly Outlook 1. Concerns exist over the fate of Hero Honda, especially with regard to Honda possibly selling its 26 % stake to the promoters and exiting the company. The implications of Honda pulling out of the company are still being worked out and a possible re-rating is expected a. The good news for Hero is that it would save on royalty payments of 2.5-3 % of sales estimated at around Rs 5,500 crore for the financial year 2011. But it would lose out on the Honda expertise and brand, even though it is expected that Honda would provide technical support for a few more years b. Due to its dependence on Honda for research and development, Hero would have to start building new facilities on its own. There are concerns about the ability of Hero to build product development facilities like Bajaj Auto and TVS in a short span of time 2. Higher production from Uttaranchal plant is expected to drive 390bps decrease in effective tax rate 3. With price hike being implemented from June 2010 and commodity prices receding over the past couple of months OPM likely to improve in the next quarter

Maruti Suzuki India Ltd Maruti Suzuki India Limited (MSIL) is a Indias largest passenger car company. The Company is engaged in the business of manufacturing, purchase and sale of motor vehicles and spare parts (automobiles). The other activities of the Company include facilitation of pre-owned car sales, fleet management and car financing. The Company is a subsidiary of Suzuki Motor Corporation, Japan. The Company has a portfolio of 13 brands and over 150 variants across Maruti 800, Omni, international brands Alto, A-star, WagonR, Swift, Ritz and Estilo, off-roader Gypsy, SUV Grand Vitara, sedans SX4 and Swift DZire and Eeco. The Company's two manufacturing facilities are located at Gurgaon and Manesar, south of New Delhi.
Maruti Domestic Sales Break-up, by type, FY 2010 100% = Units 0.87 mn Maruti Sales Volume Break-up, by Geography, FY 2010 100% = Units 1.02 mn

Quarterly Outlook 1. While Marutis volume ramp up has been impressive in Q1FY11, its operational costs have grown ahead of revenues (costs up 29%yoy against 27%yoy growth in revenues). Resultant, despite the 25%yoy volume growth, MSILs PAT declined 12%yoy in the quarter. 2. The sharp and unexpected increase in royalty has negatively impacted earnings expectations for coming quarters. The margins are expected to be hit by 170 bps due to higher royalty outgo. a. The Royalty charge spiked due the increase in sales of K-series engine models and amendments in the various royalty agreements the company has entered with Suzuki Motor Corporation b. MSILs decision to pay higher royalty to Suzuki has come as a big surprise and would lead to a multiple de-rating for the stock on account of the slower earnings growth going forward. 3. Thus, while volume growth is expected to sustain, earnings are likely to remain muted going forward on account of higher operational expenses.

Escorts
Subsidiary Escorts automotive ltd Escorts construction equipement ltd Escorts agrimachinery USA Escort asset management Farmtrac tractors Europe Farmtrac North America Beaver Creak Holding Revenue Break UP
year ended 30.09.2009 Agri Machinery Auto Ancilliary Railway Equipement Construction Equipment Others Unallocated 1953.83 86.63 199.47 417.76 39.97 6.94 year ended 30.09.2008 1968.92 89.04 143.36 587.31 43.69 6.13

Agri Machinery Domestic Exports

year ended 30.09.2009 3,47,010 38,214

year ended 30.09.2008 3,46,501 43,553

Company Outlook

Good monsoon would lead to good sales in near future. Good presence in UP where good harvest of sugarcane could lead to positive effect on sales Order from Tanzania , operations in morocco To launch 3 new models in the next 6 months in range(25-40 Hp which constitutes the bulk of tractor market) Railway equipement segment not performing well and has impacted the revenue growth due to delays in approval of orders

Railway just managed to break even EBIT=1 ( 3rd quarter) An expected 3rd price rise in the quarter could affect the demand of the tractors as Mahindra is planning to raise the production output by 60% which could enable M&M to sell the tractors at lower price. Agri-business contributed around 75% of the revenues . Any impact on this part could affect the profit margins as other segments are already underperforming Currently the plants run at 50% productivity level , so no problem of increasing the production levels due to capacity constraints. Increase in demand of 2 and 4 wheelers and the capacity constraints of component supplier could benefit escort in the auto component business in the quarter(capacity used<50%) Increased spending in the infra-space could help boost the sales of construction equipements. Currently the company is in construction currently material handling but now plans to manufacture earthmoving equipment where volumes are high. Railways:New orders from govt Diversifying into metro business Looking at foreign markets(west European countries)

TATA MOTORS Revenue Breakdown from different companies Net Revenue Key Subsidiaries JLR (GBP Mn) Tata Daewoo CV Ltd., Korea (Rs. Mn) Tata Technologies Ltd Consolidated (Rs. Mn) HV Transmissions Ltd (Rs. Mn) HV Axles Ltd (Rs. Mn) Tata Motors Finance Ltd (Rs. Mn) Businesses And Operations Jaguar and Land Rover Business: The company bought JLR operation from Ford Motors and the division is run as a separate entity from the main TATA motors. The company deals with luxury segment with Jaguar and SUV/MUV segement with Landrover and RangeRover. Area of salesFY09 4,974.00 26,437.00 12,024.30 1,422.00 1,546.00 7,879.00 FY10 6,555.00 26,789.00 10,703.80 2,099.00 2,401.00 11,320.00

Outlook European crisis will not have an immediate impact on JLR sales as it has a healthy Order Book. However, the order traffic has somewhat slowed down in Europe Economic recovery in the US and China is expected to offset the slowing European demand to some extent. JLR has sold 25,000 units in China in FY2010. To broaden its foothold in China, JLR has set up a

National sales company in the region. The company has also seen revival in demand from Russia in the last two months. Dependency for Supply of engines from Ford motors could impact the production of the vehicles Tata would integrate the networks at JLR to help achieve economies of scale and hence reduce operation costs. Also Integration of design processes would help reduce the developmental costs for TATA besides more initiative to source from low cost countries New and improved version of popular platforms to be launched and The company would also look at smaller entry-level cars under the Jaguar and Land Rover brand for higher volumes

Tata motors (Indian Operations) Sources of Revenues

As seen around 85% of revenues come from the sale of vehicles both in domestic and export market Tata motors operates in the following segments in Indian auto sector I Passenger Vehicles ( PVs ) A: Passenger Cars B: Utility Vehicles(UVs) C: Multi Purpose Vehicles (MPVs),Van type II Commercial Vehicles (CVs) M&HCVs A: Passenger Carriers B: Goods Carriers LCVs A: Passenger Carriers B: Goods Carriers Sales segment Wise:-

Category M&HCV LCVs* Total CVs Small Car (mini + compact) Midsize Car Utility Vehicle/SUV Total PVs SEGMENTS:-

2009-10 155,161 218,681 373,842 158,093 68,420 33,507 260,020

2008-09 113,697 151,676 265,373 115,160 53,057 39,295 207,512

% change 36.47 44.18 40.87 37.28 28.96 -14.73 25.30

M&HCV Outlook Investments in infra space and giving licenses to more coal mining operation and an overall improving industrial activity would increase the sales of trucks with higher tonnage Entry of foreign players like Japanese playersIsuzu and Hinoand two Chinese firmsFAW and Foton would lead to an increase in competition and impacting the sales Tata Motors signs pact with Saudi bus operator. The company has signed an agreement with Saudi Arabiabased Hafil Transport to supply 1,000 air-conditioned school buses. The order is valued at about $50 million. Expanding capacity at our Dharwad bus plant and eyeing exports to Latin America, Egypt and Nigeria 1900 buses for CWG to provided by TATA LCVs Outlook The company plans to launch a new mini truck in this segment named Project Dolphin and a newer carrier in this segment would help increase the sales. Introduction of Magic Iris and the micro-truck Ace Zip. Investments to increase the productions of ACE to cater to the ASEAN and south asian markets

The company also has plans to start production of its mini-truck 'ACE' at its Dharwad plant which would help the company meet the increasing demands from LCV segment

Passenger Vehicles Outlook New launch of cross over Aria and multi-purpose vehicle, Venture would help in the sales. Assistance from JLR in manufacturing of PVs would help in better quality cars and improving the brand image which has been the major concern for TATA on satisfaction indexes. A continuous spate of fire incidents in NANO could affect the sales of NANO . Also a possible increase in prices of NANO could also impact the sales. Sales of PV segment would improve due to monsoon and festival season. Plans to reopen the bookings for NANO which could be bought directly without waitlist

Apollo tyres
Apollo, Vredestein and Dunlop (in 30 countries in the African continent) are the three key brands. Others are Regal and Kaizen (truckbus tyres), Maloya (passenger car) DuraTyres (retreaded tyres), DuraTread (retreading material) and Acelere Wheelz (alloy wheels for passenger cars). Apollos largest unit is in Limda, in the western Indian state of Gujarat. Two other units are located in the southern Indian rubber-producing state of Kerala. These three together have a combined production of around 850 tonnes a day. In South Africa, the Ladysmith and Durban plants account for a combined capacity of around 180 tonnes, and the Enschede plant in the Netherlands adds another 150 tonnes a day. Business Model Apollo currently has three brands 1. 2. 3. Apollo Vredestein Dunlop

Revenue Segmentation

1.

Apollo The brand Apollo ie the main brand under the company caters to the Indian Market specifically The breakdown of sales is given below

The Apollo brand operates in 5 segments catering to PVs and CVs segment Revenue from different products Revenues Type Automobile Tyres Automobile Tubes Automobile Flaps Alloy wheels Pre-cured tread Rubber 2009-10 48,311 4,648 1,038 24 236 2008-09 40,606 3,816 841 9 224

2.

Apollo Vredestein BV Brands Vredestein premium brand Maloya high value brand

Business Model Caters basically to the European market with a minimal exports in Americas(US and Canada) The brand caters mostly to the Replacement market but has 8% revenues from OEM with likes of Mercedes, Porsche.

3.

Dunlop Brand- African Market(SA) The brand deals in 4 segments Passenger Car UV/ SUVs Trucks Earthmovers Segmenting the Revenues

Revenue Segmentation by Market RM OEM Exports

% Share 81 1 18

Segment Passenger Farm & OTR Trucks Light Trucks Others

% Share 36 51 34 24 1

Quarter Outlook Opening of Chennai plant(started operation in July 2010) would help in meeting excess demand Regarding truck radial tyres Apollo is a beginner in the market whereas JK tyres has a considerable presence in the segment and is further investing to raise output to cater to increasing sales which could pose a challenge to Apollo 2nd phase of capacity expansion had started in Jan2010 and is expected to materialize by this year and allow Apollo to expand its market. Currently caters to RM(71%) , which is a more volatile market than OEM even though the margins are higher in RM as there is no order booking in RM With the restriction on import of radial truck tyres lifted, imported tyres could flood the market affecting the local suppliers like Apollo. However further cuts have been ruled out(currently 20%) With increase in demand of radial tyres OEMs are demanding lifting of duty on imported tires that may affect the local suppliers if the decision is taken in the quarter. Supply of rubber would improve from October in Indian market after the monsoon that could ease the rubber prices(monsoon affects the tapping process) , Increase in imports by Apollo of rubber would help balance of the rubber prices in near term. Also with govt relaxing the import duty on rubber, it would further bring down the rubber prices. Apollo is a supplier to Vehicle like VW Polo, GM Beat, Ford Figo whose sales could increase as OEMs launch new variants ( VW Venta) and Beat(CNG). 70-day long lock out at the Perambra unit of Apollo Tyres, near Thrissur, was withdrawn and plans to raise output from 308 to 340 tonnes per day which would prove beneficial in the sales With Scrappage policy over in most of EURO region cars sales have dropped which would affect the demand of tyres from Vredestein Banden BV With winter season approaching in Europe sales of specialty Winter tyres, could peak benefitting the Vredestein Banden BV which is famous for winter tyres.

Rico
Rico is a world-class engineering company supplying a wide range of high precision fully machined aluminum and ferrous components and assemblies to automotive OEMs across the globe. Rico Auto operates mainly in the auto-components business. Rico supplies aluminum and ferrous machined components and assemblies to original equipment manufacturers (OEMs) across the globe. JVs FCC Rico F.C.C. RICO is a joint venture company of F.C.C. Co. Ltd Japan and Rico Auto Industries Ltd. India established in February 1997 with 50:50 share equity. The company is exclusively into manufacturing & supplying of automobile clutch assemblies to O.E.M's of Two Wheelers and Four Wheeler. MAGNA Powertrain RICO Oil & Water Pump (with Aluminum Housings) for Automotive Engines India & Europe RICO JINFEI Aluminum Alloy Wheels for Two Wheelers CONTINENTAL RICO Products : Hydraulic Brake Products and Services for Vehicles of all Classes for OEMs in India Sub Products Brake Calipers for Front and Rear Axles : 2 Million Units Drum Brakes : 1.5 Million Units Master Cylinders : 1 Million Units Actuation Units & Brake Boosters : 1 Million Units LSPV Load Sensing Proportioning Valves : 0.5 Million Units

Subsidiaries Rico Auto Industries Inc. USA This Company is engaged in the business of trading of Auto Components in the North American and Brazil Rico Auto Industries (UK) Limited, U.K. This Company is engaged in the business of trading of Auto Components for the European Markets. Sources of revenues

Company Rico Auto Industries Limited Rico Auto Industries Inc., USA Rico Auto Industries (UK) Limited, UK FCC Rico Limited Continental Rico Hydraulic Brakes India Private Limited Magna Rico Powertrain Private Limited Segmentation of revenues Product AUTO PARTS Mould & Dies Others

Revenues(2008-09) 765.7 106.1 39.6 180.5 1.4 0.2

Sales(2008-09) 788.67 35.67 3.28

Sales(2007-08) 786.86 20.43 2.76

Outlook Ramp of the Tata Nano (to which Rico is one of the key component suppliers) would also be a key revenue driver going forward Hero Honda (46% of consolidated turnover), Maruti Suzuki (12%) are the key OEMs whose sales will increase leading to increase in sales of RICO It has a number of JVs in other countries and the recovery of global markets would help in sales increase However the company already operates at high level of productivity so increase in demand could lead to company facing capacity constraints in the next quarter.