I diI di O i i b dO i i b d

Annual Conference - 27th to 28th May, 2009

India India -- Opportunities unboundOpportunities unbound

Presentation by:Presentation by:Mr. Deep KapuriaMr. Deep Kapuria

Past President &Past President &Chairman Chairman –– Globalisation & India Brand Building ACMA, Globalisation & India Brand Building ACMA,

Chairman Chairman –– HiHi--Tech GroupTech Group

Automotive Component Manufacturers Association of IndiaAutomotive Component Manufacturers Association of India

Contents

1 Indian economy “ an overview ”

2 The Indian Automotive Sector

3

4

Advantage - INDIA

R d t I di4

5

Road to India

ACMA – Automotive Component Manufacturers Associationp

Indian economy “ an overview ”

The Surging – Urban Indiag g

Indian economy “ an overview ”

The Emerging – Rural Indiag g

DRAFT

After decades of low growth, the economy moved into a high-growth phase….

9.2 9.8 9 310

Real GDP growth rate: India vs. World

7.3

4 0

5.6 5.2

7.9

9.2 9.8 9.3

6

8

10

h (%

)

IndiaWorld

2.9

5.13.6

4.0 5.75.4

5.9 5.8

4.3

2

4Gro

wth

01950's 1960's 1970's 1980's 1990's 2001-03 2004 2005 2006 2007 2008

Slow growing closed economy Fast growing open economyTransformationTransformation

India is the second fastest growing economy in the world after China

► Per capita GDP* growth - 7.1 % (last 5 years)

► Cumulative FDI – USD 51.5 bn. (FY03-08)economy in the world after China

► Size: Economy crossed USD 1 trillion mark in 07 *average at constant prices

Source: IMF Apr’09, Economic Survey 2007-08 & RBI Bulletin

..backed by a sustainable growth model

Historical Future

Globalisation

T tERS

Text

Investments

Consumer spendingReforms

DR

IVE

LER

S

FavorableRobust

financial Modern legal Favorable t

A stable and a ib t

ENA

BL Favorable

demographicsfinancial

markets and institutions

Modern legal system` government

policiesvibrant

democracy

Favourable demographics and a booming consumer base are expected to drive the economy in future

More than 60% in the working-age group of 15 to 64 years

Working population yearspopulation

2nd largest pool of certified professionals and the highest number of qualified engineers in the world

Skilled Manpower

Growth DriversDisposable income is expected to increase at an average 8.5% per annum till 2015

RisingIncome

Rapid 140 million rural population is estimated to move to urban b 2020 d 00 illi b 20 0

Booming rural market

urbanization areas by 2020, and 700 million by 2050

Rural Market There is a huge consumer base of 720 million consumers across 627,000 villages

Indian rural and small town markets have remained insulated from the current slowdown and offer great opportunities for growth

Sources: ‘Dreaming with BRICS- The path to 2050’, 2003, Goldman Sachs; NCAER; Morgan Stanley, CRISINFAC, Wikipedia, IBEF

Though impacted by the current slowdown, India is in a better position than most countries….

14%

World economic situation(by share of GDP)

64%22%

and is expected to resume growth of 7% by 2011

RecessionLess than inflationGrowth

….and is expected to resume growth of ~7% by 2011

Source: Booz & Company, SIAM Conclave, Feb’09

The Indian Automotive Sector

DRAFT

Indian Automotive Sector -an overview

Auto clusters

Contributes 5% to the GDP

Cumulative FDI - USD3.3 bn. (FY01–09* )Ranking

New Hub: UttarakhandDelhi-Gurgaon-Faridabad

World’s 2nd

largestAsia’s

2W market

Chennai -Bangalore-Hosur

Mumbai-Pune-Nasik-AurangabadKolkata

World’s

Asia s 3rd largest

World’s 4th largest CV market

PV market

World s 5th largest (by volume) Bus & truck market

Global OEM’s

Indian OEM’s

►BMW►Fiat►Ford►GM

►Skoda►Toyota►VW

►Hyundai►Maruti Suzuki

►Ashok Leyland►Bajaj Auto

►Hero Honda►Mahindra & MahindraOEM s OEM s

GlobalSuppliers

IndianSuppliers

Highly competitive ►Honda

►VW►Volvo

►Maruti Suzuki►Mercedes

►Bajaj Auto►Force motors

►Mahindra & Mahindra►Tata Motors ►TVS Motors

►Allied Signal►Bosch►Delphi►Denso

►GKN►Magna►Thyssen Krupp►Valeo

►Amtek Auto►Bharat Forge ►Hi Tech Gears

►Motherson►Rane Group►Rico Auto

►Shriram Pistons►Sono Koyo ►Sundram FastenersSuppliers Suppliers►Denso ►Valeo

►Visteon►Hi Tech Gears ►Rico Auto ►Sundram Fasteners

Sources: CRIS INFAC; Planning commission; IBEF; ACMA ; “India autos report Q1 2009,” Business Monitor International,;*FY09 number are for Apr 08 to Jan 09 period

Automobiles Sector..expected to be world’s 7th largest automobile market by 2016 and 3rd largest by 2030

Domestic sales and exports trend

8 910.1 9.7 9.7

10

12

s Domestic Exports

CAGR: FY04-09 Volume: FY09

Units (mn.)

6.87.9

8.9

4

6

8

10

s. in

mill

ion

units

PV

CV

p

11.5% 21%

8.1% 19.6%

Units (mn.)

1.9

0.44

10.80.60.51.24 1.53

0

2

FY04 FY05 FY06 FY07 FY08 FY09

Nos

Domestic sales Exports

Two-wheeler 8% 13%

Overall 7.4% 25.1%

8.4

10.7

CAR

Market leaders

Maruti Suzuki India Ltd. (51%)

Major trends

Small cars Gaining significance as a small

MHCV & LCV Tata Motors (>50%)

( )

UV Mahindra & Mahindra (42.7%)

S a ca scar manufacturing hub

R&DEmerging as a preferred R&D base for global manufacturers

2W Hero Honda (44.8%)

Sources: Centre for Monitoring Indian Economy; “India autos report Q1 2009,” Business Monitor International, SIAM

Indian Auto Sector proved resilient in an environment with severe declines in major auto markets….

Turnover (USD bn.)

OutlookVolume Growth figures (YOY)

PV CV 2W Total 155

Auto Components

19

CAGR

2008-09

PV CV 2W Total

Units (mn.)

Growth(%)

Units (mn.)

Growth(%)

Units (mn.)

Growth(%)

Units (mn.)

Growth(%)

Domestic 1.6 0.13 0.4 -21.7 7.4 2.6 9.7 0.71

40

Automobile21

21.3%

…. continued positive results

Exports 0.3 53.7 0.04 -27.7 1 22.5 1.5 23.6

Total 1.9 6.7 0.44 -22.3 8.4 4.6 11.2 3.3

FY09E FY16E

pin April’09 signal a healthy

outlook

I A il JD Power estimates that China and India will be the growth drivers for the global

car market and these markets would nearly double in size by 2014

In April, Nano recorded over

203,000 bookings with customers paying

90% of the price

Sources: CRIS INFAC; Planning commission; IBEF; ACMA ; “India autos report Q1 2009,” Business Monitor International, SIAM

OEMs are increasingly making India a manufacturing hub…

Expansion announcements Expansion announcements Sourcing Plans Sourcing Plans

increase local sourcing to 90%increase local sourcing to 90%

Planned investments by major OEM’s ~ USD 7 1 bn

… and many component players are investing… and many component players are investingIn the last two years

major OEM s ~ USD 7.1 bn.

In the last two years, ~100 projects were

announced with investments worth

~USD1.9 bn

Sources: CRIS INFAC; IBEF

Auto Components Sector -an overview

….caters to various product categories

E i t

Suspension & braking parts

12%Body & Chasis

12%

Industry registered strong growth in the past few years..

1920

CAGR: 23%

Equipment10% Drive

transmission &steering parts

19%Electrical parts9%6.7

8.7

12

15

18 19

3 6 3 868

101214161820

US

D b

illio

n

CAGR: 24%

Engine parts31%

Others7%

1.3 1.7 2.5 2.9 3.6 3.8

024

FY04 FY05 FY06 FY07 FY08 FY09E

Total turnover Exports

graduating to world class…….graduating to world class

11 Deming awards397

564ISO 9000

TS 16949

15 TPM awards

60

186

56QS 9000

ISO 14001

OHSAS 18001

0 200 400 600

Sources: “India autos report Q1 2009,” Business Monitor International, SIAM, Deloitte , ACMA

Collaborations / JV’s – Auto Components

Nature of Collaborations

542 Oth

TOTAL =240

Foreign Collaborations (in no's)

42

117

Equity

Financial

Joint venture Japan113

Others 18

USA31UK

12Korea

15

Italy

42

8

Other

Technical &FinancialTechnical

y 16

Germany 35

30

Total: 244

Others: Australia, China, France, Singapore, Slovenia, Sweden, Switzerland, Taiwan,

Thailand, Turkey

Outlook remains healthy

OEM► Expected to grow at a CAGR of 7-8% from FY08 -

13 due to slower OEM growth30000

Growth of 5-6% due to sluggish OEM demand

and exports

Exports

13 due to slower OEM growth

► Expected to grow at a CAGR of 13% in FY09-10

► In the long term, a revival in exports is expected15000

20000

25000

30000

CAGR-9%

and exports

S $

mn.

oduc

tion

Replacement

► In the long term, a revival in exports is expected as overseas OEMs increase sourcing from LCC’s

► The replacement segment is expected to grow at a CAGR of 13% from FY09 -130

5000

10000

15000

US

Pro

FY08 FY09 FY10 FY13

► Significant M&A activity - 73 deals of US $1.7 bn. during Jan’07 to Dec’08

Key trends

ACMA envisions the turnover of auto components in the country to reach

USD40 billion by 2016

Jan 07 to Dec 08

► Recent slowdown in the otherwise active M&A front is expected to reverse by 2010

► Numerous technical and production alliances with major global players are enabling Indian firms to increasingly expand their scale of operations

Sources: Ernst & Young , CRIS INFAC , ACMA,

Advantage - INDIA

India is emerging as a preferred R&D base

Almost all major players are setting up R&D centres in India: few examples

As per NASSCOM, the automobile and aerospace design industry in India isaerospace design industry in India is

expected to grow to USD16 bn. by FY11

Sources: CRIS INFAC; IBEF

Highly rated skill pool has enabled India to consistently innovate in process reengineering, capital cost reduction and product innovation...

Skill rating comparison of different countries for offshoring engineering design services, 2002

Singapore

Hong Kong

Holland

Ireland

UK

Australia

Location attractiveness

HighKey competitor countries

Size of circle corresponds to no. of qualified workers

UK

Philippines

IndiaEastern Europe/ Russia*

Key advantages►Large pool of skilled

engineers

►English language skills

► Remote engineering Infrastructure

► Country risks/FDI incentives

► Time zone

ChinaMexico

►English language skills► Time zone

LowLow High

Capabilities of workers

► Qualifications / capabilities► Foreign languages (primarily English)► Quality of work / work ethic

Low High

…..Giving it an edge in skill ► Quality of work / work ethic► Cost differential

g gintensive manufacturing

Source: McKinsey

Successful product launches have demonstrated India’s indigenous product development capabilities….

Reduced cost of ownership of an entry level car by

NANO Other players to launch ULCC

entry level car by 30%

Tata Motors patented 34

innovations with Nano

8% shorter than India’s smallest car,

at 3.1 m length

21% greater interior space

Among the world’s first electric cars sold commercially

India’s first indigenously developed SUV

India's first indigenously developed passenger car

India's first indigenously developed HCV

REVA Mahindra & Mahindra: Scorpio Eicher: Jumbo Tata Motors: Indica

Sources: McKinsey, CRIS INFAC; BMI; IBEF

Global majors are entering India to leverage several advantages the country offers

Product developmentcapabilities High quality standards

Why is India fast becoming

a favored Availability of skilled

manpower Proximity to markets

investment destination?

p

Large and growing domestic demand High export potential

Outsourcing Synergies Raw material and manufacturing/design process

Aluminium Steel/cast ironAluminium Steel, cast

iron, rubber

Raw

at

eria

l

Skill intensive

Labour intensive

Parts for evolving

technology

Steel/cast iron rubber intensive

parts

Plastic, silicon

Rm

a

partspartstechnology aggregates

Plastic/ silicon

intensive

High labour Skill Evolving t h l

Raw material i t i (l

silicon parts

technology intensive (low skill and labour)

Type of manufacturing and design process

Source :ACMA Mc Kinsey Study “Vision 2015”

India scores over its competitors on most of the parameters

India’s Competitiveness Vs. other S.E. Asian Outsourcing Destinations

Quality of supply

Price competitiveness

Design & Engineering capabilities

Customer/ After Sales

Support

Maturity of auto

component industry

Compliance & transparency

IndiaIndia

China

Thailand

High Low g

Compared to other Asian automotive component manufacturers India’s superiority

clearly lies in its engineering, design and quality capabilities

Source: Deloitte Research & SSKI Report

q y p

Opportunity for Canadian suppliers

Low-cost advantage1 ► Can leverage the cost advantage India offers in terms of

►Knowledge component►Design cost for complex manufacturing

Global players entering the country

2► Can enter the country to:

► Supply the OEMs present/establishing (>35) f t i

Opportunities India offers

manufacturing presence ► Establish india as export base to support global OEMs

► Can tap the growing demand that India and other

Growing domestic demand

3► Can tap the growing demand that India and other

neighboring emerging countries offer► Low penetration rate of Cars (7-8/1000) presents huge

untapped opportunity

Design and development

4 ► Conversant in all global automotive standards► Global platforms getting supported► Growing IT capability for design, development & simulation

Fl ibilit i ll b t h d ti► Flexibility in small-batch production

Road to India

The Addressable Opportunity…

Establish partners/JV in India

Collaboration for manufacturing excellence and process design

Production sharing in India & Canada for a holistic service capability

M d A i iti

and challenges…the softer issues

Mergers and Acquisitions

Culture: a global diversity

Managing expectations

g y

English: divided by a common language

Legislation/commercial Issues - external

Source: ACMA

Deciding an Entry Strategy

►Control►Time required for licenses/utilities►G t i

Pros Cons

GreenfieldControl

►New plant, with new equipment and best practices

►Government issues►Financial and operational risks►No expertise in current Indian auto

scenario

►Co funding by the local partner and

Joint venture

►Co-funding by the local partner and financial risk sharing

►Local partner handles license issues►Market knowledge/penetration

►Corporate governance risk►Technology and brand transfer issue►Control may be lacking►Difficult to agree on production costs

Merger andacquisition

►Time Saved►Local M&A market may present attractive

opportunities

►Difficult to negotiate transfer of Control►Corporate governance and counter party

risk►Post integration difficulties

Sales network/ purchasing

office

►Time Saved►Local M&A market may present attractive

opportunities

►Substantial knowledge of the local market requiredCustoms duties may change regularlyDemand may be hard to predict

ACMAAuto Component Manufacturers Association

Automotive Component Manufacturers Association

ACMA and its services

P t I diPromotes IndianAutomotive Component Industry

Collection &Dissemination ofQualityTechnologyTrade Promotion Dissemination of

InformationEnhancementUp-gradationTrade Promotion

Vital Catalyst for Industrial Development

Source: ACMA

AUTO EXPO 2010AUTO EXPO 2010

5th – 13th January, 2010, India

Lets explore the potential…..

Q&A