March 6, 2018

Automobile Industry

ALWAYS – INVEST IN WHAT YOU KNOW & WHAT YOU CAN UNDERSTAND. DEVELOP CURIOSITY AS A TRAIT

 

Must know facts:

  • The automotive manufacturing industry comprises the production of commercial vehicles, passenger cars, and three & two-wheelers.
  • Two-wheelers are by far the most popular form of vehicle in India, taking an 80% share in 2015-16.
  • 25 million automobiles produced in FY17.
  • Total production volume grew at a CAGR of 5.56 per cent between FY12-17.Source: Society of Indian Automobile Manufacturers (SIAM)

 

Influencing Factors for price change:

  1. Movement of all auto stocks is best judged while its seen in line with NIFTY AUTO.
  2. Watch out for  news on emission norms policies, changes to prices of steel, taxes relating to import / export of automobiles play an important role.
  3. Monitor for prices of fuel which is based on crude oil. New changes to combustion engine models, introduction of electric engines & its possible outlay of electronic charging infrastructure.
  4. News that indicates changes in policies in Diesel engine manufacturing.

 

Understanding the Industry:

By far & large – the Indian auto industry is one of the largest in the world. The industry accounts for 7.1 per cent of the country’s Gross Domestic Product (GDP). The Two Wheelers segment with 80 per cent market share is the leader of the Indian Automobile market owing to a growing middle class and a young population. Moreover, the growing interest of the companies in exploring the rural markets further aided the growth of the sector. The overall Passenger Vehicle (PV) segment has 14 per cent market share.

India is also a prominent auto exporter and has strong export growth expectations for the near future. Overall automobile exports grew 13.01 per cent year-on-year between April-December 2017. In addition, several initiatives by the Government of India and the major automobile players in the Indian market are expected to make India a leader in the 2W and Four Wheeler (4W) market in the world by 2020.

The automobile industry is one of the key drivers that boosts the economic growth of the country. Since the de-licensing of the sector in 1991 and the subsequent opening up of 100 percent FDI through automatic route, Indian automobile sector has come a long way. Today, almost every global auto major has set up facilities in the country.

 

Estimated Market Size:

As per SIAM – Production of passenger vehicles, commercial vehicles, three wheelers and two wheelers grew at 11.27 per cent year-on-year between April-December 2017 to 21,415,719 vehicles. The sales of passenger vehicles and two wheelers grew by 5.22 per cent and 40.31 per cent year-on-year respectively, in December 2017.

The auto industry is set to witness major changes in the form of electric vehicles (EVs), shared mobility, Bharat Stage-VI emission and safety norms. Electric cars in India are expected to get new green number plates and may also get free parking for three years along with toll waivers@. India’s electric vehicle (EV) sales increased 37.5 per cent to 22,000 units during FY 2015-16 and are poised to rise further on the back of cheaper energy storage costs and the Government of India’s vision to see six million electric and hybrid vehicles in India by 2020.

There are a wide range of jobs available in the automobile industry in 2016. With the number of vehicles available on the road today, the need and requirement for people who can fix these machines is fast increasing. Careers like automobile technician, car or bike mechanics are a great option. Becoming a diesel mechanic is also a significant alternative. Diesel mechanics are responsible for repairing and servicing diesel engines. As they are also required to repair engines of trucks and buses, other than cars, they are provided with hefty wages.

If communication with people instead of repairing cars is what interests you, then you have the opportunity of becoming a salesperson or sales manager in an automobile company. Career opportunities in automobile design, paint specialists, job on the assembly line and insurance of vehicles is also available.

Government Policies / Initiatives:

The Government of India encourages foreign investment in the automobile sector and allows 100 per cent FDI under the automatic route. 

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.

* Energy Efficiency Services Limited (EESL), under Ministry for Power and New and Renewable Energy, Government of India, is planning to procure 10,000 e-vehicles via demand aggregation, and has already awarded contracts to Tata Motors Ltd for 250 e-cars and to Mahindra and Mahindra for 150 e-cars.

* The government is planning to set up a committee to develop an institutional framework on large-scale adoption of electric vehicles in India as a viable clean energy mode, especially for shared mass transport, to help bring down pollution level in major cities.

Road Ahead:

According to potential market perspective – In order to keep up with the growing demand, several auto makers have started investing heavily in various segments of the industry during the last few months. The industry has attracted Foreign Direct Investment (FDI) worth US$ 17.91 billion during the period April 2000 to September 2017, according to data released by Department of Industrial Policy and Promotion (DIPP).

The only electric automaker in India, Mahindra and Mahindra Ltd, has partnered with Uber for deploying its electric sedan e-Verito and hatchback e2o Plus on Uber platforms in New Delhi and Hyderabad.  The automobile industry is supported by various factors such as availability of skilled labour at low cost, robust R&D centres and low cost steel production. The industry also provides great opportunities for investment and direct and indirect employment to skilled and unskilled labour.

The Indian automotive aftermarket is estimated to grow at around 10-15 per cent to reach US$ 16.5 billion by 2021 from around US$ 7 billion in 2016.

Maruti has set a target to itself to come up with electric fitted engine by 2030, so a certain benchmark is expected to be created in this electrification domain especially when Maruti sets it, most automobile competitors in India just follow, that is the kind of dominance Maruti commands.

–    Article by Suman Adithya Rao (SEBI Certified Research Analyst, Management Graduate in Entrepreneurship & Small Business Management)
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Top Stocks in the industry:

2 & 3 Wheeler company stocks – Bajaj Auto, Hero Motocorp, TVS Motor & many more.

Cars & Jeep company stocks – Maruti Suzuki, M&M

LCV’s & HCV’s company stocks – TATA Motors, Eicher Motors, Ashok Leyland & many more.

Tractors company stocks – Escorts, HMT, VST Tilllers.

(Please note above stocks are not recommendations, they are purely for information purpose only)

 

 

References: IBEF, article by Infoshine, SIAM India, The Economic Survey 2016–17, Agricultural and Processed Food Products Export Development Authority (APEDA), Department of Commerce and Industry, Union Budget 2017–18, Press Information Bureau, Ministry of Statistics and Programme Implementation, Press Releases, Media Reports.

 

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