India Autos Current Cycle: Changing Dynamics:: JPMorgan

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 Changing dynamics in the automotive industry: As compared to the
prior cycles, the dynamics of the Indian auto market have changed
considerably. While global OEMs are expanding locally, domestic OEMs
are looking to expand overseas – as they attempt to de-risk from the local
cycle. Against this backdrop, Maruti Suzuki and Hero Honda are leveraged
to the domestic markets while Bajaj Auto has expanded its exports portfolio
and Tata Motors has a significant exposure to the developed markets.
 Competitive intensity is significantly higher: As compared to the prior
cycles, competitive intensity is significantly higher, particularly in
passenger cars and in two wheelers. As India is emerging as amongst the
largest volume markets for passenger cars and two wheelers, global OEMs
are increasing their focus here. Thus, in the current cycle, domestic OEMs
will have to face multiple challenges relating to: a) moderating volume
growth, b) defending market share. This, in turn, will likely lead to pressure
on profitability.
 Indian OEMs have diversified globally: Given rising competitive
pressures and to de-risk from the local cycle, domestic OEMs are now
looking at expanding overseas, adopting different approaches Exports: Two
wheeler OEMs i.e. Bajaj Auto has aggressively grown exports to nascent
markets (Africa) Acquisitions: Local corporates i.e., Tata Motors and
Mahindra have acquired automotive OEMs overseas (JLR, Ssangyong)
Local manufacturing base: Global OEMs i.e., Suzuki are using India’s lowcost
manufacturing capabilities by producing small cars at its local
subsidiary Maruti for exports to the developed markets.
 Diversification strategy has its risks and rewards: While expanding
overseas has enabled OEMs to broad base revenues, it has also exposed
them to global cycles, which can be volatile. Rewards: Despite the Indian
market witnessing a significant moderation in sales, OEMs have benefited
from their foray into newer geographies; further, they have benefited from
the global cyclical upturn Risks: The overseas businesses require significant
capital commitments as well as the OEMs are exposed to volatile cycles in
the developed markets. Exposure to nascent/unstable geographies is a key
risk for exports.


Changing dynamics in the automotive industry: As compared to the prior cycles,
the dynamics of the Indian auto market have changed considerably. While global
OEMs are expanding locally, domestic OEMs are looking to expand overseas – as
they attempt to de-risk from the local cycle.
Competitive intensity is significantly higher
As compared to the prior cycles, competitive intensity is significantly higher,
particularly in passenger cars and two wheelers. India is emerging as amongst the
largest volume markets for passenger cars (seventh largest) and two wheelers
(second largest). Currently, the country produces over 2.5m units p.a. cars and 13m
p.a. two wheelers. We believe that in the current cycle, OEMs will have to face
multiple challenges, relating to: a) moderating volume growth, b) defending market
share. This, in turn, will likely lead to pressures on profitability.
Passenger Cars: Within passenger cars, the industry is getting increasingly
competitive with global OEMs expanding their presence in the Indian market. Thus,
after having launched new models in the mass market A2 segment, the OEMs are
rapidly expanding their distribution network as well as broad basing their product
portfolio.