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We were joined by Mr. Michael Perschke - Brand Director, Audi India and
Member of the Board of Volkswagen Group Sales India Pvt. Ltd., who shared
his outlook on the industry and company.
Key highlights
n Audi believes India to be the key growth market after China. Currently, luxury brand
sales constitute <0.3% of total volumes. It expects car sales to grow exponentially as
GDP per capita reaches the inflexion point of USD 2,500. This should lead to a rise in
the luxury segment contribution to ~3-4% of car volumes by 2025 (as compared to ~7-
8% in Europe currently). However, given the higher ticket price, contribution to industry
revenues is expected to rise to ~15%.
n It expects the Indian car market to be around 8m-9m by 2020. Poor infrastructure is the
biggest concern. A good road network will be very essential to achieve the full potential
of the Indian car industry. There could be delays in achieving these targets. Comparison
with China is not correct as China has built a strong road network of ~65,000 km to
support the huge volumes. Similarly, good port infrastructure is necessary for India to
develop as an export hub
n India lags China by 10 -12 years in terms of demand cycle while in terms of infrastructure,
the gap widens to more than 15 years. On the positive side, cost of small cars is still
lower in India than China and speaks of lower critical mass required in India.
n It does not expect the recent events to have a big impact on China's demand for
premium cars. Despite a slowdown, the growth rate is expected to be decent, as there
is a huge demand for luxury vehicles.
n For premium cars, a new model (from concept to delivery) with a life cycle of 5-8 years
requires Euro 0.5-1bn investment. Hence, it will be difficult for small/niche players as
compared to big players like VW group.
n Only those niche players, who have strong risk management capabilities and ability to
fund product development will achieve success. Land Rover new products look
refreshed and young. However, the key thing is that it should be sustainable for LR to
take the next jump.
n Indian demographics is best suited for long term growth potential of luxury cars. Audi
estimates India to have the highest working population of ~72% in the world by 2020.
Also, the company is trying to penetrate cities with more than 1mn inhabitants (~68
cities).
n Audi brand is targeted towards young and successful Indians and is more of an
aspirational product, which leads to higher margins. This shift in buyer demographics
was seen post 2004-05, with rise in the number of Indian entrepreneurs.
n Geography wise, North India is the most rewarding market for luxury brands followed
by Mumbai, Gujarat, Hyderabad and Chennai.
n In European market, luxury car sales start from middle class population with income
levels of Euro 65,000 - 70,000 per annum. Audi is witnessing good demand and
outlook remains stable from these geographies. Company expects demand to remain
stable, except for a domino effect of the worsening Europe condition on car sales.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We were joined by Mr. Michael Perschke - Brand Director, Audi India and
Member of the Board of Volkswagen Group Sales India Pvt. Ltd., who shared
his outlook on the industry and company.
Key highlights
n Audi believes India to be the key growth market after China. Currently, luxury brand
sales constitute <0.3% of total volumes. It expects car sales to grow exponentially as
GDP per capita reaches the inflexion point of USD 2,500. This should lead to a rise in
the luxury segment contribution to ~3-4% of car volumes by 2025 (as compared to ~7-
8% in Europe currently). However, given the higher ticket price, contribution to industry
revenues is expected to rise to ~15%.
n It expects the Indian car market to be around 8m-9m by 2020. Poor infrastructure is the
biggest concern. A good road network will be very essential to achieve the full potential
of the Indian car industry. There could be delays in achieving these targets. Comparison
with China is not correct as China has built a strong road network of ~65,000 km to
support the huge volumes. Similarly, good port infrastructure is necessary for India to
develop as an export hub
n India lags China by 10 -12 years in terms of demand cycle while in terms of infrastructure,
the gap widens to more than 15 years. On the positive side, cost of small cars is still
lower in India than China and speaks of lower critical mass required in India.
n It does not expect the recent events to have a big impact on China's demand for
premium cars. Despite a slowdown, the growth rate is expected to be decent, as there
is a huge demand for luxury vehicles.
n For premium cars, a new model (from concept to delivery) with a life cycle of 5-8 years
requires Euro 0.5-1bn investment. Hence, it will be difficult for small/niche players as
compared to big players like VW group.
n Only those niche players, who have strong risk management capabilities and ability to
fund product development will achieve success. Land Rover new products look
refreshed and young. However, the key thing is that it should be sustainable for LR to
take the next jump.
n Indian demographics is best suited for long term growth potential of luxury cars. Audi
estimates India to have the highest working population of ~72% in the world by 2020.
Also, the company is trying to penetrate cities with more than 1mn inhabitants (~68
cities).
n Audi brand is targeted towards young and successful Indians and is more of an
aspirational product, which leads to higher margins. This shift in buyer demographics
was seen post 2004-05, with rise in the number of Indian entrepreneurs.
n Geography wise, North India is the most rewarding market for luxury brands followed
by Mumbai, Gujarat, Hyderabad and Chennai.
n In European market, luxury car sales start from middle class population with income
levels of Euro 65,000 - 70,000 per annum. Audi is witnessing good demand and
outlook remains stable from these geographies. Company expects demand to remain
stable, except for a domino effect of the worsening Europe condition on car sales.
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