20 August 2011

India Autos - A Japanese perspective ::JPMorgan,

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 Japanese OEM’s are expanding in India, given huge Latent Potential: As
developing countries already account for over 50% of the global automobile
market, this segment must be considered a critical element to the future growth
plans of all automakers and auto parts makers. Thus, as Japanese OEM’s
expand their focus in India, we believe that the competition is likely to
increase over the medium term and re-iterate our Neutral stance on
Maruti and UW on Hero Moto Corp.
 Japanese Manufacturers are leveraging low cost platform for India and
other emerging markets: The Japanese are developing products such as the
Toyota Etios, Honda Brio, Nissan Micra for emerging markets. The Etios for
instance is built on the compact platform Toyota is calling the “EFC” which
will be positioned in the entry-level segment in the developing countries; we
think the production scale has the potential to reach well beyond one million
units annually as the product will be manufactured in India, China, Brazil,
Indonesia, etc. Similarly; Honda Two wheelers (HMSI) is developing 100cc
motorbikes for the rural Indian markets.
 The Japanese OEM’s are investing $1B each as they expand their presence
in India: After launching small cars, the Japanese OEM's have announced
aggressive expansion plans in India. Toyota, Honda and Nissan are now
doubling their capacities in India. Cumulatively, these OEM’s are expanding
their passenger car capacity to c.900,000 units in India, similarly Honda
Motorcycles and Scooters is doubling capacity to 4m units. These OEM's are
likely to invest $1B in the Indian market as they set up assembly lines and
power train /auto part facilities locally.
 Customizing products for local requirements and broad basing distribution
are the key challenges ahead: Each country has its own characteristics, and
model introductions and brand strategies will have to be specifically catered to
each country and region. We believe aggressive model introductions and the
broadening of dealership networks in India would be a challenge even for
automakers with deep resources. This could create a scenario where resource
distribution and the timing of any aggressive expansion efforts could lead to gap
between the makers’ medium and long term earnings trends

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