Auto Industry In India

The companies with focus on small cars struggled to maintain margins in FY07, despite robust sales growth, an indication of intensifying competition in the industry. In such a scenario, Maruti, Hyundai were able to minimize the margin contraction, through better control on raw material cost. M&M and Honda reported an improvement in margins, driven by sales of higher margin products, partially helped lack of strong competition in their respective product segments.

M&M and Honda also reported the highest improvement in ROCE, attributed to growth in their sales and margins. However, given a increase in capex requirements, we expect these companies to report lower ROCE in near future.

The Indian passenger vehicle market is expected to reach 2 mn units p.a by 2010. In anticipation of this demand, auto majors in the industry are on track for expansion of their capacities. Hyundai is expected to double the capacity by 2007 end and has already launched i10 small car, first in India worldwide, an indication of the growing importance of Indian auto market. Maruti has also lined up new products to replace its existing products in 2008 and 2009. Honda is planning to launch its highly successful hatchback Jazz in India. In addition, Ford is also likely to follow GM and enter small car market as early as 2008.

Auto market is also likely witness heavy competition for acquiring and retaining talent, as companies are also investing heavily on R&D activities, to develop products for the domestic as well as export markets.