Bajaj Auto: Evaluating the Working Capital Requirements

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Themes: Strategy
Pub Date : 2009
Countries : India
Industry : Financial Management & Corporate Finance

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Case Code : FM0021
Case Length : 13 Pages
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Indian Automobile Industry: An Overview cont..

During 1980s, there were very few players in the Indian automotive sector with low volumes of production, old and substandard technologies. The industry took a new dimension when Indian government de-licensed and opened up the industry to Foreign Direct Investments (FDIs) in 1993 which encouraged many global players to enter the Indian auto industry. Further, economic liberalization reforms contributed to the robust growth of the industry. At that time, a total of 17 new ventures came up which included General Motors, Ford, Toyota, Honda, Hyundai and Fiat, resulting in rapid expansion and growth of the industry.

The Indian auto industry constitutes two set of players - automobile component manufacturers (involved in manufacturing parts, components, bodies and chassis) and the vehicle manufacturers (engaged in assembling all the components into an automobile), which are also referred to as Original Equipment Manufacturers (OEMs). The Indian auto industry is highly competitive with large number of players in each segment of the industry manufacturing commercial vehicles, passenger vehicles, two-wheelers, three-wheelers and auto components.

Most of the players are present in more than one segment of the industry . The industry is fragmented and is mainly dominated by small-scale and unorganized players. There are nearly 6,400 players, of which 6% belong to organized sector and the remaining belong to unorganized sector.³ However, in terms of value addition organized players represent nearly 77% of the output in the sector.⁴

Over the past years (2000-2001 to 2004-2005) the domestic auto industry has been growing at 14.2% CAGR.⁵ India holds the highest position in the three-wheeler market and occupies fifth largest commercial vehicle market in the world. India is one of the global giants in the two-wheeler industry manufacturing motorcycles, scooters and mopeds. In the last decade, two-wheeler industry in India grew at a CAGR of more than 10%. This growth was fuelled by shift in the demand mix, increasing income, rapid urbanization and changing spending patterns.

The auto industry has been performing well in both domestic and international markets. During 2005-2006, exports of the industry comprised about 5% of total exports from India, their total value was around INR 16,09,400, of which INR 7,97,400 were vehicle exports and INR 8,12,000 were auto component exports.⁶ According to the Society of Indian Automobile Manufacturers (SIAM), automobile sales (including passenger vehicles, commercial vehicles, two-wheelers and three-wheelers) in the overseas markets increased to 1.53 million units in 2008-09 from 1.23 million units in 2007-2008. In spite of the global slowdown, exports of Indian auto vehicles increased - export of passenger vehicles increased from 2,18,401 units in 2007-2008 to 3,35,739 units in 2008-2009. A total of 2,30,000 commercial vehicle (cars, vans, Sports Utility Vehicles and trucks) were exported between January and July 2009, resulting in a growth of 18%.

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3]"Automotive", http://ibef.org/download/Automotive_sectoral.pdf, January 25th-29th 2006
4]Ibid.
5]Ibid.
6]"Determinants of Competitiveness of the Indian Auto Industry", op.cit.