INDIAN PASSENGER VEHICLE INDUSTRY MARCH 2011

Indian Passenger Vehicle Industry TABLE OF CONTENTS

EXECUTIVE SUMMARY
Passenger Vehicle (PV) industry back in top gear; growth to continue Domestic demand to grow at a CAGR of 13-14 per cent till FY15 Small would continue to dominate the Passenger Car (PC) market Export to remain healthy for the next five years Top-line growth to remain healthy, but pressure on margins foreseen

SECTION I: INDUSTRY OUTLOOK OUTLOOK ON DOMESTIC MARKET

Domestic market is expected grow at a CAGR of 13-14 per cent till FY15 Small car segment to grow at a CAGR of 15-16 per cent in next five years A4-A6 segment to remain niche segment Inadequate public transport infrastructure to fuel growth in MPV segment Widening gap between diesel and petrol prices, fuelling demand for diesel cars Diesel vehicle becomes more economical when driven more than 30 kms/day Diesel vehicles to drive passenger vehicle industry Investments of around $5 billion expected in the next 2-3 years Recovery in global economy to fuel growth in exports

OUTLOOK ON PROFITABILITY
Top-line to remain healthy EBITDA margins to remain under strain on the back of rise in input cost Rising input prices A concern for the industry Net cash accruals to witness drop, while debt-equity to increase marginally

DEMAND FORECASTING METHODOLOGY

Domestic market Segregation of purchases for personal usage and commercial use Cost of ownership Adjusted Target Households Level I: Income distribution

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Indian Passenger Vehicle Industry

Exports

PRE-OWNED CAR MARKET

The size of the second-hand car market has increased more than six-fold Similar to new car market, small cars dominate the second-hand car market as well Unorganised segment continue to dominate the second-hand car market Organised market has been gaining momentum Financing scenario Increasing demand for low cost cars A key challenge for the second-hand car market Second-hand car market to grow at CAGR of 18-20 per cent till FY15

SECTION II: INDUSTRY BASICS INDUSTRY SEGMENTS AND COMPETITION

PC continues to dominate the domestic PV industry Small cars dominates domestic PC market Competition levels have gradually risen in mid-size segment A4-A6 has miniscule presence in the industry UV forms significant portion in PV industry MPV segment continue to remain niche market

REGULATIONS
Motor vehicle Act Emission norms Fiscal regulations Import duty Excise duty VAT/Sales tax

DOMESTIC MARKET
PV industry regained the growth momentum in FY10 Passenger car segment continued to lead the growth trajectory Utility vehicle segment recovered strongly, after sharp drop in FY09 Multipurpose Vans segment observed strong rise on the back of upbeat demand Demand Drivers

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Indian Passenger Vehicle Industry

Economic factors Industry factors

TRADE SCENARIO
PV exports continued to remain strong Europe remained the primary market for Indian PV exports Hyundai and Maruti Suzuki continue to remain the leading PV exporters PV imports have increased at a healthy rate, though they remain insignificant Germany is a major exporter of PVs to India

COST ANALYSIS
Raw material cost Steel Plastics Rubber Aluminium Royalty and Research & Development Cost Selling and distribution costs Employee costs

CREDIT PROFILE
Operating margins Net margins Return on Capital Employed (RoCE) Debt-Equity Working capital management

DOMESTIC PLAYER PROFILES

Maruti Suzuki India Ltd (MSIL) Hyundai Motor India Ltd (HMIL) Mahindra & Mahindra Ltd (M&M)

SECTION III: ANNEXURE ANNEXURE

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Indian Passenger Vehicle Industry LIST OF CHARTS

Estimated Growth In PV Industry Outlook on PV domestic sales Outlook on PV exports Outlook on Domestic PV Industry Population mix across different income class Outlook on domestic UV industry Outlook on domestic MPV industry Movement in Diesel and Petrol Prices Cost Comparison pre & post de regularisation Cost Comparison between diesel and petrol cars Diesel and Petrol mix in the PV industry Outlook Capacity and utilization levels Outlook on domestic PV Industry Outlook on steel and aluminium prices Growth in second hand car market Proportion of organised and unorganised in the used car market Value chain in an unorganised segment Value Chain in organised segment Estimated growth in used car market Estimated share of organised market by FY15 Trend in Domestic PV Industry Trend in domestic PC industry Trend in domestic UV industry Trend in domestic MPV industry Trend in PV export Overseas market wise export share in FY10 Player wise export share in FY10 Trend in PV import Trend in fixed asset turnover

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Indian Passenger Vehicle Industry LIST OF TABLES

Outlook on PV domestic sales PV: Segment wise domestic sales Segment wise PV exports Key financial indicators Cost comparisons between new and used cars Passenger cars: Segment wise market share UV & MPV: Market Share Change in technology for meeting various emission norms Import Duty Structure in PC industry Excise Duty Structure NATRIP Centres Segment wise domestic sales in PC market (in units) income distribution of Households PV: Key model launches PV Exports from India in FY10 Raw material cost as a percentage to net sales (%) Raw materials break up by weight for a passenger car Annual Trend in steel prices Monthly trend in steel prices Annual Trend in Aluminium prices Monthly Trend in Aluminium prices R&D and Royalty cost as a percentage to net sales (%) S&D cost as a percentage to net sales (%) Employee cost as a percentage to net sales (%) Trend in operating margins Trend in net margins Trend in return on capital employed (ROCE) Trend in debt-equity Key financial ratios

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Indian Passenger Vehicle Industry LIST OF EXHIBITS

Demand forecasting model Industry Structure of PV industry Regulatory Framework Demand Drivers

The Passenger Vehicle (PV) industry has always been a barometer for the economic strength of a nation. The Indian PV market sentiments have been significantly positive post the economic downturn. The economic recovery coupled with the introduction of new models, easy availability of finance and aggressive pricing by almost all the players helped the industry to post such a strong growth. Sighting huge demand potential, almost all key manufacturers are forming different strategies to like new model launches, promotional offers, etc in order to enhance their market presence. It is expected that the Indian PV market is likely to witness 50 launches including variants and new models by FY12. Global majors like Honda, Hyundai, Volkswagen, Renault and Toyota are likely to come up with new launches in the compact car segment thereby intensify the competition level. Furthermore, the industry is also witnessing a structural shift, as diesel cars are increasingly gaining ground on the back of improvement in engine technology, which enhances fuel efficiency and lowers emission levels. The rising gap between retail prices of diesel and petrol is also influencing buyers to opt for diesel cars. This report is divided into three sections, Section I presents CARE Researchs outlook on domestic demand as well as exports of PV for next five years till FY15. This section also studied operating cost comparison between diesel and petrol cars and also provided insights on the industry dynamics on used car market. Section II comprises of industry segments, competition, trend analysis of domestic market, imports, exports and company analysis of three major PV manufacturers. Section III consists of data points on player wise domestic sales and exports for each segments of PV industry.
For an in-depth understanding and analysis of the Indian Passenger Vehicle industry and CARE Researchs outlook on the sector with its segment-wise forecast of domestic sales as well as exports for each year till FY15 and other key trends in the industry foreseen, please refer to the Report on the Indian Passenger Vehicle Industry, March - 2011 by CARE Research.

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MARCH 2011

Indian Passenger Vehicle Industry Contact

Ms. Revati Kasture Head Industry Research (D): +91-22-6754 3465 revati.kasture@careratings.com

Mr. Vishal Srivastav Analyst (D): +91-22-6754 3448

vishal.srivastav@careratings.com

Mr. Kunal Maheshwari Analyst (D): +91-22-6754 3437

kunal.maheshwari@careratings.com

CREDIT ANALYSIS & RESEARCH LTD.

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DISCLAIMER This report is prepared by CARE Research, a division of Credit Analysis & REsearch Limited [CARE]. CARE Research has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain. However, neither the accuracy nor completeness of information contained in this report is guaranteed. CARE Research operates independently of ratings division and this report does not contain any confidential information obtained by ratings division, which they may have obtained in the regular course of operations. The opinion expressed in this report cannot be compared to the rating assigned to the company within this industry by the ratings division. The opinion expressed is also not a recommendation to buy, sell or hold an instrument. CARE Research is not responsible for any errors or omissions in analysis/inferences/views or for results obtained from the use of information contained in this report and especially states that CARE (including all divisions) has no financial liability whatsoever to the user of this product. This report is for the information of the intended recipients only and no part of this report may be published or reproduced in any form or manner without prior written permission of CARE Research. Published by Credit Analysis & REsearch Ltd. 4th Floor Godrej Coliseum, Off Eastern Express Highway, Somaiya Hospital Road, Sion East, Mumbai 400 022. Tel:+91- 22-6754 3456 Fax:+91-22-6754 3457

MARCH 2011