Thursday, December 30, 2010

2000-2010: A decade of growth in the auto sector

The noughties or 2000-2010 will be remembered for the rise of Indian auto as a strong and lucrative domestic market. During this period, Indian manufacturers became bold and aggressive with global ambitions to boot in the in the second half.It began with Tata snapping up the truck business of ailing South Korean Daewoo motor in 2004 for $102 million.In 2004 or the same year Mahindra & Mahindra was also looking for inorganic growth overseas and it acquired a 80 per cent stake in the Chinese tractor maker Jiangling for $10 million gaining a foothold in one the fastest growing tractor markets in the world.Subsequently in 2007, M&M also won a keenly fought race for Punjab Tractors Ltd acquiring it for $250 million and then in 2008 it also picked up majority 51 per cent stake in Yancheng, another Chinese tractor maker, for $26 million making Mahindra the world's largest tractor maker today.The other big high point of the decade when it came to M&A in the auto sector was Tata's big $ 2.3 billion Jaguar Land Rover buyout in 2008.Tata has shopped plenty since picking up Norwegian electric battery maker Milijo for $12 million in 2008, and Spanish bus assembler Hispano Carocerra in 2009.On the two wheeler front, Bajaj Auto acquired a significant 14.5 per cent stake in Austrian super bike maker KTM in 2007. The relationship has blossomed with Bajaj stake increasing to 38 per cent in 2010.Mahindra shopped some more too acquiring Italian bike and small engine specialist Engines Engineering for 2008.And M&M also bought out Kinetic Motors to enter the two wheeler space for $25-30 million in 2008 and it also bought out its erstwhile Logan JV partner Renault. M&M further acquired electric car maker Reva for in 2010 and is all set to finish the paperwork on its latest buy – South Korea's SUV maker – Ssangyong, also snapped up in 2010 for $473 million.All this has meant a greater interest in India from the world's biggest manufacturers and today every big auto group is represented in India except France's PSA, which too is on the verge of announcing an India strategy.Others who have set up plants include Volkswagen, BMW, Renault Nissan, and Toyota and Honda have added a second plant each.On the CV side, new capacity has come from the Volvo Eicher, Man-Force and Nissan-Ashok Leyland joint ventures for trucks.The world's largest truck maker Daimler signed a JV with Hero which was aborted but is still on the lookout for a potential partner for its upcoming plant in Chennai.Every year has seen a multitude of new models with entry motorcycles and small cars accounting for 3/4th of the market.This got further impetus with the government announcing manufacturing, R&D and tax cuts for these vehicles.The total car making capacity in India has grown from close to 6,00,000 units to 1.8 mn units today and two wheeler capacity has jumped from 4.5 million units to over 10.5 mn units in 10 years.The CV side may have seemed slower but it too has gone up from 1,89,940 to 644,164 units.In all this came Ratan Tata's dream project – the Nano or the one lakh wonder. The car hasn't been a runaway success but it gave Tata the pioneer tag and has spawned similar projects globally. All this has also given a solid boost to component players.Notably the Indian automotive industry has grown six-fold to over $25 billion from $4 billion at the start of the decade. Given that over $35 billion likely to be invested for the coming decade, the industry is confident of breaching the $100 billion mark by 2020.The Indian car bazaar is expected to hit 9 million units by 2020 when 2- and 3-wheeler sales would be at 30 million units and CV sales at 2.2 million. Just like the last 10 years, the next ten will also see growth coming largely on the back of the rise of auto finance and by automakers going rural.