India Automotive Market Analysis: Segmentation, Sizing and Forecasts

Automotive industry deals with automobiles. Within this ambit fall two types of firms: OEMs (Original Equipment Manufacturers) and component suppliers. While there seem to be multiple perspectives with respect to what is an OEM, as discussed in Wikipedia, I will correspond to my interpretation of the spirit prevalent in a Stern Stewart and Co article accessed from their website. OEM is the name given to such firms which provide us with the final automobile that bears their brand name; examples from India include Tata Motors, Maruti Suzuki, Mahindra and Mahindra, Bajaj Auto, Eicher Motors etc..There’s nothing necessarily duplicate, spurious or unoriginal about the second category of firms classified as suppliers. Its just that their brand names don’t usually appear in a visible manner in the final vehicle sold to the consumer. In any case, since no such firms appear in the Nifty, I’ll be focusing on the OEMs. 

Classification of Automobiles

Classification of automobiles can be done in various ways. The vehicles that are targeted towards moving passengers are called passenger vehicles (PV) and those that carry goods are called commercial vehicles (CV). Vehicles that have four or more wheels are generally classified first on such a basis. Two wheelers and three wheelers, despite having a possibility of being classified thus, are first segregated out by classifying them on the basis of the number of wheels. So these two form the categories two wheelers and three wheelers. Such considerations lead the Society of Indian Automobile Manufactures (SIAM), an industry association, to classify their sales data for automobiles under the following heads: Passenger Vehicles, Commercial Vehicles, Three Wheelers and Two Wheelers.

Passenger vehicles are themselves classified into various categories. Tata Motors, for instance, speaks of the following categories in their annual report for Financial Year (FY) 2016 (which extends from April 2015 to March 2016): Micro, Compact, Mid-Size, Premium and Luxury, Utility Vehicles and Vans. Mahindra and Mahindra (M&M) exercise some parsimony in their choice of passenger vehicles sub category, listing only Cars, utility vehicles and vans. This needs to be understood in the context of their history of manufacturing “jeep”s for the longest time and then foraying in to the sports utility vehcile (SUV) category. Maruti Suzuki India Limited (MSIL) has historically competed majorly in the compact category, with recent forays into other categories, hence they provide sales breakup for only the following categories in their annual report: Passenger Cars, UVs, vans and PVs. However, references to such segments as hatchbacks, crossovers etc. are interspersed in the various discussions therein, so the sense I have is that such category boundaries are treated as fluidic, rather than something set in stone. All these classes should be familiar to those who pay attention to the vehicles on the road, have bought cars, or are simply enthusiasts. Those not in the know-how are luckier since they get to familiarize themselves with the more official classification provided by SIAM, with examples provided, courtesy Wikipedia. I don’t intend to adhere to any of these as such and will be pretty ad hoc in my usage throughout any report I may write, while being true to my experiences as a layman, having a consumer’s perspective with regard to the automotive industry. The context should sufficiently inform the classification implied in any such case.

Coming to commercial vehicles, various OEMs have various classifications they provide. Tata Motors and M&M classify them into Medium & Heavy Commercial Vehicles and Light Commercial Vehicles in their annual report, with sub classifications based on carrying capacity. Another Nifty component firm that manufactures commercial vehicles is Eicher Motors Limited. It plays in this segment in the trucks and buses space and classifies its commercial vehicles in to Buses, Light Medium Duty trucks and Heavy Duty trucks for its Eicher brand products. It also has a joint venture with Volvo that manufactures trucks.

Following Hero Motocorp, I adopt the classification of two wheelers into motorcycles, scooters and mopeds. The two Nifty component competitors to it, Bajaj Auto and Eicher Motors, compete only in the motorcycle category. While this category may be sub divided into various segments like mass market and performance, commuter and sports biking etc, the only clearly spelt out classification from among the various ARs belongs to Hero Motocorp who classify it into entry, premium and deluxe. However, this classification does not seem to find resonance with the other players. In any case, it’s not as if there aren’t other sources available, for instance one online source that makes up in conciseness what it lacks in complexity. The inter category dynamics are not apparent from the annual reports and I will dwell upon them in a later post if needed.

Since three wheelers are kept outside the passenger and commercial vehicle classification in the first pass, this is done on a sub category basis. An ICRA report on the segment adopts this classification. Hence three wheelers are classified as passenger and cargo. Bajaj Auto also uses the nomenclature quadricycle in conjunction with the three wheeler segment, reporting consolidated sales for the three wheeler and quadricycle segment.

Market Sizing And Forecasting

My market data is based on data published by SIAM (historical) and Ernst and Young (EY; forecasts). Three wheeler market growth forecast attributed to ICRA obtained from a Business Standard article for FY 2017 has been used for all years up to 2020. The data is plotted in the following graph. All the values are in lakhs of units.

All the forecasts seem to be on the optimistic side, since the CAGR (Cumulative Average Growth Rate) for the categories over the past five years is much less than the forecast CAGRs up to 2020. A comparison of the CAGRs is provided in the following graph.

The reasons cited for the expected pickup in growth straddle the entire spectrum of the value chain from digital analysis aided decision making to friendly regulatory policies with respect to foreign direct investment (FDI). However, I remain a skeptic because in my limited understanding much of consumer led consumption in India depends on disposable incomes which in turn depends on the monsoon in any given year, i.e., it is more demand driven than supply driven. The finicky Indian entrepreneurs, probably don’t like to stick their neck out on consultants’ forecasts and let inventory accumulate, waiting for the consumer to behave as per the consultant’s forecasts. Additionally, consultants may have a tendency to see the prospects of any industry with rose-tinted glasses probably because it helps them get more assignments. For instance, one report projected passenger vehicles volume to 30.7 lakhs in 2013, whereas the achievement was only around 27 lakhs, roughly 11% lower. Yet another provided a range for all the way up to 2020, with two extreme cases taken as aggressive (high sales) and conservative (low sales). However, the actual sales number in 2016 came in way lower than even the lowest figure in the range, less by at least about 20%. Hence, while I accept the EY and ICRA forecasts for now (for want of alternatives), as my understanding of the sector deepens, I may, and indeed do expect to, switch to more original forecasts informed by my own interpretation of the fundamentals.

Having covered the market segmentation, sizing and forecasting in this post, I will try to unearth the technology, tastes and preferences that dictate purchase considerations in the next post.