EDUCATION

Automobile Sector

AbhigyanVerma|MBA3|2022-24

AnkitSingh|MBA2|2022-24

Overview

A country’s economic health closely correlates with the health of its automobile sector Indian Automobile Industry is a key driver of economic growth in the country It is the largest sector within manufacturing, contributing to more than one-third of the manufacturing GDP in the country This Industry gives employment to over 3 7 Cr people directly and indirectly. 15% of the country's total GST collection comes from the Automobile Industry

The automobile sector is split into four segments, i.e., two-wheelers, three-wheelers, passenger vehicles, and commercial vehicles, each having few market leaders Twowheelers and passenger vehicles dominate the domestic demand.

The Indian automotive industry is expected to reach US$ 300 billion by 2026.

Strong policy support from the Government has increased FDI investment flow in the sector and the roadmap ahead looks promising on the back of rising demand as India is expected to become the world’s third-largest automotive market in volume terms by 2030.

The Government in Union Budget 2022-23 has taken up a few initiatives for its expansion, in order to make electric vehicles (EVs) more appealing to potential buyers, the government approved a battery-swapping policy that will allow depleted batteries to be switched out for charged ones at specific charging stations and the Prime Minister's Gati Shakti Plan calls for a 25,000 km increase in the length of India's national highways between 2022 and 2023. C.A.S.E., which stands for connected, autonomous, shared, and electric, is the industry's unified vision for the future

Internet connectivity in vehicles is one of the key themes influencing the future of the automotive industry. These internetconnected vehicles can communicate with other internet-connected gadgets both inside and outside the vehicle

Risks And Challenges

Today, the Industry is facing various immediate and medium-term challenges. The supply chain challenges include a global shortage of semiconductors, rising commodity prices with a significant surge in steel and precious metals, a shortage of shipping containers, and import restrictions in the form of quality control orders, etc

Upcoming new regulations within the next 2 years again will have a significant cost impact At the same time, as a responsible industry, we are focused on the sustainable growth of the industry, making vehicles more affordable for the customers, enhancing local content in our products, proactively looking at long-term regulations, and developing new powertrain technologies to achieve as close as possible to Carbon NetZero

Fluctuating Fuel Price

Over the last few years, the volatile nature of crude oil prices has only brought in more uncertainty. The impact of fuel prices is very high on sales of passenger vehicles.

Higher fuel prices can be detrimental to the long-term growth of the industry. Although a shift to EV could potentially reduce the impact

Changing Consumer Preferences

Consumers across the globe are becoming more environmentally conscious and are shifting towards electric and hybrid vehicles Companies that have a high reliance on traditional fuel-powered vehicles are at a higher risk

Stricter Emission Norms

Governments and organisations across the world are implementing stricter emission norms to reduce carbon emissions, India itself has implemented BS VI since April 2020. These norms and the changing environment, in general, have made vehicles more expensive.

Supply Chain Disruptions

The last 2 years saw exceptional supply chain disruptions on account of Covid-19 and semiconductor chip shortage The dependence of the Indian Automotive Industry on imports of semi-conductor chips poses a strong challenge The Indian Government has taken note of the same and has bought into the PLI scheme for semi-conductor manufacturing as well Apart from that, the war in Ukraine has only put the supply chain in more danger.

Cybersecurity Threats

Cars across the globe are becoming increasingly complex with the use of technology and connected systems in vehicles, this brings in the risk of cyber attacks that can compromise the safety and security of vehicles

Volatility In Raw Material Prices

The Automotive Industry is heavily reliant on raw materials such as steel, aluminium, and rubber In the last 2 years, we also saw extreme volatility in raw material prices as metals touched record highs, which in turn increased production costs and lower profitability

Segment Wise Market Share

Talking about the 2-wheeler segment in particular over 17.7 million units were manufactured, of which more than 4.4 million were exported

Over the last year, exports have registered a growth of nearly 36%. The commercial vehicles segment has registered exceptional growth of 83% YoY, followed by passenger vehicles at 43% YoY, and two-wheelers at 35% YoY.

Current Scenario

The 62nd Annual Session of the Automotive Component Manufacturers Association (ACMA) featured remarks from the Union Minister of Commerce and Industry The automotive industry was issued a 5-point action plan:

1 To concentrate on quality in order to become more competitive on the world stage and less dependent on imports.

2 To think holistically and have a bigger picture in order to interact with people in an open and competitive manner.

3 To place a strong focus on value addition

Source: Statista

As of FY 2022, the 2-wheeler segment of the Indian Automobile Industry dominates the scenario in terms of units. Over 22.9 million vehicles were manufactured in India, of which 17 5 million vehicles were sold domestically

4. To leave the uncompetitive market and look into potential new markets in the industries where we can compete

5. Have lofty aspirations and ambitious goals for the sector

The government also stresses the importance of being more connected, emphasising convenience, leaning toward clean energy and clean mobility, and utilising cutting-edge technologies for the automotive component industry's future

The market for electric vehicles (EVs) is expanding quickly on a global scale. According to EV volumes, the total number of electric vehicles (including battery electric vehicles [BEVs] and Plug-in hybrid electric vehicles [PHEVs]) on the road increased from 4 2% in 2020 to 8 3% in 2021, with 6 75 million vehicles As of 2020, this represents an increase of 108%. As they contribute to lowering emissions and the depletion of natural resources, EVs are gaining popularity around the world Since close to 0 32 million vehicles were sold in 2021, an increase of 168% YoY, the Indian EV sector is likewise developing quickly The Paris Agreement, which aims to reduce carbon emissions, improve the quality of the air in urban areas, and decrease oil imports, is the foundation for India's ongoing adoption of electric vehicles

Government Policies Impacting The Sector

The Indian Automotive industry contributes about 7.1% to India’s GDP and 49% to its manufacturing GDP. Given this distinctive contribution of the Indian Automotive Industry to the Socio-Economic development of the country, it is important to roll out the right policies and regulations for the industry to enable growth

Moreover, it becomes increasingly important to provide a stable policy framework as organisations across the globe look for new manufacturing hubs to implement their China+1 strategy.

Production Linked Incentives

The PLI scheme for the auto sector is divided into two parts, namely the Champion OEM Incentive Scheme and Component Champion Incentive Scheme. The scheme is aimed at giving a push to advanced automotive technologies The scheme was successful in attracting a proposed investment of Rs. 74,850 crores against the target estimate of investment of Rs 42,500 crores over a period of 5 years

Fame India Scheme

To reduce pollution caused by diesel and petrol operated vehicles and to promote electric or hybrid vehicles in India, the Central Government launched the Fame India Scheme in 2015 The goal of the Fame India scheme is to incentivize the adoption of electric and hybrid vehicles The full form of Fame India scheme is “Faster Adoption and Manufacturing of Electric and Hybrid Vehicles in India”

Manufacturers and infrastructure providers of electric vehicles are the recipients of this incentive in the form of subsidies Fame India scheme is a part of the National Electric Mobility Mission PlP.

Vehicle Scrapping Policy

The Vehicle Scrappage Policy 2021 aims on phasing out old and unfit vehicles to achieve a lower carbon footprint in the country. It aims to de-register private cars over 20 years old and commercial vehicles over 15 years old. The policy is expected to benefit the sector as there will be demand for new vehicles as old vehicles are scrapped Owners of old vehicles will be given discounts and other benefits.

National Programme On Advanced Chemistry Cell Battery Storage

The union cabinet has approved Rs. 18,100 crore PLI scheme for the same The scheme aims to set up a cumulative ACC manufacturing capacity of 50 GWh for ACCs and an additional Cumulative capacity of 5 GWh for niche ACC Technologies The scheme also invites foreign companies to set up units in India, but at the same time, it also aims to encourage local companies to set up or expand manufacturing units

AUTOMOTIVE MISSION PLAN 2016-26 (AMP 2026)

The AMP 2026, jointly finalized by the Government of India and the Indian Automotive Industry envisions making the Indian automotive industry among the top 3 of the world in engineering, manufacture, and export

Its objectives include:

To make the Indian Automotive industry the engine of the “Make in India” program

To make the Indian Automotive Industry a significant contributor to the “Skill India” program

AMP 2026 also seeks to increase the industry’s net exports severalfold

To provide a comprehensive and stable policy environment for the industry.

Tata Steel

DhruvVora|MBA8|2022-24

ShubhamGupta|MBA2|2022-24

Company Overview

Tata Steel is a multinational steel manufacturing company based in Mumbai, India. It is a subsidiary of the Tata Group, one of the largest conglomerates in India. Tata Steel is the largest steel producer in India and has a presence in over 50 countries.

The company was founded in 1907 as the Tata Iron and Steel Company and has since grown to become a global player in the steel industry. Tata Steel produces a wide range of steel products, including hot and cold-rolled coils, galvanised coils and sheets, tubes, wire rods, construction bars, and more The company's products are used in various industries, such as automotive, construction, engineering, packaging, and consumer goods

Tata Steel has operations in India, Europe, and Southeast Asia, with manufacturing facilities in countries such as the UK, the Netherlands, Singapore, and Thailand.

The company has a strong focus on sustainability and has been recognised for its efforts in reducing its carbon footprint and promoting environmental conservation.

Tata Steel has a strong commitment to research and development, with a focus on developing new and innovative steel products that meet the evolving needs of customers The company has also been recognised for its efforts in promoting employee welfare and community development, with initiatives such as vocational training programs and healthcare services for local communities

Business Segment

Tata Steel is a diversified steel company with operations in several business segments Some of the major business segments of Tata Steel are:

Mining : Tata Steel operates several iron ore and coal mines in India and abroad The company's mining operations supply raw materials for its steelmaking operations.

Automotive: Tata Steel supplies steel products to the automotive industry, including carmakers and auto component manufacturers The company offers a range of steel products specifically designed for automotive applications

Construction: Tata Steel supplies steel products to the construction industry, including building contractors and infrastructure developers The company's products are used in the construction of bridges, buildings, and other infrastructure projects.

Engineering: Tata Steel offers steel products and engineering services to customers in the engineering industry The company's products are used in a range of engineering applications, including machinery, equipment, and tools

Packaging: Tata Steel supplies steel products for packaging applications, including food and beverage cans, aerosol cans, and other speciality packaging products The company offers a range of steel products specifically designed for packaging applications.

These are some of the major business segments of Tata Steel. The company also has operations in other areas, including power generation, research and development, and international trading

Source: Screener

SHAREHOLDING PATTERN (%)

As of 31st December 2022, Tata Steel’s shareholding pattern comprised promoters holding 33.39%, unchanged from the previous quarters. The FIIs reduced their holdings marginally from 21.9% to 21.5% quarter-onquarter Meanwhile, the DIIs have shown confidence in the growth story and have picked up the mantle They marginally increased their shareholding to 20 5% from 19.1% in the previous quarter. The government’s share remained at nil.

Source: Screener

Financial Analysis

The company clocked a revenue of RS 59878 Cr in the quarter of SEP-22, whereas the revenue declined to 57084 crores in the quarter of December, i.e. a fall of 4.67%. The operating expenses of the company stood at 53817 crores in the quarter of September, whereas the expenses declined to 53036 crores in December Despite the fall in expenses, the operating profit stood at 4048 crores in December 2022 compared to 6060 crores in September 2022 The operating profit declined 33 2% quarter-on-quarter With Tata Steel planning to invest Rs 1 lakh crores to double its steel making capacity, jitters in net profit are expected The company generated a net profit of 1297 crores, whereas it generated a loss of 2502 crores.

Competitor Analysis

TATA STEEL is really well positioned when compared to its peers The company is driving the highest revenue with, the value touching RS.57083 crores at the end of the latest quarter. The company has a negative growth for YoY quarterly sales growth by 6 09 % As of September 2021, the industry benchmark ROCE or steel was around 10-12%. Tata Steels ROCE stood at 31.55 compared to Jindal Stainless steel, which achieved the highest industry ROCE of 37 58

The company has delivered good profit growth of 76 8% CAGR over the last 5 years The company has been maintaining a healthy dividend payout of 43.0%

Cons

Company might be capitalising the interest cost

Future Outlook

The business predicts that the government's sustained emphasis on infrastructure will increase demand for steel in India. In addition, Tata Steel intends to raise its manufacturing capacity in India, tly 20 million tonnes, to 45–48 million tonnes over the course of the following five to ten years. Despite these encouraging achievements, the company may encounter some difficulties in deleveraging as a result of high working capital costs, European gas prices, and coal prices Tata Steel's stock has decreased 8% over the previous year and 9% so far in 2023. On April 6, 2022, the stock reached its 52-week high of Rs. 138.6, and on June 26, 2022, it reached its 52-week low of Rs 82 7

Source: Screener

KEY FACTS

PROS

is providing a good dividend yield of 4 59%

Stock

A Country Where Ev Is Prohibited