Analysing the auto components industry typically has stoked a tunnel vision approach focussing on the antiquated history (supplier = assistant) rather than the emergent trends (supplier = partner). This behaviour though understandable, stemmed from the philosophies Original Equipment Manufacturers (OEMs) practised with respect to their suppliers. OEMs in previous decades have always remained hawk-eyed on costs, sourcing from multiple suppliers with technological competence taking a backseat. Now though, times are changing and OEMs are grappling with multitude of challenges – a) rapidly changing customer demands, b) venturing new geographies for growth and c) stringent safety and emission targets. The ripple effects have made global OEMs increasingly wary of remaining exposed on multiple fronts – regions, products and regulators. Mega suppliers –young and old (from Boschs to Motherson Sumis of this world) – are graduating to partnership status.
The purpose of this report is to dissect a global theme –“mega platforms” and how they affect value chain; does India fit into the global context; and identifying winners amongst the Indian suppliers.
- Regulators box OEMs into the innovation corner: Over the past few years, automotive regulators around the globe led by EU and USA have heightened their focus on environmental, safety norms. This led to OEMs contemplating a wide range of strategies and practices to balance production costs and regulatory compliance. OEMs got “necessarily boxed”into focusing on technological advancements and not just on costs and marketing. One of the Eureka solutions which emerged from OEMs came in the shape of “mega platforms”.
- Era of new mega suppliersdawns as OEMs handpick partners: The challenge OEMs face is to survive profitably in an ultracompetitive automotive space, which translates into opportunities for well-positioned suppliers. OEMs have been accepting the changing dynamics of supplier-OEM relationship from suppliers as assistants (volume and cost focused) to suppliers as partners (technology, scale and capabilities also added as necessary conditions).
- Can India Auto sector be the next big growth market, propel “Make in India”?: India is expected to reach the critical threshold of 5mn-6mn units in annual sales (currently 3mn units) by 2020. Industry participants believe that India has another chance at fulfilling its potential as the demand manufacturing enablers ranging from demographic dividend to skilled yet cost competitive labor force
- Indian auto component story just unraveling:In terms of manufacturing competitiveness and excellence Indian suppliers (tier-1.5 and tier-2) remain strong, reflected from their success stories – Motherson Sumi and Bharat Forge. We cannot emphasize enough the advantage of global reach and associations. Suppliers who work to build a de-risked business model (“markets, products & customers”<20%) would be an investor’s dream & a core portfolio holding. While we are positive on all stocks however our Top Picks are Mahindra CIE, Asahi India Glass, WabcoIndia.
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Enclosed full report: