Report on SCVs from Roland Berger Strategy Consultants

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Report on SCVs from Roland Berger Strategy Consultants
  • 1. Small commercial vehicle – India's little elephant September, 2014
  • 2. Contents Page A. Overview in a nutshell 3 B. Rapid growth & high dynamism are the hallmarks of the Indian SCV market 6 C. Demand drivers to trump short to mid term challenges 20 D. Solid growth expected but not across all sub segments 25 E. Choose wisely where to play and drive government engagement 27 This document shall be treated as confidential. It has been compiled for the exclusive, internal use by our client and is not complete without the underlying detail analyses and the oral presentation. It may not be passed on and/or may not be made available to third parties without prior written consent from Roland Berger Strategy Consultants. RBSC does not assume any responsibility for the completeness and accuracy of the statements made in this document. SCV Knowledge Paper_201409010_vf.pptx 2 © Roland Berger Strategy Consultants
  • 3. SCV Knowledge Paper_201409010_vf.pptx 3 A. Overview in a nutshell
  • 4. SCV segment is the largest segment in the CV industry in terms of volume and will continue to remain so over the next 6 years > Current scenario – The SCV segment is the largest segment within the CV industry with sales of ~432k units in FY2014 contributing 60% to the overall industry. It has outperformed all other segments declining by ~1% CAGR only over the last 2 years against the industry average of ~11% CAGR – The SCV Cargo continues to be the biggest segment and will account for ~80+% of the total market by FY2020 – Within the SCV Cargo segment large pick-ups (2-3.5T) have been growing & account for ~54% of the segment – SCV Passenger is a highly regulated segment and faces tough competition from 3 wheelers. Over the last year, the segment has suffered extremely high delinquency rates – Tata Motors and Mahindra & Mahindra continue to be the top 2 players in the industry – Tata Motors leads the market in the sub 2T truck category and the SCV Passenger segment – Mahindra & Mahindra is expected to do well in the 2-3.5 Ton category in the SCV Cargo segment due to its strong hold in the Pick-up segment. It has also managed to attract ACE customers to higher tonnage Bolero Maxi Truck – Ashok Leyland is one of the late entrants but has been successful with Dost cornering 14% market share in the 2-3.5 Ton category SCV Knowledge Paper_201409010_vf.pptx 4 Executive summary [1/2] Source: Roland Berger
  • 5. SCV segment is the largest segment in the CV industry in terms of volume and will continue to remain so over the next 6 years > Key demand drivers – Need for last mile connectivity for both goods and people transportation. Supported by increasing rate of urbanization – Better operating economics clubbed with better financing options making SCVs more lucrative for end customers – New applications are being developed to expand the market prompting newer customers to buy SCVs. Poultry, milk and water distribution industries are some of the new segments established over the last year > Challenges – OEMs need to continuously develop new applications and also educate the customers on the usage to continue segment expansion – SCV Passenger carriers rely heavily on permits issued by Government agencies. Therefore, there is a need to work closely with the government which faces heavy lobbying from the strong 3-Wheeler unions > Future projections – We expect the market to get back to the growth trajectory sometime in the 3rd quarter of the current fiscal – The SCV industry is expected to reach ~919,000 units by FY2020 growing at a CAGR of ~13% over the next 6 years SCV Knowledge Paper_201409010_vf.pptx 5 Executive summary [2/2] Source: Roland Berger
  • 6. SCV Knowledge Paper_201409010_vf.pptx 6 B. Rapid growth & high dynamism are the hallmarks of the Indian SCV market
  • 7. Overall CV Industry SCV is a relatively new segment in the Indian commercial vehicle industry; rapid growth turned it into the largest volume segment > SCV segment was established in 2005 with the launch of ACE Truck in the sub 2 ton category. Since then it has grown considerably > SCV segment grew by ~30% CAGR between 2010-2012 whereas it only declined by ~1% CAGR over the last 2 years. During the same time overall industry declined by ~11% CAGR > The SCV segment has outperformed all the other CV segments and now accounts for more than 60% of the CV industry 1) SCV segment includes Tata Magic/IRIS segment and also This segment though faces more competition than 3W passenger since there are no regulations in terms of permits. However, they have managed to sustain their volumes since they also cost ~40% less than the SCV cargo entry range vehicles (For eg: Tata Ace Zip) > Piaggio continues to be a market leader in the 3W cargo segment and now accounts for ~52% of the market > Atul Auto has been a success story. It has gained ~10% market share over the last 5 years driven by the launch of rear mounted engines and their focus towards Tier II & Tier III cities 3W Cargo
  • 11. SCV Cargo Rapid growth of Dost indicates significant opportunities exist for new players. Right product and good network critical for success SCV Knowledge Paper_201409010_vf.pptx 11 Market share development - Goods carrier 2-3.5T Model wise segment share trend 2010-14 53% 7% 0% 7% 7% 43% 18% 33% 3% 38% 18% 13% 18% 25% 15% 12% 16% 14% 7% 14% 10% 6% 2013-14 4% 82 Winner 1% 110 Dost Superace Bolero Maxi Truck 0% Genio 1% 1% Bolero Pick-up 4% Trump40 1% 193 3% 2% 4% Trax Pick-up 207 190 0% 2012-13 Xenon 2011-12 1% 2010-11 1% Mahindra Tata Motors Ashok Leyland Force motors Hindustan Motors Source: SIAM; Roland Berger > M&M dominates the pick-up segment with its products derived from SUV/ MUV platforms > M&M has also managed to attract customers from less than 2T category by keeping the price gap between Bolero Maxi Truck and lesser tonnage ACE to less than INR 39,000 as a result of which it has gained 12% market share over the last 2 years > Most OEMs provide loans through their financing arms in order to increase penetration in this segment
  • 12. M&M has successfully managed to convert Hard top vans (primarily used as personal vehicle and as taxis) expected to have a negative growth due to shift towards MPVs and soft tops > MPVs are preferred over conventional vans due to customer preference for better comfort and vehicle features > Soft top vans used for intra city transport as an alternative for 3–wheelers expected to have a positive growth rate of 15% CAGR 1) SCV segment includes Tata Magic/IRIS segment . However, for comparing purposes we have included hard top segment Source: IHS; SIAM; Roland Berger
  • 17. Key players augment their volumes by having presence across all sub-segments in the SCV space Gio Zip Porter 600 Maxximo Ace Porter 1000 SCV Knowledge Paper_201409010_vf.pptx 17 Product overview Liaise with the local government authorities in order to further promote SCV Passengers > Continue to spread awareness around the benefits, applications etc among its potential customers to further grow the market > Develop new applications in order to expand the market. Paint distribution, gas cylinders, water, waste disposal examples of some of the new applications > Develop drivers for this segment as majority of the end users belong to lower economic section of the society and most likely will be the first time users of any kind of automobile OEM > Start investing and promoting infrastructure projects like Metro rail networks across the various congested cities. This will help create opportunities for last mile connectivity > Streamline the Permit issuance system for SCV passenger carriers and create an environment for healthy competition between SCV Passenger carriers & 3-Wheelers > Come up with schemes like cheaper financing options to promote the usage of SCVs, specially in the rural segment in order to further promote connectivity of rural areas with urban centers Government
  • 29. Please contact us in person if you have any questions SCV Knowledge Paper_201409010_vf.pptx 29 Dr. Wilfried Aulbur Managing Partner +91 9920 6301 31 E-mail: Mobile: Jeffry Jacob Senior Project Manager jeffry.jacob@ +91 8879 3876 35 E-mail: Mobile: MUMBAI OFFICE: 7th Floor, VIBGYOR Tower Bandra Kurla Complex, Bandra (E), Mumbai 400 051 DELHI OFFICE: Level 18, DLF Cyber City Building No. 5, Tower A, Gurgaon 122 002, PUNE OFFICE: 4th Floor, ALAINA Building Lane 8, Koregaon Park, Pune - 411001 Your contact at Roland Berger Strategy Consultants