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Agenda Industry details Risk Profile Share your experience Solution

Products and Raw Materials Product range Engine and engine parts Transmission and Steering parts Suspension and Breaking parts Equipment- headlights, bulbs, panel etc. Electrical parts Others Raw Materials Steel Copper Aluminum

Industry Key Features Market can be classified as OEM and Replacement ( aftersales) Highly Fragmented market Organized players , with at lest one OEM customer – hold only 15% of the total market share OEM offers bulk demand but low margins Replacement market offers higher margin but uncertainty Balance between OEM and Replacement is desired for sustainability New Trend – Apart from design and key parts, other jobs are outsourced Now companies are focusing on design and research

Trend Analysis By ACMA

Expected to grow three times by 2020 With the revival in domestic market (which already show initial sign of revival) and higher export sales, the component sector prospects look promising

Global car manufacturers are increasing their component sourcing from India, due to cost competencies. The competition is intense in the component sector as most global firms have entered the market

Risk Profile Generally organized players ( catering to at least one OEM) have net exports. Obviously, players catering to domestic replacement market or catering to domestic OEM, may have net imports on account of raw material Some players have Pass-through with OEM Commodity Price Risk – Mainly in commoditized components Economic Risk FX Loans – this industry have to bear higher cost of capital, they opt for FCNR, ECB

Please Share Your Experience Client name Net exposure Current Strategy Commodity Risk Pass –through with customer Solution for Pass- through

Solution Manage only net book Manage the time mismatch Check the price arrangement with customer ( OEM), before finalizing the strategy Consider the economic exposure- to arrive at net position

Case Study Company ABC Ltd. is an auto ancillary company. Over 90% of its revenue is denominated foreign currency, mainly USD. As per normal business practice, the fix USD prices are decided with its customers for next 12 to 18 month period. However, there is a price escalation agreement with one specific customer (XYZ Ltd.) accounting for about 20% of ABC’s revenue. From the contract day if USD/INR rate moves in any direction by more than 5% then price will be renegotiated e.g. If USD/INR rate on contract day is say 65. If rupee appreciates beyond 61.75 then ABC has a right to renegotiate the USD price. Similarly if rupee depreciates above 68.25 then the customer (XYZ) has a right to renegotiate the USD price.

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