1. Auto Ancillary Industry
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2. Agenda
Industry details
Risk Profile
Share your experience
Solution

3. 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

4. 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

5. Trend Analysis By ACMA

6. 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

7. 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

10. 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

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

12. 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

13. 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 then ABC has a right to renegotiate the USD price. Similarly if rupee depreciates above then the customer (XYZ) has a right to renegotiate the USD price.

14. Thank You