Indian CV Industry Overcoming the COVID Crisis - SATENDRA KUMAR, FROST & SULLIVAN - Motorindia
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Indian CV Industry
Overcoming the COVID Crisis
Organized by :
Speaker :
SATENDRA KUMAR, FROST & SULLIVAN
The Growth Pipeline™ Company
Powering clients to a future shaped by growth
AGENDA
• GLOBAL AND REGIONAL MACRO ECONOMICS
• IMPACT ON THE GLOBAL AUTOMOTIVE INDUSTRY
• IMPACT ON THE INDIAN COMMERCIAL VEHICLE INDUSTRY
• NEW BUSINESS OPPORTUNITIES IN INDIA
• RISK MITIGATION AND WAY FORWARD
2
Global and Regional Macro
Economics
3
2020 GLOBAL RECESSION NOW DEFINITE; YEAR-LONG RECESSION EXPECTED UNDER GLOBAL EMERGENCY
SCENARIO
Quarterly GDP Growth, Global, 2019-2021
4.0
3.0
World GDP Growth, %
2.0
1.0
0.0
-1.0
-2.0
-3.0
-4.0
Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021
Severe Pandemic Global Emergency
Scenario Details
35+ countries to register 3000+ cases by mid-April, 20 countries to register 10,000+ cases, with lockdowns to
Severe Pandemic
continue through April-May.
80+ countries to register 5000+ cases by mid-May, 35 countries to register 10,000+ cases, with severe spread
Global Emergency
across Asia, Africa, and LATAM
Source: IMF; Worldometer; Frost & Sullivan
4
GLOBAL GDP IMPACT BY KEY REGIONS: SOUTH ASIA MIGHT JUST ESCAPE FROM 2020 RECESSION
Quarterly GDP Growth, Regions, 2019-2021
The United States Eurozone Asia Pacific
4.0
4.0 2.0 6.0
2.0
0.0 4.0
0.0
(2.0) (2.0) 2.0
(4.0)
(4.0) 0.0
(6.0)
(8.0) (6.0) (2.0)
(10.0) (4.0)
(8.0)
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2019 2019 2019 2019 2020 2020 2020 2020 2021 2021 2021 2021 2019 2019 2019 2019 2020 2020 2020 2020 2021 2021 2021 2021
China
South Asia Middle East
4.0 3.0 8.0
2.0 6.0
3.0
1.0 4.0
2.0 0.0 2.0
0.0
1.0 (1.0) (2.0)
(2.0) (4.0)
0.0
(3.0) (6.0)
(1.0) (4.0) (8.0)
(2.0) (5.0) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2019 2019 2019 2019 2020 2020 2020 2020 2021 2021 2021 2021
201920192019201920202020202020202021202120212021 201920192019201920202020202020202021202120212021
Severe Pandemic Global Emergency Source: IMF; Worldometer; Frost & Sullivan
5
INDIA’S 2020 ANNUAL GROWTH COULD BE BETWEEN 1.1% AND -0.3%, DEPENDING ON THE SCENARIO, WITH
2021 RECOVERY TO 4-5% LEVELS
Quarterly GDP Growth, India, 2019-2021
8.0
6.0
4.0
World GDP Growth, %
2.0
0.0
-2.0
-4.0
Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021
Severe Pandemic Global Emergency
Source: IMF; Worldometer; Frost & Sullivan
6
INDIA’S 2020 QUARTERLY GROWTH COULD SLIP TO AS DEEP AS -3.3%; SLOWDOWN/ RECESSION TO LAST
TWO QUARTERS
Quarterly GDP Growth, India, 2019-2021
Depth of Disruption Length of Disruption Shape of Recovery
8.0 8.0 8.0
6.0 6.0 6.0
4.0 4.0 4.0
2.0 2.0 2.0
0.0 0.0 0.0
-2.0 -2.0 -2.0
-4.0 -4.0 -4.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2019 2019 2019 2019 2020 2020 2020 2020 2021 2021 2021 2021 2019 2019 2019 2019 2020 2020 2020 2020 2021 2021 2021 2021 2019 2019 2019 2019 2020 2020 2020 2020 2021 2021 2021 2021
Severe Pandemic Global Emergency
Severe GDP growth to drop to 0.9% Growth to slow to 0.9% and 1.0% in Q2 and Q3 A stretched V-curve. Recovery to start from Q3
Pandemic in Q2 respectively 2020. Full recovery by Q3 2021.
Global GDP growth to drop to -3.3% Technical recession in Q3 – Q4 2020 A stretched V-curve with sharp dent . Recovery to
Emergency in Q2 start from Q4 2020. Full recovery by Q4 2021.
7
2020 BRENT CRUDE OIL PRICES TO SLIDE $34.8 OR LESS
Changing Business and Economic Scenario: Annual Average Brent Crude Oil Prices, Global, 2015-2020F
100.0
Brent Crude Oil Prices ($ per barrel)
Q4 2020 F 35.0
71.2
64.3
52.4 54.2
Q3 2020 F 28.4 A 17 year
50.0 low of $23 /
Q2 2020 F bbl on 30th
25.6
March 2020
43.5
34.8
Q1 2020 50.2
Q4 2019 63.4
0.0
2015 2016 2017 2018 2019E 2020F 20.0 40.0 60.0 80.0
Year
An expected pick-up in demand for
motor and aviation fuel in H2 2020,
should help an uptick in prices.
Source: International Energy Agency (IEA); U.S. Energy Information Administration (EIA) ; Frost & Sullivan
8
Impact on the Global
Automotive Industry
9
KEY CHALLENGES FACED BY THE AUTOMOTIVE INDUSTRY DUE TO COVID-19 OUTBREAK
‘Stay at home’ restrictions and economic uncertainty to push customers to limit mobility and defer purchase decisions
Reduced consumer traffic at physical Weakening demand for vehicle Travel restrictions affecting short-term General public reluctant to use shared
showrooms servicing and spare parts car rentals mobility services
Drop in consumer traffic ~70-80% in A 3/4th drop in consumer walk-ins for More than 60% of the revenue from Government limiting passenger travel
physical showrooms due to social periodic maintenance. A 50% short-term car rentals are dependent in metro carriages. Taxi use restricted
distancing, economic uncertainty and reduction in parts enquiries in March on leisure and business tourists. Travel to emergency rides and fear of being
overall negative sentiment to bring the 2020. Consumers tend to postpone restrictions and general apprehensions exposed to the virus in a shared
demand for vehicle sales to a standstill in periodic maintenance of vehicles to about being out in public have limited mobility mode has seen a drop in
the short-term control virus spread. demand for short-term car rentals. usage of ride-hailing, car sharing,
metro and bus services.
Up to 32% Up to 16% Up to ~60% in 70-80% drop
drop in new vehicle sales drop in revenue from vehicle servicing March mobility in Europe to
expected in 2020 and parts in 2020 2020 public transport hubs
Source: Frost & Sullivan analysis
10THE PANDEMIC IS EXPECTED TO IMPACT THE EUROPEAN COUNTRIES THE WORST WITH ITALY AND SPAIN
STARING AT AVERAGE FALL IN LCV SALES TO THE TUNE OF 35%-50% IN 2020
LCV OUTLOOK, GLOBAL
US China Brazil
Thousands
3,608 397
2,940 2,975 327 294
2,345 2,410 2,172
2019 Optimistic Pessimistic
2019 Optimistic Pessimistic 2019 Optimistic Pessimistic 2020 2020
2020 2020 2020 2020 Scenario Scenario
Scenario Scenario Scenario Scenario
UK
Italy Germany
Thousands
3,80,692
1,65,354 2,75,517 2,74,098
2,25,924 2,28,415
1,09,134 1,92,862
79,370
2019 Optimistic Pessimistic
2019 Optimistic Pessimistic 2019 Optimistic Pessimistic 2020 2020
2020 2020 2020 2020 Scenario Scenario
Scenario Scenario Scenario Scenario
Source: Frost & Sullivan
11IN US MARKET , COVID WILL FURTHER IMPACT THE EXPECTED DECLINE IN MD-HD SALES POST HISTORIC
HIGH IN 2018 AND 2019
MD-HD TRUCK OUTLOOK, GLOBAL
US China Brazil
Thousands
527.09 1313.59 102
80
932.76 57
310.29
553.134
156.28
2019 Optimistic Pessimistic
2019 Optimistic Pessimistic 2019 Optimistic Pessimistic 2020 2020
2020 2020 2020 2020 Scenario Scenario
Scenario Scenario Scenario Scenario
UK
Italy Germany
Thousands
58,568
23,622 43,340
98,399 35,726
80,710 71,074
12,881
5,768
2019 Optimistic Pessimistic
2019 Optimistic Pessimistic 2019 Optimistic Pessimistic 2020 2020
2020 2020 2020 2020 Scenario Scenario
Scenario Scenario Scenario Scenario
Source: Frost & Sullivan
12Impact on the Indian
Commercial Vehicle Industry
13Trend analysis: Sales growth of Indian Automotive Industry
BS VI migration, low domestic demand and COVID-19 impacted on vehicle production
Impact on Commercial Vehicle sales India, FY’01 to FY’22
COMMERCIAL VEHICLE
1.01
0.86
0.81
0.79
0.71 0.72
0.68 0.69
0.66 0.67
0.63
0.61
0.55
0.52 0.53
Recovery to
0.42
Cyclical market, start from
0.39 0.38
0.35 general elections, FY’22, growth
higher crude oil prices Economy slowdown, over previous
0.28 Recession year Sales Sales dipped by COVID-19 impact year is
dipped by 7.8% over 20.2% over previous Sales dipped by 28.5% estimated at
0.20 previous year year over previous year 1.5%
0.16
FY'01 FY'02 FY'03 FY'04 FY'05 FY'06 FY'07 FY'08 FY'09 FY'10 FY'11 FY'12 FY'13 FY'14 FY'15 FY'16 FY'17 FY'18 FY'19 FY'20 FY'21 FY'22
Source: Frost and Sullivan Analysis, SIAM
FY: Financial Year (1st April to 31st March) 14IND Forecast for FY’21 – Optimistic Scenario suggests 10% reduction over FY’20
Recovery slowed down by varied levels of plant and business shutdown during Apr-May-Jun 2020 and
corresponding GDP growth in India
• GRADUAL CONTAINMENT (S1) COMMERCIAL VEHICLE INDUSTRY
› Production loss for 30 days
› GDP growth in tune of 1.5 – 2.5% FY'20
0.72 FY’21 Forecast Scenarios
0.66
• SEVERE PANDEMIC (S2)
0.58
› Production loss for 45 days
› GDP growth in tune of -0.3 – 1.1% 0.49
Million Units
• GLOBAL EMERGENCY (S3)
› Production loss for 60 days
› GDP growth in tune of -2 – -4.2%
*S: Scenario
FY’20: Financial Year (1st April 2019 to 31st March 2020)
FY’21: Financial Year (1st April 2020 to 31st March 2021) (S1) (S2) (S3)
Source: Frost & Sullivan analysis, SIAM
15New Business Opportunity
16Global Trends and Disruptive Transformation –Improved Sustainability
From Logistics models to transport solutions the market will see innovation in Technologies, in Services and Business Models
Connectivity and
Urbanization Bricks & Clicks New Business models
Digitalization
Urban logistic By 2025, ~ 20% of UBER for trucks – >50 Million trucks
opportunity of retail will happen will generate more will be connected
through online than by 2025 –visibility
$6.12 channels $26.5 Billion transforming
trillion by in revenue in 2025 logistics providers’
2025 (NA) decision makingTop 8 Trends Shaping the Future of India’s CV Industry
Digital Transformation, Big Data, Telematics Electrification among the Top Trends shaping Future of Indian CV Industry
Digital Evolving
01 Transformation
02 Telematics 03 Electrification 04 Regulations
Benchmarking Higher Tonnage
05 IoT and Big Data 06 Global Standards
07 Vehicles
08 ADAS
Note: F&S does not intend to use/exploit icons and logos used in this slide for any commercial purpose
whatsoever. All trademark/ icon/ logo used in this slide belong to their respective copyright owners and F&S
in no way implies to take credit for them Image Source: Flaticon.com; Source: Frost & Sullivan analysis
18Road Freight Capacity Utilization Inefficiencies
There are significant differences in the level of utilization between truck application, driven by the nature of the load and associated
constraints
25-27% 53-56% 40-45%
Empty Miles Capacity Utilization Overall efficiency
33 – 35% 43 – 45% 38 – 40%
Source: Frost & Sullivan
19Truck-as-a-Service Opportunities
The confluence of technologies provides a platform to build service and solution-based revenue models - OEMs are transitioning from
product or service to catering to the overall customer experience.
Digital Transformation
Technology
Advancements Connectivity Online Mobile Big Data/ Predictive
Blockchain
Technologies Ecosystem IOT Maintenance
Confluence of Technologies
Truck as a Service
Truck
Digital Leasing /
Telematics/ Digital Business
TMS Freight Rental /
Emerging Business FMS Retail Analytics
Brokerage Sharing
Opportunity
Source: Frost & Sullivan
20Vehicle Scrappage Policy
CVs contribute to approximately 65% of the total vehicular pollution. The proposed policy aims to encourage voluntary scrapping of
high-polluting old vehicles and subsequently increasing the replacement demand.
Scrappage Policy: Proposal, India Vehicular emissions contribute significantly to
the overall pollution caused, making the air quality
The ambitious vehicle scrappage policy laid down by sustenance in urban areas increasing perilous that calls for
the Government of India proposes mandatory disposal immediate action to phase out highly polluting old
Curb Pollution
of vehicles termed as old and unfit for operation in vehicles out of the ecosystem.
Indian roads.
• No. of registered motor vehicles in India as of 2015 Automotive sales is a vital indicator of progressing
economy. Capping vehicle’s
is 210 million, of which trucks and buses constitute
end-of-life will produce cyclic replacement demand across all
approximately 5%. segments, which is expected to subsequently increase the Vitalize
• The move was hailed by OEMs to address sales in production and sales of vehicles exponentially.. Sales
forecasted recessionary market environment. Why?
The vehicle scrap market is unorganized,
where large volumes of vehicles carnage is
Regulate done for the need of reusable components and metals,
Scrap which are redistributed as unaccounted
Market raw material back into the industry.
Proposed Term: Incentivization: Taxes levied upon purchase of new vehicle on both
manufacturing and purchasing parties are substantial source
20 years for CVs 15%–20% subsidized rates
of government revenue to manage infrastructure and
for new vehicle purchase
developmental activities. Increase in vehicle sales is
expected to surge revenue accumulation. Revenue
Note: F&S does not intend to use/exploit icons and logos used in this slide for any commercial purpose
whatsoever. All trademark/ icon/ logo used in this slide belong to their respective copyright owners and F&S Image Source: Flaticon.com;
in no way implies to take credit for them Source: Frost & Sullivan
21Impact Of covid-19 on CV Industry related Growth Opportunities
With digital retailing to witness unprecedented growth, OEMs and dealers need to plan their strategy in stages for a seamless
transformation
Supply Dynamics Demand Dynamics Market Dynamics
Impact Recovery
Supply Working Government Travel Restrictions
Opportunity R&D Consumer Customer Fear of Assessment Assessment Key Growth Opportunities
Chain Capital Relief & Country
Segments Investment Affordability Demand Contamination [2020] [2020]
Disruption Pressure Measure Lockdown
Freight
NA NA Medium Collaboration with OEMs, Fleet Operators
Aggregators
Engine health and maintenance connectivity
Connectivity NA NA NA Medium
AI, Block chain enabled platforms
Lesser impact as EV’s in nascent stage
Electric
NA Fast Dependency on imported parts
Vehicles
Revised financial benefits from govt.
Aftermarket Overdue service requirements
& Vehicle NA NA Medium On-demand service models to surge
Service Rise in online parts
Vehicle
NA NA NA Medium Used CV Leasing could grow
Leasing
Digitally generated leads and sales would
Digital
NA NA NA NA NA NA Fast gain prominence
Retail
Door step deliveries of new vehicles
Level impact: Negative Positive Overall impact: Negative Impact Medium Impact Positive Impact
Source: Frost & Sullivan analysis
22Emerging Trends in the Auto Components Industry
The e-commerce Industry is expected to grow significantly in the near future with the growth of organised multi-brand workshops and
garages, bridging the gap between OES and the informal sector
Emergence of Downstream Transition b/w OPEX Growth of Multi
Localisation
eCommerce Consolidation & CAPEX Brand Garages
E-commerce market driven by Larger financially “stable” Predictive maintenance Consolidation in the The dependency on China
players like Boodmo and distributors with a national and diagnostic service independent multi-brand for auto components is
Spares Hub . High value reach expected to acquire features increasing, driven aftermarket garage space expected to decline to
systems to feature in online and merge with smaller by Telematics. to be driven by technology, about 15% from the
sales. E-commerce sales to regional players to Subscription-based training and investments current 27% and this would
contribute to 4-5% of the maintain liquidity and contracts / service by OEMs and Suppliers create an opportunity for a
components aftermarket financial viability packages to drive number of component
revenue by 2025 sustainability manufacturers in India
Source: Frost & Sullivan
23Risk Mitigation Strategy
24OEMs Need To Work Towards Redesigning/ Revisiting Supplier Sourcing,
Product Development and Launches
Production Product and R&D Sales Corporate
Freeze smaller batch lines Reduced Variants / Trims Virtual showrooms & Online customer journey Exceptional employee care protocols
Outsource some production Shift to low-spec vehicles Attractive credit & financing options Draw extended credit lines.
White labelling /Licensing Platform Delayed new product launches Drive 'Certified Programs'
Target Vulnerable Co.’s (M&A)
Joint component sourcing & pooling Engineering insourcing Distinctive customer management systems.
‘GLocal’ supply chain strategies Delay Technological Changes pay freeze/ redundancy, gig economy workers.
Strategic use of 3D printing Truck as a Vehicle of Health services New remote working technologies
Automation interest rises Digital platforms and connectivity
Portfolio Diminished Offerings for Customer (Less Variants) “Frugal product” Vs “Highly Customized Offering”
Impact
Source: Frost & Sullivan
25Likely OEM Mitigation Strategies
The OEMs are considering to keep a lean inventory at any given time and only produce in proportion to the sales, as and when they resume
Note: Relevant / Being Considered ASHOK LEYLAND TATA Mahindra
• Financial support to dealers to boost liquidity
• Credit line extension measures
Finance
• Tax payment deferral or reductions and other fiscal benefits to preserve cash
• Access to redundancy funds to cover up to 80% of workers’ salaries or salary cuts
• Working at reduced utilization – production cuts across all segments
• Promoting WFH for all corporate employees
• No employee/plant worker layoffs or retrenchments
Plant • Limiting capital expenditure spend
Implications
• Increased production to provide overseas capacity support
• Revamping of lines to help with medical equipment manufacture
• Temporary free access to “paid subscriptions”
• Online sales services / Video chat for selecting or introducing products
Customer
• Payment relief programs + new payment terms + extended payment periods +
discounts on new vehicles
• Extension of warranty periods and support Source: Frost & Sullivan
26Focus On Decisive Action, Measured Strategy Alignment And Revised Long-
term Roadmaps
SHORT TERM MEDIUM TERM LONG TERM
Immediate
Immediate Evaluate
Evaluate Re-
Re-
Actions
Actions Options
Options Strategize
Strategize
Ensure workforce safety Enable complete online Adapt digital connectivity
customer journey (vehicle, solutions
parts & service)
Set up quick response team
Launch attractive Diversify supply chain
(QRT)
promotion campaign
Draw extended credit lines & Prepare contingency plan
financial support mechanism to Refocus used vehicle
dealers & suppliers business
Source: Frost & Sullivan
27FOR ADDITIONAL INFORMATION
Kaushik Madhavan
Vice President, Mobility
P: +044 6160 6666
M: +91 98 84 131 560
kaushik.madhavan@frost.com
Satendra Kumar
Program Manager, Mobility
P: +011 6160 6666
M: +91 78 38 998 574
satendra.kumar@frost.com
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