+ Employee cost accounts fro10-12% of the total turnover. Lower labour cost helps in reducing the production
cost for casting players; and
+ However, stringent quality norms tend to weigh on the overall cost.

Challenges

+ Variation in raw material costs;

+ Raw material costs form a major proportion of the total cost (~60%);

+ Price movements in raw materials are determined by international supply and demand dynamics, due to which
they fluctuate widely;

+ Moreover, changes in prices of raw materials are passed on to the customer with a lag of one quarter;

+ Aslowdown in demand coupled with a significant variation in raw material prices badly affects the bottom-
line;

+ Threat from low-cost manufacturers abroad;

+ The industry faces competition from manufacturers in other countries, viz., Thailand, Bangladesh, China, and
other emerging markets;

* Countries such as China offer faster deliveries and work on lower cost models, attracting international and
domestic clients;

+ However, due to in-house R&D, adoption of new processes, and campaigns such as “Make in India,” such
countries pose low threat to the auto castings players;

* Technological changes;

+ The government’s thrust on e-vehicles, light weight vehicles will lead to a significant change in auto castings
products. For companies to remain relevant, they will need to quickly adapt designs and processes; and

+ Shift towards usage of material such as plastics and composites in place of aluminum or iron will also impact
castings players.

REVIEW AND OUTLOOK OF INDIA’S POWERTRAIN MARKET

Powertrain and transmission market to accelerate up to fiscal 2024

The power train market is expected to clock 12-14% CAGR during fiscals 2020 to 2024. Fiscal 2021, though, is
expected to be affected by a drop in domestic demand as well as subdued exports owing to disruptions in the
economies caused by the Covid-19 pandemic globally.
Powertrain market to grow at a stable pace post a dismal FY21

1000

+ ~~ >> - SSDP - =~ --- ,

0)
&
e00
®
N
2400
3
3
$200

0

2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Source: CRISIL Research

The cost of key raw materials such as aluminium, iron, and steel will also have a bearing on the cost of powertrain
components. After rising at 5-6% CAGR from fiscal 2016 to 2019, domestic ex-factory aluminium prices crashed
12-14 % in fiscal 2020 as demand from the automobile sector was subdued on account of poor vehicle sales. In
the year-to-date fiscal 2021 period, aluminium prices have remain largely similar to average levels seen last year.

In the case of iron ore fines, though, after rising at 14-16% CACR from fiscal 2016 to 2019, domestic iron ore
prices plummeted 8-10% on-year in fiscal 2020 as steel demand remained subdued from automobile as well as
construction related segments.

127
