A recently released study by ICRA Research Services predicts good growth for turbocharger manufacturers. Subrata Ray, Senior VP, Co-Head Corp Sector Ratings, ICRA, outlines the reason for this potential.
What is the status of the use of turbochargers in India?
In India, turbochargers are present in over 90 per cent of diesel vehicles, though its penetration level in petrol vehicles is relatively low. Against the backdrop of changing customer preference towards petrol engines in the passenger vehicle (PV) segment, the domestic turbocharger industry, which is attuned to the diesel turbocharger, could face some temporary readjustment pains, especially for supplies to the passenger vehicle industry. Nevertheless, increasing acceptance of turbocharged petrol engine should support demand for the turbocharger industry over the medium term.
Why are turbochargers in petrol vehicles gaining prominence in recent times?
One factor is improved fuel efficiency and reduced emission. The CAFE norms notified by the Government of India in April 2015 mandate a 14 per cent improvement in fuel efficiency by FY18 and 38 per cent improvement after FY22 for OEMs. In order to meet the stipulated target by April 2017, fleet fuel efficiency for petrol and diesel vehicles should improve to 18.2 kmpl and 20.41 kmpl, respectively, from the current average of 16 kmpl and 18 kmpl, respectively. Turbocharger, cost-effectively, could drive a 20 per cent improvement in fuel efficiency, as compared to non-turbocharged engines. Also, lower excise duty on small cars with small engine (less than 1.2 litre petrol or less than 1.5 litre diesel) is pushing turbocharger penetration, as OEMs can deliver higher power with a small engine.
In India, small cars enjoy favourable tax duties as compared to larger cars. However, these small cars also have engine size (petrol less than 1,200 cc, diesel less than 1,500 cc) restriction which ultimately limits power output. Recently, in order to address these concerns, some OEMs have launched turbocharged petrol engines in less than 4,000 mm PVs which provides superior power output as well as improved fuel efficiency. The type of turbocharger used also makes a big difference to overall power output. For instance, the Tata Indica Vista with the same Fiat 1.3 L multi-jet engine provides additional 15 bhp power (i.e. 20 per cent more power) by replacing the fixed geometry turbocharger with a variable geometry turbocharger (VGT), without compromising much on the fuel efficiency front.
Going forward, Maruti Suzuki India Ltd (MSIL) is planning to launch its turbocharged Baleno which will give over 30 per cent more power - about 17 per cent higher fuel efficiency with a 15 per cent smaller engine. Considering favourable excise duty benefits on smaller engines (less than 1.2 litre petrol and less than 1.5 litre diesel, with overall vehicle length less than 4,000 mm), turbocharger penetration is likely to increase in petrol vehicles, enabling OEMs to deliver higher power and improved fuel efficiency, without major modifications in the overall vehicle or engine design.
What is the pricing of the turbochargers?
On an average, for a passenger vehicle, a diesel turbocharger costs Rs 4,000-5,000 whereas a petrol turbocharger is priced at about Rs 15,000 per unit. Petrol turbochargers are designed to operate at much higher revolutions per minute as compared to diesel counterparts which require the components to withstand high temperature. This explains the cost difference between petrol and diesel turbochargers. Cost also varies depending on the type of turbocharger, i.e., a twin scroll turbocharger will cost almost double that of a single scroll turbocharger, whereas a relatively complex variable geometry turbocharger could be even more costly. The realisation of a turbocharger for trucks is in the range of Rs 10,000-12,000.
How are turbochargers different from superchargers?
Turbochargers and superchargers work on similar principles, i.e., they both push compressed ambient air into the combustion chamber. Both turbochargers and superchargers are forced induction systems, i.e., they push compressed air into the intake manifold to improve power output. The main difference lies in the power supply, wherein the turbocharger relies on exhaust gases whereas the supercharger relies on a belt connected to the engine. Consequently, there is some power loss in the mechanical superchargers as compared to turbochargers, which also impacts the overall fuel efficiency. However, there is no turbo-lag in supercharged vehicles as superchargers can work at low engine revolutions per minute (rpm) whereas turbochargers work best at high speed.
A twin-charged vehicle benefits from both a turbocharger and supercharger, wherein there is no turbo-lag at low rpm and better output at higher rpm. Diesel engines have excellent torque at low rpm, which translates into high acceleration at low rpm; however, as rpm increases, the acceleration rate slows down. For a turbocharged diesel engine, acceleration at higher rpm improves as the turbocharger starts pushing compressed air into the intake manifold, thereby improving power output. Petrol engines do not have low-end torque, a problem better addressed by superchargers. Consequently, turbochargers are preferred in diesel vehicle whereas superchargers are used in petrol vehicles.
Who are the major players in this sector?
Globally, the turbocharger market is primarily dominated by three players, namely Honeywell (34 per cent), BorgWarner (29 per cent) and IHI, Japan (15 per cent). Other large suppliers include Mitsubishi Heavy Industries, Bosch Mahle and Cummins Turbo Technologies. A critical component with high technological entry barrier and a long validation process for vendor selection lends high margins to turbocharger manufacturers. Assuming optimal capacity utilisation, ancillaries could enjoy high operating margins (about 7-20 per cent) in the turbocharger manufacturing business. Considering the strong technical know-how requirements, most of the domestic market is catered to by international majors, either through their step-down subsidiaries or JVs in India.
Turbo Energy Pvt Ltd is one of the largest turbocharger manufacturers in the domestic market, catering to all major PV OEMs as well as CV players. Cummins by virtue of its JV (Tata Cummins Ltd) with Tata Motors Ltd (for supplies of M&HCV engine) is one of the largest players in the M&HCV market. As per our analysis, Turbo Energy, Honeywell Turbo Technologies India Pvt Ltd and Cummins Turbo Technologies Ltd (CTT) together accounted for over 90 per cent of the domestic turbocharger requirement.
How is this sector moving forward?
Earlier, majority of the sub-components were imported. However, economies of scale and long-term demand prospects have forced turbocharger manufacturers to increase their localisation level. Various turbocharger components like turbine housing, compressor housing, shafts and turbine wheels are provided by Indian Tier II ancillaries. Indian ancillaries, especially those present in castings, forgings and machining business also benefit from growth in the domestic turbocharger market.
How do you foresee the growth of the turbocharger market in India?
ICRA expects market potential for the domestic turbocharger industry market to grow to Rs 2,600-2,800 crore by FY2020, registering a CAGR of 14 per cent during FY16-FY20. While volume growth could be modest at around 8-9 per cent CAGR, value growth will be healthy as higher value added solution (VGTs, twin spool turbo) as well as new products to meet stricter regulatory requirements drive higher content per vehicle. While the share of diesel vehicles in India is expected to moderate going forward, increasing share of turbocharged petrol engines as well as superior realisation will drive the overall turbocharger market. Considering, gross margins of 45 per cent and sizable raw material requirements (55 per cent of the industry’s turnover), primarily sourced from Tier II and III ancillaries, demand for turbocharger components is expected to drive Rs 1,300-1,400 crore of revenue for Tier II and III ancillaries by FY 2020.
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WHAT IS A TURBOCHARGER?
A turbocharger is a device which improves the power output of engines using exhaust gas to increase overall air intake in the combustion chamber. Fuel combustion is dependent on the quantity of fuel and the amount of air available in the combustion chamber. Turbocharger allows more compressed air inside the engine’s intake manifold, resulting in more efficient fuel combustion and hence superior power output, improved fuel efficiency and lower exhaust emission. A turbocharger comprises two sections, i.e., turbine and compressor. Exhaust gases are guided to the turbine wheel inside the turbine housing, and exits the turbine through the turbine exhaust gas outlet. The turbine wheel, which is connected to the compressor section through a forged shaft, drives the compressor wheel. The compressor wheel converts low pressure-high velocity-ambient air into high pressure-low velocity-compressed air. The presence of this compressed air makes the fuel burn more efficiently, thereby delivering greater power while consuming less energy.
ICRA expects market potential for the domestic turbocharger industry market to grow to Rs 2,600-2,800 crore by FY2020, registering a CAGR of 14 per cent during FY16-FY20.”
On an average, for a passenger vehicle, a diesel turbocharger costs Rs 4,000-5,000 whereas a petrol turbocharger is priced at about Rs 15,000 per unit."