SM2 Two Wheeler Industry Analysis

Section C, Group 1

SM-II REPORT Portfolio Analysis of Two-Wheeler Automobile Industry

SUBMITTED BY:SECTION C, GROUP 1

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SM2 Two Wheeler Industry Analysis

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Table of Contents
Industry Definition .................................................................................................................................. 3 Overview of Two Wheeler ...................................................................................................................... 3 Industry Characteristics .......................................................................................................................... 6 Growth Drivers ........................................................................................................................................ 7 Trends and Impact .................................................................................................................................. 8 Ansoff Matrix .......................................................................................................................................... 9 Ansoff Matrix of TVS Motors ................................................................................................................ 11 BCG Matrix ............................................................................................................................................ 12 GE Matrix .............................................................................................................................................. 12 Major Players in 2W industry................................................................................................................ 14 Product and Service Segmentation of Automobile Industry ................................................................ 15 Key Competitors in Two Wheeler Industry ........................................................................................... 15 Recent Industry Developments............................................................................................................. 16 Porters 5 forces .................................................................................................................................... 17 References ............................................................................................................................................ 18

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Industry Definition:
The Automotive industry in India is one of the largest in the world and one of the fastest growing globally. India manufactures over 18 million vehicles (including 2 wheeled and 4 wheeled) and exports more than 2.3 million every year. Market share of 2-wheelers is about 75%; passenger cars have market share of 16% & commercial vehicles & three wheelers share about 9%. 2 W Industry is divided into three segments viz. Motorcycles, Scooters & Mopeds.

Evolution of the Indian Two Wheeler Industry before Competition Act, 2002: The two-wheeler industry consists of three segments viz., scooters, motorcycles, and mopeds. The 2WI in India began operations within the framework of the national industrial policy as espoused by the Industrial Policy Resolution of 1956. The net of controls on the economy in the seventies caused several firms to a) operate below the minimum efficiency scale, b) under-utilize capacity and, c) use outdated technology. A description of the evolution of the two wheeler industry in India before Competition Act, 2002 is usefully split up into four ten year periods. This division traces significant changes in economic policy making. The first time-period, 1960-1969, was one during which the growth of the two-wheeler industry was fostered through means like permitting foreign collaborations and phasing out of non-manufacturing firms in the industry. The period 1970-1980 saw state controls, through the use of the licensing system and certain regulatory acts over the economy, at their peak. During 1981-1990 significant reforms were initiated in the country. The final time-period covers the period 1991-1999 during which the reform process was deepened.

Overview of Two Wheeler:

Two-wheeler segment is one of the most important components of the automobile sector. The twowheeler industry has been in existence in the country since 1955. It consists of three segments viz. scooters, motorcycles and mopeds. The Indian two-wheeler (2W) industry reported a strong doubledigit volume growth of 17% in Q1, 2011-12 (YoY); even as several other automobile segments showed signs of a cyclical dip in growth during this period. With increase in inflation, fuel prices and interest rates the two-wheeler industry has been relatively less impacted. However the resistance is unlikely to persist if the inflationary pressure persists for longer duration and if higher than expected decline in GDP prevails. According to ICRA, two-wheeler industry is expected a volume growth of ~13% in 2011-12 and a volume CGR of 10-12% over the next five years to reach a size of 21-23 million units by 2015-16. The major factors that contribute for the growth of two-wheeler industry are demographic profile, moderate two-wheeler penetration levels, under developed public transport system, growing urbanization and expected strong replacement demand, besides moderate share of financed purchases. PGP2011-13 Page 3

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India is worlds second largest manufacturer of motorcycles. The Indian two-wheeler (2W) industry recorded sales volume of 3.4 million units in Q3, 2011-12, a growth of 11% yoy. Volume Growth Domestic Sales (in Mn Units):
26.0 25.8

11.8 9.4 17.0 17.3

3.2 2009-10 2010-11 Q1 2011-12

3.4 Q2 2011-12
% growth

11.0 3.4 Q3 2011-12

Net Sales

Volume Split across segments:

Mopeds 6% Scooters 18%

Motorcy cles 76%

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SM2 Two Wheeler Industry Analysis MOTORCYCLES: Trend in quarterly sales volumes of motorcycles:

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The motorcycles segment, which contributes more than 75 per cent to the two-wheeler industry, is dominated by Hero Moto Corp (formerly Hero Honda), with a market share of 54.6 per cent. However, the company lost share of around 5 per cent between 2008-09 and 2010-11 in the motorcycles segment to Bajaj Auto and partially to HMSI. In 75-125 cc segment, Hero Motor Corp has a market share of 74.2% in 9m 2011-12. In >125 cc segment, Bajaj holds the leadership position with almost 50% market share. Trend in Market Share in Motorcycle Segment:

SCOOTERS & MOPEDS: In 2010-11, scooters and mopeds segment accounted for 17.6 per cent and 5.9 per cent of the domestic two-wheeler sales respectively. As compared to 2006-07, scooter volume contribution has witnessed an increase of 5.6 per cent while moped volume contribution has increased by 1.4 per cent. Over the last 5 years, the scooters segment has grown at a CAGR of 18 per cent while mopeds grew at a CAGR of 16 per cent. Trend in Market Share in Scooter Segment:

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Mopeds which are sold primarily in rural or semi urban areas are almost exclusively dominated by TVS Motors with almost 100% of the market share. Trend in y-o-y growth in Mopeds segment for TVS:
35 30 25 20 15 10 7.7 5 0 2006-07 2007-08 2008-09 2009-10 2010-11 20.1 20.4 Growth 31.4

23.5

Industry Characteristics:
CAPITAL INTENSITY: Manufacturing two wheelers is moderately capital intensive. The manufacturing process demands large capital investment FLEXIBLE MANUFACTURING: The need for different manufacturing lines for motorcycles & scooters of varying engine capacities depends on the in-built flexibility of the lines & generation of technology the engine belongs. Technology changes are also possible only if the manufacturing lines are flexible. Page 6

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HIGH RAW MATERIAL COST: Raw Material accounts for about 85% of the total cost. Manufacturers in the past have struggled to pass on this cost to customers. For e.g. in 2008-9 due to increase in raw material costs, manufactures faced a lot of pressure. DEMAND BEHAVIOUR: Replacement Demand in another important characteristic of the Industry. According to the estimates 50% of the customers are new buyers, 30% are those looking for upgradation and another 20% are those looking for a second vehicle for the household. INDUSTRY COMPOSITION: The industry if fairly consolidated. Top three players account for over 30% of the market. Entry of new players and imports has created competition in the industry.

Growth Drivers:

Rising GDP in India has bolstered the affordability of two wheelers. Because of rising income levels, people are able to afford two wheelers. Moreover, the penetration of two wheelers in India is 36% which is on lower side in comparison to other developing economies. Like Indonesia, Brazil etc. This also is a reason for the good growth witnessed by the sector in last few years. Moreover, there is difference in penetration between rural & urban areas also. The difference is almost of three times i.e. the penetration in urban areas in almost three time that in rural areas. This has led to a change in focus of all the companies operating in the industry. Rural India has become the new selling point for the industry. India has a huge young population that offers large opportunity to the OEMs. The average age stands at 25 years which is 9 years younger than China and as much as 12-15 years younger than developed economies. The younger population in India is looking for products in premium segments and that is why now the OEMs are focussing more on this segment. The rising GDP is also leading to a huge replacement demand which is another factor favouring the growth of the industry. All these factors collectively are bolstering the growth of the segment. In addition to these demand side factors, there are also certain supply side factors which have contributed to the solid growth of the segments. These are:

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India OEMs have made huge investments in improving the installed capacity to match the demand in the market. The top three players have made an investment of almost 3700 crores in sing 2006-07 in their manufacturing units. Moreover, the demand for products of a particular OEM is also dependent on the service level provided by the OEM. Hence, all OEMs are focussing on improving the touch points across rural & urban markets. Earlier, availability of credit was an important factor for the industry. But, this has changed in recent years as availability of finance no longer a critical for sales culmination. Certain new players have entered the industry e.g. Mahindra & Mahindra, Harley Davidson etc. which has increased the competition and has helped consumers as better products are available now with lower prices. This has also led to an increase in innovation by various OEMs. Exports are a very lucrative avenue for Indian OEMs given low cost manufacturing & reliable quality of Indian products. The exports have increased by CAGR of 25% in the period between 2005-06 to 2010-11. BAL is the largest exporter followed by TVS Motors. Moreover the two wheeler mode of transport is still the cheapest mode of transportation. In present scenario of increasing fuel prices this factor has also contributed to the growth of the industry. According to a study by Crisil, following data pertains to the economics of various modes of transports.

Trends and Impact

The Indian two-wheeler (2W) industry showed a strong volume growth of 25% in 2009-10 and 27% in 2010-11. Current volume is approx. 13.3 million units Indias rising per capita GDP, increasing rural demand, growing urbanization were the main causes of such a steep rise in the volume According to ICRA estimations, the industry is expected to report a volume CAGR of 1012% over the next five years (~21-23 million units)

Growth Drivers The positive factors which are responsible for the changing trends are:1. Steady GDP growth PGP2011-13 Page 8

SM2 Two Wheeler Industry Analysis 2. Favorable demographic profile 3. Entry of new players in industry 4. Growing distribution reach 5. Cheaper ownership costs 6. Multitude of new models/variant launches

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Growth Inhibitors The negative factors which are responsible for the changing trends are:1. Rising commodity prices 2. Increasing fuel costs 3. Hardening interest rates 4. Moderation on industry growth over the short term 5. Capacity constraints faced in the supply chain for several OEMs

Some other factors include:1. Installed capacity 2. Entry of new players and new product introductions 3. Promotion and Distribution reach 4. Consumer Finance

Ansoff Matrix
Ansoff matrix helps a firm decide their market growth as well as product growth strategies. The 2 questions which the Ansoff Matrix can answer are How can we grow in the existing markets and What amends can be made in the product portfolio to have better growth. The matrix is divided in two quadrants The product quadrant and the market quadrant. The Product quadrant on the X axis is further divided into Existing products and new products. The market scenario on the Y axis is divided into existing markets and new markets. Thus the Ansoff matrix divides a firm on the basis of the products it has existing products or new products, as well as the markets it is in existing markets or new markets. Depending on the characteristic of each, the marketing strategy is decided. These marketing strategies are as follows.

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1) Market Penetration In the Ansoff matrix, market penetration is adopted as a strategy when the firm has an existing product and needs a growth strategy for an existing market. 2) Market Development Market development is the second market growth strategy which can be adopted as per the Ansoff matrix. The market development strategy is used when the firm targets a new market with existing products. There are many possible ways of approaching this strategy, including: New geographical markets; for example exporting the product to a new country New product dimensions or packaging: for example New distribution channels Different pricing policies to attract different customers or create new market segments Product development Product development in the Ansoff matrix refers to firms which have a good market share in an existing market and therefore might need to introduce new products for expansion. Product development mainly happens when you have a good customer base and you know that the market for your existing product has reached saturation. Diversification Diversification is a strategy used in the Ansoff matrix when the product is completely new and is being introduced in a new market. This is an inherently more risk strategy because the business is moving into markets in which it has little or no experience. For a business to adopt a diversification strategy, therefore, it must have a clear idea about what it expects to gain from the strategy and an honest assessment of the risks.

3)

4)

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Ansoff Matrix of TVS Motors

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BCG Matrix

GE Matrix

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The various parameters selected for identifying industry attractiveness and SBU strength is mentioned in the above table. These parameters were calculated and quantified on the basis of the figures mentioned in the Represented by column of the table. These values were collected from various reports, annual reports and industry press releases

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Major Players in 2W industry

Yamaha: A Complete Bike in all Respect Yamaha, the Japanese motorbike manufacturing giant offered the first taste of a complete bike to Indian bike lovers. Renowned Yamaha Bikes 1. Yamaha RX100 2. Yamaha RX-Z 3. Yamaha Crux 4. Yamaha Enticer 5. Yamaha Gladiator 6. Yamaha Libero G5 7. Yamaha Gladiator 8. Yamaha Alba 106 Hero Honda Bikes Many global bike manufacturers soon turned their focus towards Indian market. One bike manufacturer, Hero Honda came to Indian market with lots of efficient bikes delivering great fuel economy and almost zero maintenance cost. Hero Honda bikes are still running on Indian roads with the same confidence and glory. Renowned Hero Honda Bikes 1. Hero Honda Achiever 2. Hero Honda CD 100 SS 3. Hero Honda CD Dawn 4. Hero Honda CD Deluxe 5. Hero Honda Glamour 6. Hero Honda Karizma 7. Hero Honda Passion Plus 8. Hero Honda Splendor 9. Hero Honda Splendor NXG 10. Hero Honda CBZ X-Treme 11. Hero Honda Hunk

1. 2. 3. 4. 5. 6. 7. 8.

Bajaj: First Indian Bike After successfully selling the most popular models of scooters namely Bajaj Super and Bajaj Chetak, The Company came into the world of bikes. Completely designed and developed in India, the bikes produced by Bajaj are some of the best design innovations. In collaboration with Kawasaki Motors, Bajaj introduced the famous Baja Kawaski Caliber, Wind, and Eliminator models in the Indian market. The company now enjoys a fair percentage of the market share. Renowned Baja Bikes Bajaj Avenger Bajaj CT 100 Bajaj Discover Bajaj Platina Bajaj Pulsar DTSi Bajaj Pulsar 200CC Bajaj Wind 125 Sonic DTSi TVS: A Bike for All Page 14

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TVS is a famous name in the Indian bike market. TVS has introduced some of the most costeffective and fuel efficient bikes to the Indian bike lovers. TVS bikes are best known for their attractive graphics and aerodynamic design. Renowned TVS Bikes 1. TVS Apache 2. TVS Centra 3. TVS Fiero 4. TVS Star City 5. TVS Victor

Product and Service Segmentation of Automobile Industry

Key Competitors in Two Wheeler Industry

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Recent Industry Developments

Overseas markets capturing the interest of most 2W OEMs in India Exports offer strong growth opportunity to Indian companies, given Indias low-cost manufacturing capabilities and reliable quality10. 2W exports from India reported a CAGR of 25% over the period 2005-06 to 2010-11 to reach 1.5 million units in 2010-11. BAL is the largest 2W exporter from India, followed by TVS, with both companies exporting to a large number of countries. Mainly BAL exports Bajaj Boxer bikes to Africa which has consequently led to capacity expansion at home. Together, BAL and TVS accounted for 79% of all 2W exports from India in 2010-11 and the managements of both companies consider exports a key component of their overall growth plans11. However, export volumes of the largest 2W manufacturer in the world Hero Honda, have remained rather flat, being around 0.1 million units and accounting for just 2% of its total 2W sales volumes in 2010-11. Nevertheless, following the cessation of its JV agreement with Honda Motor Company (Japan) recently, Hero Honda is expected to get aggressive on the exports front, something it could not do earlier due to the JVs constraints which restricted the markets to which it could export. Currently, HHMLs export markets are limited to Bangladesh, Sri Lanka, Nepal and Columbia but the company is likely to expand its geographical footprint over the medium term. Yamaha too has announced plans to intensify its focus on exports and is even looking to set-up a third plant (in addition to the Surajpur and Faridabad plants) where it would manufacture mass market bikes (like Crux and YBR) with Africa and South America as the key target markets. Entry segment of motorcycles shrinking in size as OEMs pursue profitable growth through Other 2W segments Motorcycle models with a sticker price of up to Rs. 40,000 constitute the Entry segment. This segment largely consists of 100cc bikes and is currently composed of the CD Dawn and CD Deluxe models of HHML, Platina of BAL, Star Sport of TVS and Crux and Alba of Yamaha. The Entry segment has faced continual volume pressures in the domestic market over the last several years and was also the worst hit during the credit squeeze in H2, 2007-08 and the economic slowdown of 2008-09. Although sales volumes in this segment have remained flat over 2009-10 and 2010-11, the segments share in the domestic 2W market has steadily declined from 43% in 2005-06 to 16% in 2010-11. Several factors have contributed to the waning importance of the entry segment in the Indian 2W market. These include the gradual shift in preference of consumers in favour of the more feature-rich Executive segment, reluctance of organized financiers to increase credit exposure on this segment and the OEMs own strategy of reducing focus on this relatively less profitable segment. Premium segment expected to continue being the fastest growing in the motorcycles market Going forward, ICRA expects competition in the Executive segment to intensify further as Honda Motorcycles & Scooters and Suzuki have announced plans to introduce new products in this segment. Concurrently, the refurbishment rate of existing brands is also likely to gain further pace. However, considering the healthy growth prospects of the segment, it is less likely for competition to be based on price and below-the-line promotions. But the segment is PGP2011-13 Page 16

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expected to derive a greater share of marketing spends as investment in building brands could have positive long term benefits for gaining/ protecting market share in this large volume segment. The Premium segment has been the fastest growing one over the last five years having recorded a volume CAGR of 27%, a period in which its segment share increased to 17% in 2010-11 from 9% in 2005-06. Bajaj Autos Pulsar family comprising of 135cc, 150cc, 180cc and 220cc bikes occupy the frontal position in this segment with a market share of ~50% (monthly volumes of 70,000-75,000 units), followed by Hero Honda with a market share of ~20%. The balance 30% is almost evenly distributed between Honda Motorcycles & Scooters, Suzuki and Yamaha.

Porters 5 forces
Rivalry among Firms- HIGH The key players in two-wheeler industries are Hero Honda motor ltd. (HHML), Bajaj Auto ltd and TVS motor Company ltd. The other players are Kinetic, LML, Yamaha, Majestic auto ltd, Royal Enfield ltd and Honda motorcycle & scooter India. Two-wheelers domestic market growth rate for 2008-09 is 19.4% which is very high when compared to that of three wheelers, Passenger and commercial vehicles. Indian Auto policy 2002 gives added advantage to two-wheeler manufacturers to enter even other countries outside India. Since big manufacturer plant with high technology and good R&D team needed many of them dose not enter in two-wheeler Industries. Only the companies which are in automobile line will expand their product line like Mahindra.

Threat of New Entrants- Low to Moderate Capital investment is very huge Sports bikes entering in Indian market Harley Davidson launching in India

Threat of Substitute Products- Low to Moderate Substitute products for two-wheeler industries are bus transportation, Auto transportation and even low-end cars, but people using two-wheelers can only use the service of buses and auto as a substitute product. Sometimes low-end car is a substitute product for the people using high-end motorcycles. Normal buses to hi-tech ac buses which is threat to two-wheeler industry. Penetration of Metro trains in Metropolitans.

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SM2 Two Wheeler Industry Analysis Bargaining Power of Suppliers- Low

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Some of the components in two-wheeler industry are very common for all the two-wheeler industries like steel, aluminium, tyres and tubes, these material are available in abundant. This makes them to drive a smooth production of their finished products.

Bargaining Power of Customer- High Buyer has added advantage than seller because there are five to six big popular brands of twowheelers are available in India, so that they can switch brand from one another. Buyers are very conscious in spending their money to purchase two-wheeler, because it attracts most of the middle-income groups seller cannot price their product very high.

References
1) 2) 3) 4) 5) 6) 7) www.crisilresearch.com accessed on 15th March 2012 Indias Two Wheeler Industry, Quarterly Report, ICRA, February 2012 Annual Report 2011 of Hero Motocorp, Bajaj Honda Motors and TVS Auto Sector and Motorcycle monthly forecast, Business Monitor International, February 2012 Customised Research Bulletin, Auto Sector, CRISIL, September 2011 Indias Auto Report, BMI, February 2012 Monthly Auto report, Indsec Securities and Financials, February 2012

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