DISSERTATION REPORT ON

“ANALYSIS OF TWO WHEELER

INDUSTRY”

SUBMITTED BY
--------------------------
MBA (G),SEM-IV
Enrollment no-A7001908278

UNDER GUIDENCE OF:

-------------------------------
Designation
Lucknow

DISSERTATION REPORT IN PARTIAL FULFILLMENT OF THE AWARD OF FULL TIME

MASTERS IN BUSINESS ADMINISTRATION (2009-11))

BABU BANARASI DAS

UTTAR PRADESH LUCKNOW

1
 PREFACE

As a part of our course curriculum I had to make a dissertation report on any topic to get
the right exposure to the practical aspects of business management.

Today firms are using modern Marketing Practices to build better, faster, and more
competitive organizations. The most striking change in marketing role is its
increased involvement in developing and implementing the company’s strategy.

I got an opportunity to work upon this topic. Where I work on the project entitled
“analysis of two wheeler industry”. Its understanding leads to improved understanding
of marketing strategy of different firms in two wheeler industry.

---------------------
MBA(G) ,SEM-IV
ENROLLMENT NO.

2
 Declaration

I HEREBY STATE THAT THIS PROJECT, SUBMITTED IN PARTIAL

FULFILLMENT FOR THE REQUIREMENTS OF MBA(G) PROGRAM OF
THE BABU BANARASI DAS , LUCKNOW IS AN ORIGINAL RESEARCH
WORK CARRIED OUT BY ME UNDER THE GUIDANCE AND
SUPERVISION OF Mr.-------------, BABU BANARASI DAS ,LUCKNOW AND
THE THESIS OR ANY PART HAS NOT BEEN PREVIOUSLY SUBMITTED.

Signature Signature

Name_______________ Name_____________
(Student) (Faculty
Guide)

3
 ACKNOWLEDGEMENT

No project report ever reflects the efforts of a single individual. The report owes its
existence to the constant support and guidance of a number of people. I am grateful to all
of them.

I owe a never-ending debt of gratitude to Mrs.--------------, faculty guide, for her expert
guidance and support.

I would like to thank all the respondents for giving their valuable time and providing
useful insight into finer aspects of retailing and the latest trends.

I am also grateful to all those who have either directly or indirectly contributed towards
the completion of the project, for their support and encouragement.

-------------------------

MBA(G), IV Sem.

Enrollment no.

4
 TABLE OF CONTENT:

INTRODUCTION OF INDUSTRY

Global scenario: automobile industry

Background to the automobile industry
Two wheeler automobile: India
Historical industry development
Indian auto industry
Two wheeler segmental classification and its growth
Indian auto components industry
Current scenario

INDUSTRY ANALYSIS

Motorcycles
Parts of a motorcycle
Kinds of motorcycles
Scooters in India
Mopeds and scooterettes
Marketing mix
Demand drivers
SWOT analysis
Competitor analysis
Indian two wheeler industry segments
Two-wheeler sales at a glance
Market segment

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Fleet composition
Market share
Exports
Market structure
Growth factors
Technology
Trends in the two-wheeler industry

Fiscal policy

Indian auto policy 2002

PLAYER ANALYSIS ( Target market, 4 P’s, Market Size, Consumer Preference

and Behaviour, Pricing Policy, Distribution Channel, SWOT Analysis)

TVS Motor Company

Hero Honda Company
Bajaj Auto Ltd.

CONCLUSION

RECOMMENDATION

BIBLIOGRAPHY

6
INTRODUCTION
OF
INDUSTRY

7
 GLOBAL SCENARIO: AUTOMOBILE INDUSTRY

Automobile industry worldwide has evolved over a period of more than two centuries.
From the steam engine to vehicles powered by internal combustion to petrol engine, the
modern automobile has covered a long distance. Automobiles revolutionized the future
of the world, changing forever the way people live, travel, and do business. the
automobile industry is one of the most dynamic and fast growing industries in the
world .it employs million of people and generate revenue in billions of dollars world
wild .major automobile corporations around the world are general motors corporation
,ford motor company, Toyota motor corporation and Nissan motor co. ltd.

Indian automobile market is not far behind .it offers a cars ranging from mid to big sizes,
luxury cars to multi-utility ,from three-wheeler to four–wheeler to four wheeled
commercial vehicles .a number of international brands have developed robust clientele in
India such as, Honda India ,general motors ,fords motors, Toyota India ,and Hyundai
motors .along with these brands ,domestic manufactures such as Maruti Udyog ltd , Tata
motors ,and Mahindra & have there loyal customer as ever.

The Indian automobile industry is the tenth largest in the world with an annual
production of approximately 2 million units. Indian auto industry, promises to become
the major automotive industry in the upcoming years and the industry experts are hopeful
that it will touch 10 million units mark.

Indian automobile industry is involved in design, development, manufacture, marketing,

and sale of motor vehicles. There are a number of global automotive giants that are
upbeat about the expansion plans and collaboration with domestic companies to produce
automobiles in India.

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 BACKGROUND TO THE AUTOMOBILE INDUSTRY

The growth of Indian automobile sector can be divided into two phases:

Pre-Liberalization: After independence, the Indian government closely protected the

Indian passenger car market for a period of over four decades. before 1990s, consumer
have very limited choice with only a few major automobile manufacturers such as
Hindustan motors ,premier automobiles ,and maruti udygo ltd. in 1991, the Indian
economy went through major reforms ,which includes :

• Approval of foreign direct investment (FDI) in many sectors, including the

automobile industry.
• Removal of industry and import licensing.

For the automobile industry, the period beyond the end of license raj in 1993 was also the
beginning of the boom in manufacturing and import. This period is popularly called the
post-liberalization era.

Post-Liberalization: After 1993 ,many global players entered the Indian market
mainly through joint venture and collaboration .Hyundai, ford, general motors ,Toyota
,Honda ,are among them .since then

• 17 new ventures have come up in the last ten years.

• Over the last five years, the industry has growth at the rate of 14 percent.
• 9 million vehicles have been sold in year 2005-2006.
• Indian vehicles exports have growth at a rate of 40 percent in recent past.

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The industry encompasses commercial vehicles, multi-utility vehicles, passenger car, two
wheeler, three wheeler and components. Present, India is the:
• Second largest two-wheeler market in world.
• Fourth largest commercial vehicle market in the world.
• Eleventh largest passenger car market in the world and is expected to be the seventh
largest market by 2016.

TWO WHEELER AUTOMOBILE: INDIA

The Indian two wheeler market has a size of over Rs. 100,000 million.

The Indian two wheeler segment contributes the largest volumes amongst all the
segments in automobile industry. Though the segment can be broadly categorized into 3
sub-segments viz; scooters, motorcycles and mopeds; some categories introduced in the
market are a combination of two or more segments e.g. scooterettes and step thru’s. The
market primarily comprises five players in the two wheeler segment with most of the
companies having foreign collaborations with well-known Japanese firms earlier. But
most of the companies are now planning 100% subsidiaries in India.

In the last four to five years, the two-wheeler market has witnessed a marked shift
towards motorcycles at the expense of scooters. In the rural areas, consumers have come
to prefer sturdier bikes to withstand the bad road conditions. In the process the share of
motorcycle segment has grown from 48% to 58%, the share of scooters declined
drastically from 33% to 25%, while that of mopeds declined by 2% from 19% to 17%
during the year 2000-01. The Euro emission norms led the existing players in the two
stroke segment to install catalytic converters. All the new models are now being replaced
by 4-stroke motorcycles. Excise duty on motorcycles has been reduced resulting in price
reduction, which has aided in propelling the demand for motorcycles. Fierce competition
has also forced players to cut prices in certain models.

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 HISTORICAL INDUSTRY DEVELOPMENT

India is the second largest manufacturer and producer of two-wheelers in the world. It
stands next only to Japan and China in terms of the number of two-wheelers produced
and domestic sales respectively. This distinction was achieved due to variety of reasons
like restrictive policy followed by the Government of India towards the passenger car
industry, rising demand for personal transport, inefficiency in the public transportation
system etc.

The Indian two-wheeler industry made a small beginning in the early 50s when
Automobile Products of India (API) started manufacturing scooters in the country. Until
1958, API and Enfield were the sole producers.

In 1948, Bajaj Auto began trading in imported Vespa scooters and three-wheelers.
Finally, in 1960, it set up a shop to manufacture them in technical collaboration with
Piaggio of Italy. The agreement expired in 1971.

In the initial stages, the scooter segment was dominated by API, it was later overtaken by
Bajaj Auto. Although various government and private enterprises entered the fray for
scooters, the only new player that has lasted till today is LML.

Under the regulated regime, foreign companies were not allowed to operate in India. It
was a complete seller market with the waiting period for getting a scooter from Bajaj
Auto being as high as 12 years.

The motorcycles segment was no different, with only three manufacturers viz Enfield,
Ideal Jawa and Escorts. While Enfield bullet was a four-stroke bike, Jawa and the
Rajdoot were two-stroke bikes. The motorcycle segment was initially dominated by
Enfield 350cc bikes and Escorts 175cc bike.

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The two-wheeler market was opened to foreign competition in the mid-80s. And the then
market leaders - Escorts and Enfield - were caught unaware by the onslaught of the 100cc
bikes of the four Indo-Japanese joint ventures. With the availability of fuel efficient low
power bikes, demand swelled, resulting in Hero Honda - then the only producer of four
stroke bikes (100cc category), gaining a top slot.

The first Japanese motorcycles were introduced in the early eighties. TVS Suzuki and
Hero Honda brought in the first two-stroke and four-stroke engine motorcycles
respectively. These two players initially started with assembly of CKD kits, and later on
progressed to indigenous manufacturing. In the 90s the major growth for motorcycle
segment was brought in by Japanese motorcycles, which grew at a rate of nearly 25%
CAGR in the last five years.

The industry had a smooth ride in the 50s, 60s and 70s when the Government prohibited
new entries and strictly controlled capacity expansion. The industry saw a sudden growth
in the 80s. The industry witnessed a steady growth of 14% leading to a peak volume of
1.9mn vehicles in 1990.

The entry of Kinetic Honda in mid-eighties with a variometric scooter helped in

providing ease of use to the scooter owners. This helped in inducing youngsters and
working women, towards buying scooters, who were earlier inclined towards moped
purchases. In the 90s, this trend was reversed with the introduction of scooterettes. In line
with this, the scooter segment has consistently lost its part of the market share in the two-
wheeler market.

In 1990, the entire automobile industry saw a drastic fall in demand. This resulted in a
decline of 15% in 1991 and 8% in 1992, resulting in a production loss of 0.4mn vehicles.
Barring Hero Honda, all the major producers suffered from recession in FY93 and FY94.
Hero Honda showed a marginal decline in 1992.

The reasons for recession in the sector were the incessant rise in fuel prices, high input
costs and reduced purchasing power due to significant rise in general price level and
credit crunch in consumer financing. Factors like increased production in 1992, due to

12
new entrants coupled with the recession in the industry resulted in companies either
reporting losses or a fall in profits.

India is one of the very few countries manufacturing three-wheelers in the world. It is the
world's largest manufacturer and seller of three-wheelers. Bajaj Auto commands a
monopoly in the domestic market with a market share of above 80%, the rest is shared by
Bajaj Tempo, Greaves Ltd and Scooters India.

The total number of registered two-wheelers and three-wheelers on road in India, as on

March 31, 1998 was 27.9mn and 1.7mn respectively. The two wheeler population has
almost doubled in 1996 from a base of 12.6mn in 1990.

INDIAN AUTO INDUSTRY

India is emerging as one of the world’s fastest growing passenger car markets and second
largest two wheeler manufacturer. According to the International Yearbook of Industrial
Statistics 2008 released by United Nations Industrial Development Organisation
(UNIDO), India ranks 12th in the list of the world’s top 15 automakers. It is home to the
largest two wheeler manufacturer and fifth largest commercial vehicle manufacturer in
the world. The industry is producing about 19 lakh passenger vehicles, 4.5 lakh
commercial vehicles, 90 lakh two wheelers and 5 lakh three wheelers per annum.

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In order to make India a power to reckon with in the automotive sector the government
launched the Automotive Mission Plan (AMP) 2006-2016. As per the AMP, it is
estimated that the total turnover of the automotive industry in India would be in the order
of USD 122 billion - USD 159 billion in 2016. It is expected that in real terms, India
would continue to enjoy its eminent position of being the largest tractor and three-
wheeler manufacturers in the world and the world's second largest two-wheeler
manufacturer. By 2016, India will emerge as the world's seventh largest car producer (as
compared to the eleventh largest currently) and retain the fourth largest position in world
truck manufacturing sector. Further, by 2016, the automotive sector would double its
contribution to the country's GDP from current levels of five per cent to 10 per cent. The
Indian automotive industry consists of the following five segments:

FIGURE 1: INDIAN AUTOMOBILE INDUSTRY

The total two-wheeler sales of the Indian industry accounts for around 77% of the total
vehicles sold in India. With 26,12,881 two wheelers already sold in India in the quarter
from Jun-Sep 2009, the Indian wheeler industry is poised for high growth In the coming
years. In terms of volume, about 6% of the two wheelers manufactured are exported.

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FIGURE 2: DOMESTIC MARKET SHARE FOR 2008-09 1

The following table2 illustrates the growth of the auto industry in India.

Category 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Passenger 7,23,33 9,89,56 12,09,8 13,09,3 15,45,22 17,77,58 18,38,69
Vehicles 0 0 76 00 3 3 7
Commerc 2,03,69 2,75,04 3,53,70 3,91,08 5,19,982 5,49,006 4,17,126
ial 7 0 3 3
Vehicles
Three 2,76,71 3,56,22 3,74,44 4,34,42 5,56,126 5,00,660 5,01,030
Wheelers 9 3 5 3
Two 50,76,2 56,22,7 65,29,8 76,08,6 84,66,66 80,26,68 84,18,62
Wheelers 21 41 29 97 6 1 6
Grand 62,79,9 72,43,5 84,67,8 97,43,5 1,10,87,9 1,08,53,9 1,11,75,4
Total 67 64 53 03 97 30 79
TABLE 1: AUTOMOBILE PRODUCTION TRENDS

The following table3 gives the number of vehicles exported in each category.

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Category 2002- 2003- 2004- 2005- 2006-07 2007-08 2008-09
03 04 05 06
Passenger 72,005 1,29,29 1,66,40 1,75,57 1,98,45 2,18,40 3,35,73
Vehicles 1 2 2 2 1 9
Commercial 12,255 17,432 29,940 40,600 49,537 58,994 42,673
Vehicles
Three Wheelers 43,366 68,144 66,795 76,881 1,43,89 1,41,22 1,48,07
6 5 4
Two Wheelers 1,79,68 2,65,05 3,66,40 5,13,16 6,19,64 8,19,71 10,04,1
2 2 7 9 4 3 74
Grand Total 3,07,30 4,79,91 6,29,54 8,06,22 10,11,5 12,38,3 15,30,6
8 9 4 2 29 33 60
TABLE 2: AUTOMOBILE EXPORT TRENDS

TWO WHEELER SEGMENTAL CLASSIFICATION AND ITS

GROWTH

The three main product segments in the two-wheeler category are scooters, motorcycles
and mopeds. However, in response to evolving demographics and various other factors,
other subsegments emerged, viz. scooterettes, gearless scooters, and 4-stroke scooters.
While the first two emerged as a response to demographic changes, the introduction of 4-
stroke scooters has followed the imposition of stringent pollution control norms in the
early 2000. Besides, these prominent sub-segments, product groups within these sub-
segments have gained importance in the recent years.

The two wheeler industry has been growing at a CAGR of 9.45% from 2004 to 2009,
with the production being about 63 lakh vehicles in 2004 to an estimated 100 lakhs in
2009. Motorcycles have always been the major contributor to the two wheeler industry in
India. From a share of about 77.39% in 2004, it has
steadily grown to about 80.38%.

The share of scooters has gone down from 16.63% in 2004 to 13.88% in 2009. The
following table gives the percentage share of motorcycles, scooters and mopeds in the
two wheeler industry in India.

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 Scooters Motorcycles Mopeds Base
2004 15.76% 78.76% 5.48% 63,44,365
2005 13.31% 81.64% 5.05% 72,89,442
2006 11.52% 83.62% 4.59% 83,89,265
2007 13.18% 81.35% 5.20% 81,54,068
2008 13.70% 80.79% 5.24% 83,57,140
2009e 13.76% 80.64% 5.55% 99,66,806
TABLE 3: PERCENTAGE SHARE OF TWO WHEELERS IN INDIA

FIGURE 3: TWO WHEELER PRODUCTION TRENDS

INDIAN AUTO COMPONENTS INDUSTRY

As per an Automotive Component Manufacturers Association of India (ACMA) report,

the turnover of the auto component industry was estimated at over USD 18 billion in
2007-08, an increase of 27.2 per cent since 2002. It is likely to touch USD 40 billion,
increasing India’s share in the global auto component market from 1 per cent to 3 per

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cent by 2015-16. The Indian tyre industry, which is an integral part of the Indian
Automotive components industry, has registered a turnover of about USD 6 billion.

Value in USD
2003-04 2004-05 2005-06 2006-07 2007-08
million
Turnover 6,730 8,700 12,000 15,000 18,000
Exports 3,615 2,873 2,469 1,692 1,274
Imports 4,938 3,328 2,482 1,902 1,428
Investment 3,100 3,750 4,400 5,400 7,200
TABLE 4: AUTO COMPONENT INDUSTRY TRENDS

The Indian auto component Industry is highly fragmented. Around 500 organized players
account for the 77% of the value added in the sector. Unorganized players are mainly
replacement market players or tier 3 or 4 component manufacturers. Automotive
Manufacturers Association of India (ACMA) represents the auto component industry in
India and has around 500 registered members.

The Auto components industry is predominantly divided into the following segments:

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 CURRENT SCENARIO:

Motorcycle sales grew by an annual average of 27% over f 2005-2009, and constituted
nearly 66% of total two wheeler sales in F2009, up from just 24% in F2005. Average
monthly motorcycle sales have increased five-fold since F12005 to almost 250,000 units
in F2009. The current share of the leading three companies is shown in the pie chart. And
this clearly shows that hero Honda is the current market leader with a 49%...

The automobiles (with examples) are classified as follows:

2-Wheelers
These are of 5 types:

1. Motorcycles: Bajaj Pulsar, Honda Unicorn, Honda Shine

2. Scooters: Honda Activa, Kinetic Zoom, Bajaj Chetak 4S
3. Scooterettes: Bajaj Spirit, TVS Scooty Pep, Bajaj Sunny Zip
4. Step thru’s: Bajaj M80, Hero Puch, Kinetic K4 100
5. Mopeds: Kinetic Luna Super, Kinetic Luna TFR
The two-wheeler manufacturers in India are Honda Motorcycle & Scooter India (Pvt.)
Ltd., TVS, Hero Honda, Yamaha, Bajaj, etc. The heavy motors including buses, trucks,

19
auto rickshaws and multi-utility vehicles are manufactured by Tata-Telco, Eicher Motors,
Bajaj, Mahindra and Mahindra, etc.

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INDUSTRY
ANALYSIS

MOTORCYCLES

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Motorcycle motorized two-wheeled vehicle for transporting one or two riders.
Motorcycles are capable of the same speeds as automobiles and can be licensed to
operate a motorcycle on public roads highways. Motorcycles are generally bigger,
heavier, and faster than mopeds.

Motorcycles provide a convenient and relatively inexpensive alternative to automobiles.

They are more maneuverable than automobiles and they deliver higher fuel economy.
Depending on the size of the engine, a motorcycle may get from 19 to 36 kilometers per
liter (45 to 85 miles per gallon), two to four times that of most mid-sized cars. Also, a
motorcycle accelerates more quickly than an automobile does. However, riding a
motorcycle requires special skill. Braking and handling demand extra caution and can be
difficult on wet or slick surfaces.

Riders use different kinds of motorcycles for different purposes. Motorcycles designed
for use on paved streets and roads are called street motorcycles. Street motorcycles are a
popular means of transportation during summer months and in warm climates. People
often use them for recreational riding as well as for commuting. Off-road motorcycles
perform well on dirt or gravel roads or trails. Racing motorcycles are engineered for
handling performance and increased speed.

PARTS OF A MOTORCYCLE

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 KINDS OF MOTORCYCLES

Manufacturers produce many kinds of motorcycles, each specially designed for different
riding conditions. Motorcycles intended for use on paved roads and highways are called
street motorcycles. Off-road motorcycles are designed for riding on dirt roads and trails.
Racing motorcycles are generally lighter and more powerful than other kinds of
motorcycles.

A Street Motorcycles
Street motorcycles are intended primarily for everyday riding. They have all the required
safety equipment for use on public highways, such as lights, mirrors, a horn, and a
muffler. Their tires have a tread pattern that provides good traction on both dry and wet
surfaces.
There are two chief kinds of street motorcycles: sport touring motorcycles and cruising
motorcycles. Sport touring motorcycles typically have wind guards, or fairings, around
the headlight and engine to enhance styling and reduce drag; short, straight handlebars;
and a seat shape and position that causes the rider to lean forward over the gas tank. In

23
contrast, cruisers have no fairings around the headlights or engine and have deep
handlebars and a seating position that allows the rider to sit upright. Most cruisers also
have a V-configuration engine. During the 1950s, 1960s, and 1970s, customized cruisers
called choppers were popular. Choppers have lengthened front forks and high handlebars.

Police officers typically ride custom-built cruisers with large 1200 cc engines. Police
motorcycles are usually equipped with two-way radios, flashing lights, and police
emblems so that motorists can easily identify them as official police vehicles. Many also
have a windscreen or front fairing and extra cargo compartments for carrying emergency
gear.

B Off-Road Motorcycles

In comparison to street motorcycles, off-road motorcycles have narrower, lighter frames,

increased ground clearance, and sophisticated suspension systems. Most are powered by
single cylinder, two-stroke or four-stroke engines with displacements ranging from 250
to 500 cc. They often have a kick-starter rather than an electric starter to reduce weight.
Large diameter tires with a knobby tread pattern provide increased traction, and a large
gear on the rear wheel multiplies engine torque for climbing hills. Straight, wide
handlebars provide extra leverage. If used strictly for off-road riding, the cycle may not
have lights, mirrors, a horn, or a muffler. Most off-road motorcycles have flexible plastic
fenders and fuel tanks to minimize damage in the event of a fall. Riders typically wear
extra protective gear, including chest, knee, elbow, and shin protectors.

C Racing Motorcycles

Racing motorcycles are specially designed for closed circuit tracks or road racing. Most
motorcycles designed for road courses have fiberglass or carbon fiber fairings around the

24
front and engine to improve aerodynamics. They have stiff suspension systems to
improve handling agility on curves, and their engines are modified to produce more
power. In Europe, two-person racing cycles with sidecars are popular.

Motorcycles used for drag racing are often lengthened to improve high-speed handling
stability. Bars extend behind the rear wheel to prevent the front wheel from lifting off the
ground during acceleration, which would cause the cycle to flip over. A wide rear tire
with no tread maximizes tire contact with the track surface. In some types of motorcycle
racing, alcohol or nitromethane fuel may be used instead of gasoline to boost power.
Many racing motorcycles can reach speeds as high as 390 km/h (242 mph) from a
standing start in a quarter mile

SCOOTERS IN INDIA

First the bad news the age old metal bodied geared scooters may be heading towards a
timely death in the country in due course of time, then the silver lining, the age old set of
two wheels could re-invent itself in the form of moto-scooters. These mean machines are
taller, stronger and faster than their predecessors and can deliver a punch which would be
as good as the motorcycles if not better. Kinetic Blaze by Kinetic motors is as attempt by
the company to retain a market share in the scooter segment which is become a
niche market with every passing day. These new set of wheels with their peppy
performance is meant to draw the attention of the metro sexual two wheeler buyers.
Kinetic Blaze was one of the seven designs the company had sourced from the legendary
Italian two wheeler manufacturers ItalJet Moto. Kinetic Blaze is one of the biggest
scooters to have traveled on the Indian roads. In terms of power it is only two Bhp less
than the Bajaj Pulsar. Kinetic is pinning its hopes on this model to revive the sagging
scooter market in this country.

Honda Scooters

Similarly HondaEterno from the stables of Hondascooters and motorcycles India has

25
been instrumental in reviving the geared scooter market in India. Eterno has a four stroke
engine to counter the problem of fuel efficiency which the scooters face. It also has the
highest ground clearance in its class for a smooth riding.

Bajaj Auto

This has prompted the traditional manufacturers of scooters in this country Bajaj Auto to
sit up and take notice. They have come up with Bajaj Wave DTSI which is stylish and
are cheap scooters than any other expensive set of two wheels in the market.

Scooters have come a long way since it was first launched in India way back in 1975, for
thirty odd years these metal bodied geared machines have ruled the roost on the Indian
roads. The Indian Government bought the Innocenti Company of Italy the original
owners of Lambretta brand of scooters to set up scooters India limited. The first scooter
to have rolled out of the company was called the Vijai Super. In the same year it
launched the Lambretta brand of scooters for the overseas market.

During almost the same time another phenomenon was hitting the Indian two wheeler
market, in the year 1959 Bajaj Auto had already acquired license from the Government
of India to manufacture two and three wheelers in the country. It took Bajaj a little over a
decade to launch its' most successful model Chetak named after the horse of a legendary
Rajput ruler. Not to be left behind the Lohia Machinery Limited or LML as it is
popularly known had changed the face of scooters in India with its collaboration with
Piaggio of Italy.

However the dream run of these metal bodied scooters have been stalled by theirs more
illustrious cousins the motorcycles. Bajaj Auto tried to do some damage control and
wean away customers from the motorcycle segment by launching the four stroke legend
which offered a bike like mileage of about 60-70 kmpl. But with Bajaj officially stopping
productions this year the only way for scooters to survive would be to go towards the
Kinetic Blaze and HondaDio way.

26
Scooters

The popular models of scooters from Honda, Kinetic, Bajaj , LML, Hero Puch etc. These
are suitable for city riding and are economical.

Hero Honda Pleasure

Enjoy the pleasure of a joy ride. The new roll-out from Hero Honda targets the
youngsters. The range of flashy colours(eight in all) are selected to target the brigade of
youngsters with unique trendy features.

Technical Specifications
Engine Air-cooled, 4-stroke single cylinder OHC
Bore x Stroke 50.0 x 52.0 mm
Displacement 102 cc
Compression Ratio 9.0 : 1
Maximum Power 5.22 kW (7bhp) @ 7000 RPM
Maximum Torque 7.85 Nm @ 5000 RPM
Maximum Speed 77 kmph
Clutch Dry, Automatic Centrifugal Clutch
Ignition CDI
Starting Self-start
Bottom Link with Spring-loaded Hydraulic
Front Suspension
Damper
Rear Suspension 150 kg
Ignition Swing Arm with Spring-loaded Hydraulic Damper
Length x Width x Height 1750 mm x 705 mm x 1100 mm
Wheel Base 1240 mm
Ground Clearance 125 mm

27
 Kerb Weight 104 kg
Tyre Size* Front 3.50 x 10 - 4PR / 51 J
Rear 3.50 x 10 - 4PR / 51 J
Internal Expanding Shoe Type (130 mm)
Front Brake
Non-asbestos Type
Internal Expanding Shoe Type (130 mm)
Rear Brake
Non-asbestos Type
Fuel Tank Capacity 5 Ltrs (Min)
Head Lamp 35W / 35W Halogen Bulb (Multi-reflector Type)
Battery 12 V-5 Ah

Kinetic Nova

Get yourself charged up with the kinetics of Kinetic Nova from one of our convenient
outlets. The increase in the bull horse power from 7.5 bhp to a peak of 8.65 bhp is
achieved in a large rev band of 5000 rpm to 7000 rpm.

Technical Specification
Dimensions
Overall Length : 1819 mm
Overall Width : 740 mm
Overall Height : 1076 mm
Wheel Base : 1250 mm s
Ground Clearance
Dry Weight : 103 kg

28
 Engine : 4 Stroke Air Cooled
Cubic Capacity : 134.9cc
Max. Power : 8.5 bhp @ 6500 RPM
Max. Torque : 10 Nm @ 4500 RPM
Starting : Electric / Kick
Chassis & Susp
Chassis Type : Tubular Underbone
Tyre Front : 3.50" x 10" - 4 PR
Tyre Rear : 3.50" x 10" - 4 PR
Wheel Rims : New
Susp. Front : Leading Link Hydraulic Damper
Susp. Rear : Unit Swing Arm / Hydraulic Damper
Transmission : Variomatic
Brakes
Front Brakes : 130 mm dia
Rear Brakes : 110 mm dia
Electricals
MAGNETO :
Battery : 12 V / 9.0 AH
Head Light : 12 V 35 / 35 W ( MFR )
Tail Light : 5W
Brake Light : 21 W
Turn Signal Light : 10 W
Horns : Single

MOPEDS AND SCOOTERETTES

If the metal bodied scooters have fallen out of the consumers' choice, scooterettes have
been climbing up the popularity charts lately. These set of two wheelers are a hit among
people over the age group of 45, women and the young adults. These two wheelers are
lighter which makes them easier to handle, they come with a digital ignition system to do

29
away with the inconvenience of the kick start. They also have smaller wheels for better
balance and maneuverability. They cater to the load carrying and personal transport
requirement of most urban two wheeler user.scooterettes and moped segment amount for
a quarter of the two wheeler market share in India and about 8% of all the exports which
takes place from the country. One company which has remained in the forefront of
scooterettes and mopeds manufacturing in the country is TV Sundram Iyengar and Sons
Limited (TVS), they were the first to launch an indigenous scooterettes in the Sub 100 cc
category in the year 1984. Incidentally the company had also launched a two-seater 50 cc
moped in the year 1980.

Mopeds

Variants of the moped include scooters, motor-assisted bicycles, and minibikes. Scooters
tend to be slightly larger and heavier than mopeds. They use larger engines than mopeds
and have a flat floorboard and step-through frame for easier mounting and riding. Motor-
assisted bicycles are ordinary bicycles with a small add-on electric or gasoline engine
that is mounted over wheels. The motor is used only when going up hills or when the
rider is tired. Minibikes are small, two-wheeled recreational vehicles designed primarily
for off-road use by 10- to 15-year-old riders (although adults sometimes ride these
vehicles also). Minibikes may not be licensed for operation on public highways. They are
often assembled from kits that include an engine, a simple rectangular frame, front forks,
handlebars, and a seat.

MARKETING MIX

1. Products
2. price

30
 3. promotion
4. place

PRODUCTS

1. Motorcycles
2. Scooters
3. Scooterettes
4. Step thru’s
5. Mopeds

PRICE

1. Easy and suitable financing scheme.

2. Competitive pricing
3. According to production

PROMOTION

It is a process by which awareness is created among consumers. Several method

1. Road Show
2. Advertisement In TV
3. Advertisement In News Papers
4. Hording
5. Through Fee Demos
6. Gifts, discounts and draw system.

31
 7. Door step service.
8. Exchange offers and exchange bonus.
9. Company events.
10. Demonstration and test ride.
11. Easy and suitable financing scheme.
12. Attractive interest on advance payment

PLACE

1. Manufacture Company
2. Retailers
3. Customer

DEMAND DRIVERS

The demand for two-wheelers has been influenced by a number of factors over the past
few years. The key demand drivers for the growth of the two-wheeler industry are as
follows:

• Inadequate public transportation system, especially in the semi-urban and rural

areas

• Increased availability of cheap consumer financing in the past 3-4 years

Increasing availability of fuel-efficient and low-maintenance models

• Increasing urbanisation, which creates a need for personal transportation

• Changes in the demographic profile

• Difference between two-wheeler and passenger car prices, which makes two-
wheelers the entrylevel vehicle

32
 • Steady increase in per capita income over the past few years

• Increasing number of models with different features to satisfy diverse consumer

needs.

SWOT ANALYSIS
Strength

1) Skilled low cost manpower.

2) Decentralised Management.
3) Total in-house manufacturing and testing with the latest precision instruments.
4) A Technocrat MD, in touch with new technology and fast adaptation of this to the
industry.
5) Supplier to one of the largest Two-Wheeler manufacturers in the world has resulted in
exposure to good manufacturing & functional quality systems.
6) Machines of International standard.
7) Capital Reserves.
8) Strong Lineage with last 29 years experience in the field of Ignition Coils.

Weaknesses

1) Low thrust marketing.

2) Over dependence on 2 key players.
3) Low in exports.

Opportunities

1) Price war in the market is putting pressure on O.E.Ms.in cutting costs.

Our QCD advantage namely>>
-High Quality Machinery,
-Lean Organisation Structure

33
 -Quality Systems in place,
>> mean an ability to contribute to the success of our customers
2) Technically driven management adds value to conventional processes and products.
3) Globally tuned organisation open for Foreign Collaborations.

Threats

1) Foreign players.
2) Slow growth in domestic auto sales.
3) Government policies.

COMPETITOR ANALYSIS

INDIAN TWO WHEELER INDUSTRY SEGMENTS

34
 TWO-WHEELER SALES AT A GLANCE

Details Apr 2009-May Apr 2008-May Var %

2010 2009
Scooter/Scooterettes 209,031 182,293 14.67%
Motorcycles 1,282,316 1,172,775 9.34%

35
Mopeds 83,658 69,570 20.25%
Electric Two 1,332 2,390 -44.27%
wheelers
Total 1,576,337 1,427,028 10.46%

MARKET SEGMENT
Premium Segment

If we analyze the motorcycle sub-segments then it would be visible that Bajaj Auto has a
significant presence in the premium segment with a market share of ~55% followed by
Hero Honda (~22%), TVS Motors (~13%) and HMSI (10%).

Executive Segment

Hero Honda dominates this segment with a market share of ~70% followed by Bajaj
Auto (20%), HMSI (~6%) and TVS Motors (1%). This segment retrieves higher
revenues from the rural areas, which are less dependence on finance; therefore
comparatively it is among the best performing segments YTD.

Economy Segment

This segment is a strong foothold for Bajaj Auto which has a market share of ~45%
followed by Hero Honda (~34%) and TVS Motors (~24%). This is the most competitive
segment as all the 3players relatively have a higher presence in the same. But this
segment continues to be the worst hit due to the credit unavailability and global
slowdown. The industry has shown a CAGR of ~15% from FY04-FY07 on account of
finance availability from PSU Banks and private banks like ICICI Bank. But from FY08
– FY09 YTD the industry has shown shrinkage as most of the banks reduced their
exposure in the auto finance domain given the unfavorable macro economic situation.

36
FLEET COMPOSITION

37
MARKET SHARE

EXPORTS

38
 Market structure
Two wh
indus
AUT
GROWTH FACTORS

• The taxes, excise, and other duties have been lowered by the Government

• The latest two wheelers are fitted with economic engines

• The options of financing has become easier and user friendly

•
COMMERCIAL
Rapid Product introduction and Shorter Product life Cycle.
PASSENGER
VEHICLE VEHICLE

39
 TECHNOLOGY

Hitherto, technology transfer to the Indian two-wheeler industry took place mainly
through: licensing and technical collaboration (as in the case of Bajaj Auto and LML);
and joint ventures (HHML).

A third form - that is, the 100% owned subsidiary route - found favour in the early 2000s.
A case in point is HMSI, a 100% subsidiary of Honda, Japan. Table 2 details the
alliances of some major two-wheeler manufacturers in India.

Besides the below mentioned technology alliances, Suzuki Motor Corporation has also
followed the strategy of joint ventures (SMC reportedly acquired equity stake in Integra
Overseas Limited for manufacturing and marketing Suzuki motorcycles in India).

Table 2
Technological tie-ups of Select Players
Nature of Alliance Company Product
Bajaj Auto Technological tie-up Kawasaki Heavy Industries Ltd, Motorcycles
Japan
Technological tie-up Tokya R&D Co Ltd, Japan Two-wheelers
Technological tie-up Kubota Corp, Japan Diesel Engines
HHML Joint Venture Honda Motor Co, Japan Motorcycles
KEL Technological tie-up Hyosung Motors & Machinery Motorcycles
Inc
KEL Tie up for Italjet, Italy Scooters
manufacturing
and distribution
LML Technological tie-up Daelim Motor Co Ltd Motorcycles
Hero Technological tie-up Aprilia of Italy Scooters
Motors
Compiled by INGRES

40
With the two-wheeler market, especially the motorcycle market, becoming extremely
competitive and the life cycle of products getting shorter, the ability to offer new models
to meet fast changing customer preferences has become imperative. In this context, the
ability to deliver newer products calls for sound technological backing and this has
become one of the critical differentiating factor among companies in the domestic
market. Thus, the players have increased their focus on research and development with
some having indigenously developed new models as well as improved technologies to
cater to the domestic market. Further, with exports being one of the thrust areas for some
Indian two-wheeler companies, the Indian original equipment manufacturers (OEMs)
have realised the need to upgrade their technical capabilities. These relate to three main
areas: fuel economy, environmental compliance, and performance. In India, because of
the cost-sensitive nature of the market, fuel efficiency had been an interest area for
manufacturers.

It is not only that the OEMs are increasing their focus on in-house R&D, they also
provide support to the vendors to upgrade the technology and also assist them striking
technological alliances.

TRENDS IN THE TWO-WHEELER INDUSTRY

• Companies raising capacity to meet the growing demand

41
All the major two-wheeler manufacturers, viz. Bajaj Auto, HHML, TYS, HMSI and
others, have increased their manufacturing capacities in the recent past. The total
capacity of these players stood at 7.8 million units per annum (FY2003) as against total
market sales of 3.8 million units in FY2002. Most of the players have either expanded
capacity, or converted their existing capacities for scooters and mopeds into those for
manufacturing motorcycles. The move has been prompted by the rapid growth reported
by the motorcycles segment since FY1995.

HHML increased the capacity of its plants from 1.8 million units in FY2003 to 2.25
million in FY2004 and has been able to achieve 92% capacity utilisation. In light of the
increase in demand for motorcycles, the company plans to set up a new plant. Since its
entry in the Indian market during FY2002, HMSI has aggressively expanded its capacity.

• Niche markets also witnessing intense competition

A significant trend witnessed over the past five years is the inclination of consumers
towards products with superior features and styling. Better awareness about international
models has raised expectations of consumers on some key attributes, especially quality,
styling, and performance. High competitive intensity has prompted players to launch
vehicles with improved attributes at a price less than the competitive models.

In an effort to satisfy the distinct needs of consumers, producers are identifying emerging
consumer preferences and developing new models. For instance, in the motorcycles
segment, motorcycles with engine capacity over 150cc, is a segment that has witnessed
significant new product launches and hence, become more competitive. The indigenously
launched Pulsar 150 had met with success on its launch and thereafter, a host of models
have been launched in this segment by various players. While Bajaj Auto launched the
Pulsars (150 and 180 cc) with digital twin spark technology (DTSi) that offers a powerful
engine and fuel efficiency of 125 cc models, model launches by other players include
LML's Graptor/Beamer, HMSI's Unicorn besides the HHML's CBZ (improved version
launched in 2003-04) and TVS' Fiero F2. Moreover, in the recent past, the motorcycle

42
segment has witnessed launch of vehicles with higher engine capacity (higher than
150cc) and power (higher than 15bhp). These include models such as Bajaj Auto
Eliminator and Royal Enfield's Thunderbird followed by HHML's Karisma. Besides
these, KEL has launched premium segment motorcycles GF 170 and GF Laser besides
launching products from the portfolio of its technology partner (Hyosung's Aquila and
Comet 250). The products in this segment cater for style conscious consumers. Quite a
few players are developing models combining features such as higher engine capacity"
optimum mix of power and performance, and superior styling. However, the extent of
shift to these products would depend on the positioning of such products in terms of
price.

In the scooters segment, the market for plastic-bodied variomatic scooters continues to
witness growth in the scenario of overall decline in scooter volumes. Higher volumes and
growth are especially true for certain scooter models, such as Honda Activa, that brought
in new technology (besides variomatic transmission) to further differentiate themselves.
Thus, the need to differentiate and create a niche has led to companies strengthening their
research and development (R&D) capabilities and reducing the development time for
new models.

• Increasing focus on exports

For the first nine months of FY2005, two-wheeler exports increased by 37% over the
corresponding previous, led mainly by motorcycles even as exports of other two-
wheelers were healthy. While motorcycle exports increased by 40%, scooter and moped
exports increased by 29% and 27% respectively.

43
Motorcycle exports by Bajaj Auto, HHML and TVS have reported a tobust growth in
FY2005 and are expected to increase further in the medium term.

Table 3
Two-Wheeler Exports from India (in numbers)
FY2000 FY2001 FY2002 FY2003 FY2004 CAGR 9MFY2005
(FY2000-
04)
Scooters 20,188 25,625 28332 30116 53148 27.4 44832
Motorcycles 35,295 41,339 56,880 126122 187287 51.4 188807
Mopeds 27,754 44,174 18,971 23330 24234 -3.3 22739
Total 83,237 111,138 104183 179568 264669 33.5 256378
Source: SIAM

Although the Indian two-wheeler manufacturers have forayed on their own in their target
export markets, there have been instances of tie-ups with the technology partners. Bajaj
Auto's tie-up with Kawasaki to jointly market Bajaj products in Philippines is a case in
point. Under the tie-up, M/s Kawasaki Motors Philippines Corporation has been
appointed as exclusive distributors to market select Bajaj two-wheelers that include Byk,
Caliber 115 and Wind 125. These vehicles are being sent to Philippines in the completely
built unit (CBU) form. Other strategy of expanding international presence considered by
few players is that of setting up assembly lines in select South East Asian countries either
on their own or in partnership with local players. Besides, plans of select overseas
technology partners to source from their Indian partners and plans of global majors to
develop their Indian manufacturing unit as a sourcing hub may also lead to increase in
two-wheeler exports from India.

Companywise two-wheeler exports since FY2004 are presented in the following Table 4.

Table 4
Company-wise two-wheeler exports (FY2000-9MFY2005)

44
 FY2004 FY2005 FY2006 FY2007 FY2008 CAGR 9MFY2009
(FY2004-
08)
Bajaj
14924 16112 28527 53366 90210 56.8 87225
Auto
HHML 10061 10324 13023 21165 39254 40.5 43441
HMSI 0 0 1293 10916 31414 n.a 27734
TVS 7265 6621 7765 9636 28093 40.2 36666
Yamaha 15197 20446 20321 45546 32906 21.3 27539
Others 35790 57635 32752 39053 42792 4.6 33773
Total 83237 111138 103681 179682 264669 33.5 256378
Source: SIAM

Vehicle Emission Norms

Emission norms for all categories of petrol and diesel vehicles at the manufacturing stage
were introduced for the first time in India in 1990 and were made stricter in 1996. When
the 1996 norms were introduced, it resulted in certain models being withdrawn from the
market. With Stage I India 2000 emission norms coming into place, the cost of
developing suitable technology has remained high.

The emission norms that are currently in force for two-wheelers and three-wheelers are
more stringent than the Euro II norms. The roadmap suggested for emission norms for
two/three-wheelers by the Expert Committee on Auto Fuel Policy is as follows:

For two-/three-wheelers the emission norms are recommended to be the same in the
entire country:

For new vehicles

Bharat Stage II norms throughout the country from April 1, 2005

Bharat Stage III norms to be applicable preferably from April 1, 2008 but not later than April

45
1, 2010

For reducing pollution from in-use vehicles

▪ New pollution under control (PUC) checking system for all categories of vehicles to be
put in place by April 1, 2005

▪ Inspection & maintenance (I&M) system for all categories of vehicles to be put place by
April 1, 2010

▪ Performance checking system of catalytic converters and conversion kits installed in

vehicles to be put in place by April 1, 2007.

Table 5 presents the emission norms for two-wheelers that were in place in the past, the
India 2000 emission norms, and the norms that have been implemented for April 2005
(Stage II) and proposed for 2008 (Stage III).

Table 5
Exhaust Emission Norms
Old
Vehicle Pollutants 1996 2000 2005* 2008/10**
Norms
Tow- CO 12-30 4.5 2.0 1.5 1
wheelers
HC+Nox 8-12 3.6 2.0 1.5 1
(gm/Km)
Three- CO 12-30 6.8 4.0 2.25 1.25
wheelers
HC+Nox 8-12 5.4 1.5 2 1.25
(petrol)
Three- CO 1 1.1
wheelers HC+Nox 0.85 1

46
 PM 0.10 0.05
(Diesel)
CO: Carbon Monoxide; HC: Hydrocarbon; Nox: Nitrogen Oxide,
PM: Particulate Matter, * Maximum Sulphur parts per million (ppm)
permissible of 150 and ** Maximum Sulphur ppm permissible of 50
Compiled by INGRES

To be able to meet the exhaust norms, the Auto Fuel Policy has suggested following
technologies:

Table 6
Technologies for meeting the emission norms for Spark Ignited Vehicles
2/3 - wheelers
Level of Emission
2-Stroke Technology 4-Stroke Technology
Norms
Euro I/India 2000 Intake, exhaust, combustion 4-Stroke engine
optimisation Catalytic technology
converter
Euro II/Bharat Stage II Secondary air injection Hot tube Secondary
Caatalytic air injection
Converter

47
 Euro III/Bharat Stage Fuel injection Catalytic Fuel injection
III converter Carburetor + catalytic
converter
Euro IV/Bharat Stage To be developed Learn burn Fuel injection
IV + catalytic converter
Source: National Auto Fuel Policy

The adoption of new technologies for compliance with stricter emission norms may
affect the prices of vehicles. Some two-wheeler manufacturers are testing electronic fuel
injection systems for motorcycles. To begin with, electronic systems are likely to be
introduced in premium segment motorcycles.

FISCAL POLICY

The Union Budget for 2001-02 had lowered the excise duty on two-wheelers (with
engine capacity in excess of 75 cc) from 24% to 16%. The manufacturers responded to
this by passing on a relatively large part of the excise cut to customers. The Union
Budget thereafter have left the excise duty on two-wheelers unchanged. But the Union
Budget 2004-05 provides for a weighted deduction of 150% for investments in R&D.
This may facilitate increasing R&D allocations and allow for improvement in the
technical as well as product development skills of the Indian companies.

INDIAN AUTO POLICY 2002

The Government of India approved a comprehensive automotive policy in March 2002,

the main proposals of which are as under:

Foreign direct investment : Automatic approval is proposed to be granted to foreign

equity investment up to 100% for manufacture of automobiles and components.

48
Import tariff : Import tariffs are proposed to be fixed at a level such that they facilitate
the development of manufacturing capabilities as opposed to mere assembly.

Incentives for R&D : The weighted average tax deduction under the Income Tax Act,
1961 for automotive companies is proposed to be increased from current level of 125%
(The weighted average deduction for R&D was increased to 150% in the Union Budget
2004-05). Further, the policy proposes to include vehicle manufacturers for a rebate on
the applicable excise duty for every 1% of the gross turnover of the company expended
during the year on R&D.

Environmental aspects : Adequate fiscal incentives are proposed to promote the use of
low-emission auto fuel technology (in line with the Auto Fuel Policy).

COMPANIES
AT A
49
 GLANCE

PLAYER ANALYSIS

Hero Honda Largest two-wheeler manufacturer in the world

Bajaj Auto 2nd largest two-wheeler manufacturer in the world and the
largest 3-wheeter manufacturer
TVS Motors 3rd largest manufacturer with facilities in India & Indonesia
Honda Motors Recently entered the Indian market through its direct
subsidiary (in addition to its JV with Hero)
Suzuki Recently entered the Indian market through its direct
subsidiary (earlier JV with TVS was withdrawn)

50
 TVS Motor Company
Profile
Lines of Business Industry Automotive
Products Motorcycles,Mopeds,Ungeared scooters,
Automotive components
History Type Private Conglomerate
Founded by In 1982 as Indian Motorcycle Pvt. Ltd.
HeadQuarter Chennai, TN
Key Financials Turnover 4008.91 cr.
EBITDA 202.49 cr.
EBITDA Margin 5.05%
Return on Equity 17.25%
Total Asset turnover 1.56
Current Ratio
Market Data Stock Price : BSE 58.90 [Code: 532343]
: NSE 58.85(moneycontrol as on 17/12)[Code:
TVSMOTOR]
52 Week High
52 Week Low
Market Face Value 1
Performance Market Cap
P/E
Industry P/E (Moneycontrol )30.32

51
 EPS
P/BV

Price Analysis

Source: Thomson Reuters

Share Holding Pattern

52
Capital Structure

History

53
The third largest two-wheeler company is the flagship company of the TVS Group
(4billion USD) with an annual turnover of over a billion. It was the fiirst two-wheeler
manufacturer in the world to be honored with the Japanese Quality award – The Deming
Prize for Total Quality Management.
Set up in the 1980s with its origin in Sundaram Clayton Ltd., launched an easy-to-use
50cc moped followed by the launch of 7 new bikes on a single day. After the takeover
by Suzuki Motorcycles in 1987 its name changed to TVS Suzuki Ltd. This ended in 2001
when TVS Motor Company came to existence.

Financial Synopsis

For the fiscal year ended 31 March 2009, TVS Motor Company Limited's revenues
increased 13% to RS38.11B. Net loss totaled RS632M, up from RS282.5M. Revenues
reflect an increase in income from operations. Higher loss reflects an increase in labour
charges, increased depreciation charges, an increase in interest & finance charges, higher
repair & maintenance expenses, increased audit fees, higher power & fuel expenses and
increased other expenses.
• Revenues

• EBITDA Margins

• PAT

Business Synopsis

The company’s prime activity involves manufacturing and selling motorcycles, mopeds,
ungeared scooters and three-wheelers.

The products of the Group include TVS Apache, TVS Scooty, TVS Fiero, TVS Super
XL, TVS Victor, TVS Centra, TVS Star etc. It's plants are located at Hosur, Tamil Nadu ,
Mysore, Karnataka and Solan, Himachal Pradesh.

54
The Chairman and Managing Director of the Company is Mr. Venu Srinivasan who is the
grandson of TV Sundaram Iyengar.

Segmental Performance

Source: Annual Report

The increased growth in Ungeared Scooters is due to its independence from influence of
availability of retail finances. Although sales grew in two wheeler segment at 5% growth
its incomparable to that of Hero Honda at 30%.
Three wheeler, TVS King was introduced in six states and has achieved a 5% MS.
Key Developments

• Focus on Auto parts

TVS Motor Company’s BOD have approved an investment of INR 185 million in
the subsidiary Sundaram Auto Components.

Source: Business Std, Mar 2009

The auto component industry in India has around 10,000 firms in the unorganized
sector as compared to 500 on the organized sector. It is vital for the survival of
the parent automotive industry and TVS decision to invest here shows the long
term focus to strengthen the brand.

• Expected Increased volume in sales: New Launches

55
 The company has always shown its excellence in performance from its wide
range of products updated frequently with their focussed R&D. TVS Motors has
recently launched a number of novel products. TVS Motor Company in
November unveiled two novel products - India's first auto-clutch motorcycle and
an automatic scooter. In addition it even re-launched its Twin Spark Plug
motorcycle.

• Excercice Duty Cut – December 2008

TVS Motors increase in sales over the last few months is primarily due to the
excercise duty cuts in addition to its new launches.

• Financing Concern: Auto loans are critical for any automotive business and the
high interest rates for auto loans even now hinders the potential growth. But with
the falling interest rates and the expected pick up in the economy will aid TVS in
taking complete advantage from the new launches.

TVS Motor Services Pvt. Ltd, is expected to support its sister concern TVS
Motors by financing two-wheeler customers exclusively to boost the financial
support from 15% to 50% a year ago, post the RBI approval commence
operations by the end of 2009. This involves and investment of INR 60 Cr.

• New Export Markets: South America and Philippines have been identified as
new export markets in addition to existing export to five countries.

• Focus of 3-wheeler industry: Mr Srinivasan said to ET in Nov 2009 that it is

looking at doubling its auto sales to 40,000. It is targeting 50% Market share in 3

56
 years with 15% of the company s sales coming from three-wheelers. This is to
counter the competition – Bajaj Auto. Primary focus is given to increase in
exports from Hosur factory by increasing production from 1200 units a month to
2000 units. Timed after the strict pollution control regulations of the government
and removal of several two-stroke auto rickshaws, TVS King range with its LPG
fuelled auto is looking forward to a great future.

TVS Valuation

TVS is the company with the stable D/E ratio is progressively increasing for the past 5
years. This is also evident in the decreasing Free cash flow to Firm which have taken a
hit in the year 2007 due to global slump in the 2 wheeler sales, the cash flows post that
have been stable and in the hindsight of the recent developments as listed above are
expected to show an increasing growth trade. The models used for the valuation are
FCFF, FCFE & EVA which are not very sensitive to the Capital structure.

Sales margin for TVS has also deacreased over the years and on an average margin is 4%
and on a CAGR basis the margin is around 5%. In the valuation of the company we have
assumed a conservative margin of 5%.

As per the director’s report as TVS is aggressively looking to boost sales in the 3 wheeler
segment and the economy is also showing signs of revival with a reported GDP growth
rate of 8.49% we have taken an liberal assumption of the ROC to be 15% while the
terminal growth rate has been kept at the historical average of 4%.

The three stage FCFF model assumes the sustainable growth rate of 8.98% as calculated
by taking the sales margin as 5% , the cash flows on discounting @ WaCC of 13.01%
give a enterprise value of the company to be 1665.38 cr. which translates to a price per
share of 70.11 based on the outstanding shares.

57
In the FCFE model the Debt to Capital Employed is assumed to be constant of 15%
which is the target ratio of the company as maintained in the initial years of observations.
We believe that the current Debt to Enterprise value of 29% is too high for the company
to sustain in the long run. The enterprise value on discounting with the historical average
cost of capital of 18% comes out to be 1511.09 cr.

In the EVA model the average Capital Employed in the company is calculated from the
reinvestment ratio as calculated from the projected FCFF and NOPAT values & Capital
Charge calculated using a constant WaCC of 13.01%. With the terminal growth
assumption of 4% the valuation of the company comes out to be 1733.60.

SWOT ANALYSIS

Strengths:

 Widespread distribution network.

 High performance products across all categories.

 High economies of scale.

 High economies of scope.

 Highly experienced management.

 Product design and development capabilities.

 Extensive R & D focus.

Weaknesses:

 Hasn't employed the excess cash for long.

 Not a global player in spite of huge volumes.

58
 Not a globally recognizable brand

Threats:

 The competition catches-up any new innovation in no time.

 Threat of cheap imported motorcycles from China.

 Margins getting squeezed from both the directions

 TATA Ace is a serious competition for the three-wheeler cargo segment.

Opportunities:

 Double-digit growth in two-wheeler market.

 Untapped market above 180 cc in motorcycles.

 More maturity and movement towards higher-end motorcycles.

 The growing gearless trendy scooters and scooterette market.

 Growing world demand for entry-level motorcycles especially in emerging markets.

HERO HONDA COMPANY

Profile
Lines of Business Industry Automotive
Products Motorcycles, Scooters

History Type Public Company

Founded by January 19, 1984 in Gurgaon, Haryana,
HeadQuarter Delhi,
India India

59
Key Financials Turnover 14106. 04 cr.
EBITDA 1964.65 cr.
EBITDA Margin 13.92%
Return on Equity 28.16%
Total Asset turnover 2.32
Current Ratio
Market Data Stock Price : BSE 58.90 [Code: 532343]
: NSE 58.85(moneycontrol as on 17/12)[Code:
TVSMOTOR]
52 Week High
52 Week Low
Market Face Value 1
Performance Market Cap
P/E
Industry P/E (Moneycontrol )30.32
EPS
P/BV

COMPANY PROFILE

Hero Cycles and Honda Motor Company of Japan linked their

joint venture in India in April 1984, few could have imagined that
the two would go on to create history and become the subject of a
case study at business schools, internationally.

60
But that's the Hero Honda saga. In a little over two decades, the world's largest
manufacturer of bicycles and the global leader in motorcycles have created not only the
world's single largest motorcycle company but also the most endearing and successful
joint venture for Honda Motor Company worldwide. The company has sold over 15
million motorcycles and has consistently grown at double digits since its inception and
today, every second motorcycle sold in the country is a Hero Honda.

In two decades, Hero Honda has built two world-class manufacturing facilities at
Dharuhera and Gurgaon in Haryana that now churn out over 3 million bikes per year.
In this period, Hero Honda has set up over 2400 customer touch points, comprising a
mix of dealers, service centres and stockists across rural and urban India. Today, Hero
Honda is an amalgam of winning networks and relationships with internal and external
stakeholders, including Investors, Dealers, Vendors and Employees. These relationships
have helped the company hold on to the mantle of World No.1 for years in succession.

Hero Honda has relied on 3 R's-- Reach, Research and Reliability as its basic building
blocks. Using feedback from the market, a fully-equipped R&D center has consistently
created best practices in designing, testing and harmonization, besides placing strong
emphasis on road safety and ride quality. This emphasis has helped Hero Honda build
products that are ahead of their time.

In the 1980s, for example, Hero Honda became the first company in India to prove that it
was possible to drive a vehicle without polluting the roads. The company introduced new
generation motorcycles that set industry benchmarks for fuel thrift and low emission. A
legendary 'Fill it - Shut it - Forget it' CAMPAIGN captured the imagination of
commuters across India, and Hero Honda sold millions of bikes purely on the
commitment of increased mileage.

Hero Honda was also one of India 's first automotive companies to get close to the
customer. As Brijmohan Lall Munjal, the Chairman, Hero Honda Motors succinctly puts

61
it, "We pioneered India's motorcycle industry, and it's our responsibility now to
take the industry to the next level. We'll do all it takes to reach there.''

KEY HIGHLIGHTS

• Hero Honda enjoys a significant brand premium. Its aggressive pricing strategy to
take on the competition has helped it in volume growth.
• Variant launches in each of Splendor and Passion has helped in stemming the loss in
market share in the face of the competition. Hero Honda now plans to launch two
new models in the 100cc segment in FY05 on a new platform.
• The company has started logging good volume growth after the launch of Passion
Plus and Splendor Plus as well as the CD-Dawn, which has also rejuvenated its
product range. Volumes should improve further, due to the base effect and improved
rural sentiment on the back of higher farm incomes.
• Aggressive cost controls and significant economies of scale are expected to aid Hero
Honda in retaining margins.
• Hero Honda will continue to be an attractive dividend yield play as the company
continues to generate significant free cash flows as its capital requirements are
limited

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PRODUCT GALLERY

AMBITION 135 CC

This bike has a contemporary style with a tubular single cradle, diamond type which adds
extra beauty to it. Over and above the bike has good acceleration and power with a
maximum power of 11 BHP / 11.15 PS @ 8000 rpm and a maximum speed of 100
KMPH. It has also been added with adequate fuel efficiency of 55 KMPL. The
Trapezoidal 35 / 35 W headlight gives the ‘woah’ look.

CBZ
• Transient Power Fuel Control (TPFC) System
• Hydraulic & Dynamic Vibration Dampers
• Gear Box: Equipped with five gears and a
156cc engine that generates 12.5 bhp powers.
Touch the top speed of 100kmph.
• Multi Lever Locking Seat
• Adjustable Rear-Shock Absorbers

SPLENDOR+
The Splendor+ has been upgraded in both its looks
and performance. New, clear, bright multi-reflector
head light with 12V 35/35W multi-reflector with
halogen lamp, multi-reflector tail light and stylish

63
graphics. This motorcycle meets the pollution control standards of this decade. That's the
Splendor+-the new face of trust.

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PASSION PLUS
9 New two-tone body colours PLUS Body colour rear view mirrors PLUS Aluminum die

cast rear grip PLUS Heat protector on the muffler PLUS New dials on the instrument
panel PLUS Headlight with halogen lamp PLUS Multi-reflector winkers. All this and
much more to make the biker and his bike stay married forever.

CD DAWN (Value Nayae Zamane Ki!)

CD Dawn, the true-value 4 stroke, 100cc motorcycle. A motorcycle that encompasses the
legendary Hero Honda values of fuel-efficiency,
economy and rock-solid dependability
• Tough Track Suspension
• Doubly Strong Tubular Frame
• Other features - like the legendary mileage, the
first-of-its-kind 2-year warranty in the category

KARIZMA

65
Superior technology plus advanced features plus captivating looks equals KARIZMA.
The future of the Indian motorcycle market should be seen through KARIZMA. It is
certain to change the way in which the Indian customer looks at a premium bike. With a
maximum power of 17 PS @ 7000 rpm, KARIZMA is targeted at customers seeking to
enjoy the 'thrill of power on wheels of style'. A product of combined R&D efforts of
Hero Honda-Honda, the motorcycle guarantees exceptional performance with
unmatchable style and utmost comfort.

SWOT ANALYSIS
Strength
• Ability to understand customer’s needs and wants
• Recognized and established brand name
• Effective advertising capability
• Ability to understand customer’s needs and wants
• Recognized and established brand name
• Effective advertising capability

Weakness

 Hero is vulnerable in the joint venture because Honda Motor Company has so
much power

Opportunity

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  Global expansion into the Caribbean and Central America.
 Expansion of target market (include women)

Threats

 Honda Motorcycles and Scooters, India can take away market share and cause
joint venture to go sour.
 Bajaj auto is a strong competitor.

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ADVERTISING STRATEGY

Hero Honda is currently the number one company in terms of sales and has been
dominant in the two-wheeler segment since the past decade. Since the inception of hero
Honda, the company has been using television as a major role for its publicity. Though
hero Honda was dominant in sales it lacked the skills of creating a spectacular ad till
now. Though it had a vast range of mobikes, its advertising strategy was not up to the
mark. For its publicity hero Honda has been using many famous celebrities like Saurav
Ganguly, the captain of Indian cricket team, Hritik Roshan and other famous
personalities as their brand ambassadors. Thus, hero Honda has been spending huge
amounts on its publicity.

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69
 BAJAJ AUTO LTD.

Bajaj Auto Ltd. (BAL) is one of the oldest and the largest manufacturer of automobiles in
India and has been the market leader in scooters. In 1990s, the near monopolistic market
structure, perhaps, lulled the company into being complacent and they gave way to the
competitors like Hero Honda and TVS.

Hero Honda and TVS Suzuki tied up with foreign majors to bring in the latest in terms of
aesthetics and technology, and Bajaj failed to gauge the changing tastes of consumers. In
1990s, there was a marked shift in customer preference from scooters to motorcycles.
Bajaj found itself at a loss here, as this was largely an unchartered territory.

The Company

Bajaj Auto is the flagship of the Bajaj Group of Companies. Bajaj is currently India's
largest two- and three-wheeler manufacturer and one of the biggest in the world. Bajaj
has long left behind its annual turnover of Rs. 72 million (1968), to currently register an
impressive figure of Rs. 81.06 billion.

CURRENT SITUATION

Current Performance.

 BAL is currently outperforming the industry growth rate in two-wheeler segment with
32% growth in year 2004-05 v/s industry growth of 19%.

 Market share in Motorcycles is improving with every passing year. It has also
increased from 28% in 2004-05 to 31% in 2005-06.

 Annual turnover for the year 2005-06 is Rs. 81.06 billion v/s Rs. 63.23 billion a year
before - an increase of 28% which is very healthy.

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 BAL has significant presence in all the three basic segments - Price Segment, Value
Segment and Performance Segment - and has been showing increased sales in all the
segments over years.

Besides this, BAL is a market leader in two-wheeler exports and it consists a great chunk
of there overall revenues. Currently, BAL is selling over 1 lac motorcycles annually in
Sri Lanka, further, they are commanding 50% market share in Central America.

Profile Change in Indian Two-Wheeler Industry

The demand shift from scooters to motorcycles in the 1990s was without parallel in any
comparable product category in India. This was mainly attributed to the change in
customers' preference towards fuel-efficient and aesthetically appealing models, which
scooter manufacturers failed to provide. The delayed launch of new, advanced scooter
models, fear of four-stroke scooters being prone to increased skidding risks and
vibrations, and the difficulty of maintenance also contributed to this shift.

Interestingly, the growth in the motorcycle segment was mainly driven by the demand
from rural and semi-urban consumers. An estimated 60% of the demand for motorcycles
came from rural and semi-urban customers. The rise in their disposable incomes on
account of good monsoons in the 1990s provided the normally conservative rural and

71
semi-urban customers with extra money that induced them to experiment with new,
innovative products.

Shift from Scooter to Motorcycle

Scooter Motorcycle Moped

Year Total In '000 Overall Growth
No. % No. % No. %
1993 1,503.36 -6.40 709.73 47.2 379.06 25.2 414.57 27.6
1994 1,770.22 17.75 840.17 47.5 472.58 26.7 457.47 25.8
1995 2,209.23 24.80 1,033.52 46.8 652.01 29.5 523.70 23.7
1996 2,660.04 20.41 1,223.43 46.0 809.53 30.4 627.08 23.6
1997 2,963.49 11.41 1,301.05 43.9 978.68 33.0 683.76 23.1
1998 3,042.85 2.68 1,262.70 41.5 1,131.31 37.2 648.84 21.3
1999 3,403.43 11.85 1,325.87 39.0 1,395.66 41.0 681.90 20.0
2000 3,745.55 -0.80 901.88 24.0 2,156.03 58.0 687.64 18.0

Source: (SIAM). No. Number of Units (in '000)

Advanced technology, larger wheelbase, higher ground clearance and the ability to ride
on bad roads with less effort and less danger of skidding and decreased maintenance cost
were the other factors that encouraged customers to choose motorbikes over other two-
wheelers.

THE INDUSTRY ANALYSIS - FIVE FORCES ANALYSIS

External Environment

Industry: Automobiles: Two Wheelers

Segments: Presence in all segments

Entry Barriers:Entry barriers are high.

 The market runs on high economies of scale and on high economies of scope.

 The need for technical expertise is high.

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 Owning a strong distribution network is important and is very costly.
All these make the barrier high enough to be a deterrent for new entrants.

Supplier Bargaining Power:

Suppliers of auto components are fragmented and are extremely critical for this industry
since most of the component work is outsourced. Proper supply chain management is a
costly yet critical need.

Buyer's Bargaining Power:

Buyers in automobile market have more choice to choose from and the increasing
competition is driving the bargaining power of customers uphill. With more models to
choose from in almost all categories, the market forces have empowered the buyers to a
large extent.

Industry Rivalry:

The industry rivalry is extremely high with any product being matched in a few months
by competitor. This instinct of the industry is primarily driven by the technical
capabilities acquired over years of gestation under the technical collaboration with
international players.

Substitutes:

There is no perfect substitute to this industry. Also, if there is any substitute to a two-
wheeler, Bajaj has presence in it. Cars, which again are a mode of transport, do never
directly compete or come in consideration while selecting a two-wheeler, cycles do never
even compete with the low entry level moped for even this choice comes at a
comparatively higher economic potential.

Summarizing the industry analysis, it can be said that the two-wheeler market is
attractive as it scores well on three out of five categories.

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Key Earnings Drivers

Below are the key factors, which strongly affect the auto industry: -

Government policy impact on petrol prices: Petrol prices determine the running cost
of two/three wheelers expressed in Rupees per kilometer.

Petrol prices are the highest in India as GOI subsidizes kerosene and diesel. But with the
recent change in GOI policy to reduce the subsidy, the prices of petrol will remain
constant at the current prices. This will have a positive effect on purchases of two/three
wheelers.

Improvement in disposable income: With the increase in salary levels, due to entry of
multinationals following liberalization process and fifth pay commission, the disposable
income has improved exponentially over the years. This will have multiplier effect on
demand for consumer durables including two-wheelers.

Changes in prices of second-hand cars: The second hand car prices of small cars have
come down sharply in the recent past. This will shift the demand from higher-end two-
wheelers to cars and affect the demand for two-wheelers negatively. A further drop in
second-hand car prices will lead to pressure on the two-wheeler majors who plan to
release higher-end scooters and motorcycles.

Implementation of mass transport system: Many states have planned to implement

mass transport systems in state capitals in the future. This will have negative impact on
demand for two-wheelers in the long run. But taking into account the delays involved in
implementation of such large infrastructure projects the demand to be affected only five
to seven years down the line.

Availability of credit for vehicle purchase: The availability and cost of finance affects
the demand for two- and three-wheelers as the trend for increased credit purchases for
consumer durables have increased over the years. Therefore, any change with respect to

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any of these two parameters as a result of change in RBI policy has to be closely watched
to assess the demand for two- and three-wheelers.

Internal Factors - Strengths & Weaknesses

SWOT ANALYSIS

Let's analyze the position of Bajaj in the current market set-up, evaluating its strengths,
weaknesses, threats and opportunities available.

Strengths:

 Highly experienced management.

 Product design and development capabilities.

 Extensive R & D focus.

 Widespread distribution network.

 High performance products across all categories.

 High export to domestic sales ratio.

 Great financial support network (For financing the automobile)

 High economies of scale.

 High economies of scope.

Weaknesses:

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 Hasn't employed the excess cash for long.

 Still has no established brand to match Hero Honda's Splendor in commuter segment.

 Not a global player in spite of huge volumes.

 Not a globally recognizable brand (unlike the JV partner Kawasaki)

Threats:

 The competition catches-up any new innovation in no time.

 Threat of cheap imported motorcycles from China.

 Margins getting squeezed from both the directions (Price as well as Cost)

 TATA Ace is a serious competition for the three-wheeler cargo segment.

Opportunities:

 Double-digit growth in two-wheeler market.

 Untapped market above 180 cc in motorcycles.

 More maturity and movement towards higher-end motorcycles.

 The growing gearless trendy scooters and scooterette market.

 Growing world demand for entry-level motorcycles especially in emerging markets.

The Inevitable Change

76
Bajaj on internal analysis found that it lacked –

1. The technical expertise to deliver competitive goods.

2. The design know-how.
3. And the immediate inability to support the onslaught of competitors.

All these forced Bajaj to look for an international partner who could bring in technology
and also offer some basic platforms to be manufactured and marketed in India. Kawasaki
of Japan is a world-renowned manufacturer of high performance bikes. Bajaj entered into
a strategic tie-up with Kawasaki in late 1990s to enhance its product line and knowledge
up-gradation to support long-term strategies.

This served the purpose of sustaining the market competition for a while. From 1996 to
2000, Bajaj invested hugely in infrastructure while simultaneously developing product
design and innovation capabilities, which is the prime reason behind the energetic Bajaj
of 21st century. Bajaj introduced a slew of products right from entry-level motorcycle to
the high premium segment right from 2001 onwards, and since then its raining success all
the way for Bajaj.

Last quarter, Bajaj had impressive performance growing at a rate of 20%+ when the
largest manufacturer grew at just 6%. This stands a testimony to the various important
strategic decisions over the past decade.

Tows Matrix for BAL

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External Internal Factors
Factors Strengths Weaknesses
Can use the existing R&D Must employ the cash in production and
capabilities for new models. product capabilities to match
Can use Kawasaki's competitors and for continuous export
Opportunities distribution networks growth.
internationally.
Can invest and grow the life
style segments.
Increase the customer centric Invest in building world class bikes to
initiatives and command more sustain the international markets
customer loyalty. independently in the coming years like
Improve the efficiency of the WIND 125.
financing and the insurance
Threats
arm.
Invest in new product
platforms.
Actively market electric range
internationally.

Marketing Strategies

The focus of BAL off late has been on providing the best of the class models at
competitive prices. Most of the Bajaj models come loaded with the latest features within
the price band acceptable by the market. BAL has been the pioneer in stretching
competition into providing latest features in the price segment by updating the low price
bikes with the latest features like disk-brakes, anti-skid technology and dual suspension,
etc.

BAL adopted different marketing strategies for different models, few of them are
discussed below: -

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Kawasaki 4S - First attempt by bajaj to make a mark in the motorcycle segment. The
target customer was the father in the family but the target audience of the commercial
was the son in the family. The time at which Kawasaki 4S was launched Hero Honda was
the market leader in fuel-efficient bikes and Yamaha in the performance bikes.

The commercial of Kawasaki 4S had the punch line "Kyun Hero" means "now what
hero" which reflected the aggressiveness in the marketing front by the company.

Boxer - It took the reins from where the Kawasaki 4S left. Target was the rural
population and the price sensitive customer. Boxer marketed as a value for money bike
with great mileage. Larger wheelbase, high ground clearance and high mileage were the
selling factors and it was in direct competition to Hero Honda Dawn and Suzuki MX100.

Caliber - The focus for the Caliber 115 was youth. And though Bajaj made the bike look
bigger and feel more powerful than its predecessor (characteristics that will attract the
average, 25-plus, executive segment bike buyer), its approach towards advertising is even
more radically different this time around. Bajaj gave the mandate for the ad campaign to
Lowe, picking them from the clique of three agencies that do promos for the company
(the other two being Leo Burnett and O&M). Going by the initial market response, the
campaign was clearly a hit in the 5-10 years age bracket. So, the teaser campaign and the
emphasis on the Caliber 115 being a `Hoodibabaa' bike placed it as a trendy motorcycle
for the college-goers and the 25 plus executives both at the same time.

Pulsar - Pulsar was launched in direct competition to the Hero Honda's 'CBZ' model in
150 cc plus segment. The campaign beared innovative punch line of "Definitely Male"
positioning Pulsar to be a masculine-looking model with an appeal to the performance
sensitive customers. The Pulsar went one step ahead of Hero Honda's 'CBZ' and launched
a twin variant of Pulsar with the 180 cc model. The model was a great success and has
already crossed 1 million mark in sales.

Discover - The same DTSI technology of Pulsar extended to 125 cc Discover was a great
success. With this, Bajaj could realize its success riding on the back of technological

79
innovation rather than the joint venture way followed by competitors to gain market
share.

Strategies & Implementation

FMCG Business Model

BAL now is taking a leaf out of the FMCG business model to take the company to
greater heights.

Bajaj has kicked off a project to completely restructure the company's retail network and
create multiple sales channels.

Over the next few months, the company will set-up separate sales channels for every
segment of its business and consumers. Bajaj Auto's entire product portfolio, from the
entry-level to the premium, is being sold by the same dealers. The restructuring will
involve separate dealer networks catering to the urban and rural markets as well as its
three-wheeler and premium bikes segments.

Bajaj Auto also plans to set-up an independent network of dealers for the rural areas. The
needs of financing, selling, distribution and even after-sales service are completely
different in the rural areas and do not makes sense for city dealers to control this. The
company also plans to set-up exclusive dealerships for its three-wheeler products instead
of having them sold through an estimated 300 of its existing dealers.

Other Strategic Issues

Cash is strength: Bajaj Auto has been sitting on a cash pile for over five years now.
Over the next couple of years, competition in the two-wheeler market is set to intensify.
TVS Motors and Hero Honda are on a product expansion binge. To fight this battle and
retain its hard-earned market share in the motorcycle segment, Bajaj Auto will need its
cash muscle. A look at its own story over the past five years provides valuable insight.

80
Delisting worry: What is worrying is that there is an idea to delist the investment
company (also an indirect indication that it would be listed initially). This would be
closing the valve of equitable ownership distribution.

There is a hint of a buyback of shares of the investment company as this is the only way
it can be delisted. The company would not be short of cash to put through such a
buyback.

Factors such as low valuation, low trading interest and the need to provide shareholders
may be cited as plausible reasons for the buyback.

Stake for Kawasaki: Bajaj Auto's attempt to vest the surplus cash in a separate company
may be a prelude to offering a stake to Kawasaki of Japan in the equity of the automobile
company. The latter has been playing an increasingly active role in Bajaj's recent models,
and its brand name is also more visible in Bajaj bikes than in the past.

Better value proposition: Shareholder interests may be better served if the cash is
retained to pursue growth in a tough market. This would also obviate the need to fork-out
fancy sums as stamp duty to the government for the de-merger. A combination of a large
one-time dividend and a regular buyback program through the tender route may offer
better value. A strategic stake for Kawasaki would only positively influence the stock's
valuation.

Strategies for the Overseas Markets

Bajaj Auto looks at external markets primarily with three strategies: -

1) A market where all BAL need to do is distribute through CKD or CBU routes.
2) Markets where BAL need to create new products.
3) Markets where BAL need to enter with existing products and probably with a good
distributor or a production facility or a joint venture.

Earlier, most of the products that Bajaj exported were scooters and some motorcycles.
However, in its target markets, like in India, the shift was towards motorcycles. With the

81
expansion in Bajaj's own range to almost five-six platforms of motorcycles, it had a
better offering to export, also the reason for its stronger showing. For the last fiscal, 60
per cent of its exports were two-wheelers and the rest three-wheelers. Of the two-wheeler
exports, close to 90 per cent were motorcycles.

Bajaj has identified certain key markets, which hold potential. Its first overseas office
established at the Jebel Ali free trade zone has been the focal point for exports to middle
Africa and the Saharan nations. Egypt and Iran also continue to be strong markets for
Bajaj.

The other market, which would be a focus area, is South America, where the company
feels it is fairly well represented in most countries, except in Brazil, the largest market.
The company recently participated in a large auto exhibition in Brazil and found good
consumer acceptance to products like Pulsar and Wind 125.

The other focus area is the ASEAN nations, which constitute the third biggest consumer
of two-wheelers. The biggest among them is Indonesia, where Bajaj distributors are
looking to introduce eco-friendly four-stroke auto rickshaws. But two-wheeler market
requires great deal of effort from BAL. Everybody is there with Honda leading the show.
There's Suzuki, Kawasaki and some Korean and Chinese models. BAL should look at the
right product mix for two-wheelers. Bajaj's Pulsar model has taken off well there. It also
wants to develop a new step-through model for the Indonesian market, but for now it will
create a base there with its motorcycle models.

Bajaj has also made a beginning by selling bikes in the Philippines branded in the name
of its technical partner, Kawasaki. The two signed an MoU in February. Kawasaki, a
large multi-product conglomerate, only makes high-end bikes and does not have sub-
200cc models. Kawasaki is marketing the new model, Wind 125, developed by both
companies, in the Philippines. The Bajaj-developed models, Caliber and Byk, which is a
fuel-efficient bike, are also being distributed by Kawasaki. This is a good beginning
strategically for Kawasaki to evince interest in Bajaj products for markets which can still
buy less than 150 cc.

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R&D

Bajaj Auto has a huge, extensive and very well-equipped Research and Development
wing geared to meet two critical organizational goals: development of exciting new
products that anticipate and meet emerging customer needs in India and abroad, and
development of eco-friendly automobile technologies.

While the manpower strength of the R&D represents a cross-section of in-depth design
and engineering expertise, the company has also been investing heavily in the latest,
sophisticated technologies to scale down product development lifecycles and enhance
testing capabilities.

Bajaj Auto R&D also enjoys access to the specialized expertise of leading international
design and automobile engineering companies working in specific areas.

Based on their own brand of globalization, they have built their distribution network over
60 countries worldwide and multiplied the exports from 1% of total turnover in Fiscal
1989-90 to over 5% in Fiscal 1996-97.

The countries where their products have a large market are USA, Argentina, Colombia,
Peru, Bangladesh, Sri Lanka, Italy, Sweden, Germany, Iran and Egypt. Bajaj leads
Colombia with 65% of the scooter market, in Uruguay with 30% of the motorcycle
market and in Bangladesh with 95% of the three-wheeler market.

Several new models are being developed specifically for global markets and with these
the company will progressively endeavor to establish its presence in Europe too.

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 CONCLUSION

 Improvement in their vehicle considering the C.C. and Maintenance cost occur
after sales
 Company and dealer are suggested to concentrate on advertising print Media
like Hoarding, Magazines, and adverting Banner
 More concentrate on consumer by creating more dealers in city
 Own financial company and provide attractive finance like Low down-
payment , low rate of interest to attract customers.
 Hero Honda must be increase their
-bike’s tank petrol capacity
-Gear box
-Maximum power
-Cubic capacity
-Maximum Speed
 Customer satisfaction is the one of the most major part of the buying behavior
 Company has to Build strong brand awareness and credibility among its
customers
 Majorities of people are aware about its brand
 Try to produces such vehicles that attract the customer.
 On technical base Bajaj is the best from others but from our research, consumer
prefer Hero Honda bike due to high resell value and low maintenance.
 Recommendations Large untapped market in semi-urban and rural areas.
 Market with engine efficiency of more than 200cc in motorcycles.
 Two wheelers with alternative fuel options.
 Company should keep focusing on the fast growing motorcycle segment.
 In view of the new threat posed by Honda Motors in the scooter segment, the
company needs to review its products line-up and launch new products to cater
the changed demand.

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 The company needs to take a look at its ungeared scooters offerings and need to
adapt to the latest trends.
 The company needs to tap the export market more efficiently as there is a huge
potential to make India as the world's two-wheelers production base. For this, it
needs to look for joint ventures abroad.
 It needs to target the young age group more effectively as this group is extremely
trend savvy. The advertising should have a fresh look and the product should live
up to the Gen-X's expectations.

85
 RECOMMENDATION

Although the avalanche of motorcycles offered Indian consumers a wide variety of

models to choose from, it also resulted in increased pressure on the companies to
concentrate on cost-cuts, technology enhancements and up-gradations and styling. Their
margins came under pressure as marketing costs escalated.

The companies were forced to reduce prices and offer discounts to survive the
competition. Moreover, analysts were skeptical about the segment's ability to maintain
the growth rate in the years to come. One of the major assumptions underlying the
motorcycles rush was that if the market was considerably large and was growing at a
constant pace, there was room for a profitable existence for all brands.

In 2001, there were over 30 motorcycle brands in the market. However, with the top five
brands accounting for more than 60% of the market, only 40% of the market was
available for all other new brands put together. Despite the launch of more vehicles, the
survival prospects of many of the individual brands were deemed to be rather bleak.

Further, the growth in the motorcycle segment was dependant on continuing favorable
market conditions. Analysts claimed that to sustain this growth rate, the segment would
have to completely cannibalize the market for scooters and a considerable part of the
market for scooterettes and mopeds.

Considering the fast growing scooterettes segment, with high demand from female
customers, followed by the moderately growing moped segment and the restructuring in
the scooter segment with major national and foreign players reinforcing their presence, it
was unlikely that the entire growth in the two-wheeler sector would be due to
motorcycles.

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Analysts also commented that as the two-wheeler industry had grown steadily for eight
years, stages in the product life cycle would apply to the field sooner, rather than later
and the decline stage would invariably come some day. There was little differentiation
between the brands being launched apart from styling as most companies had introduced
their four-stroke vehicles.

With the failure of the joint ventures, the expected introduction of cheaper Chinese
brands, stringent emission norms and threat from major international players, the survival
of indigenous brands looked uncertain. Constrained with the ruling price levels in the
market place, limited infrastructure and lack of technological innovations when
compared to their foreign counterparts, whether the Indian companies would succeed in
generating the kind of volumes needed to sustain in the competitive motorcycle market,
remains to be seen.

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 BIBLIOGRAPHY

www.indiastat.com
www.economywatch.com
www.docshoc.com
www.pluggd.in
www.scribd.com
www.quickmba.com
www.google.com

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