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Marketing Research Project On

Two Wheeler Two-Wheeler Industry


22.01.2006 Strictly Confidential

Sachin Manik

Industry Analysis
In terms of volumes, two-wheelers two wheelers constitute nearly 80% of the vehicles produced in India. In value terms, they account for 25% approximately of the total vehicle production. Between 2003 04 and 2004 05, the 2003-04 2004-05 industrys overall sales of two-wheelers grew by 16.7 per cent, from 5.63 million to 6.57 million. Motorcycles, showed increase in the volume of sales by 20.9 per cent, from around 4 32 million to almost 5.22 4.32 5 22 million.

FORCES THAT DRIVE THE INDUSTRY Government Policies and Regulatory Environment g y Price and Credit Facilities Rising Income Levels and Urbanization Fuel-Efficiency y Other Factors Driving 2-Wheeler Demand Parts & Accessories: Playing a Crucial Role in the Motorcycle Industry

Sectoral key indicators


35 30 25 20 15 10 5 0 '00/01' '01/02' '02/03' Years '03/04' '04/05'
3.75 -1.31 4.65 5.05 5.63 6.57 11.48 11 48 8.6 24 16.69

Two-wheeler sales, a key contributor to the industry growth, grew by an impressive 22.23% in May'05.

Future Outlook : Growing competition price undercutting, rising steel competition, undercutting prices and other input costs would continue to pose a threat. Reduction in import duties for imports could also pose a threat for the higher end bikes. bikes

Sales growth(%) Sales volume (millions)

Company Analysis C A l i
Board of Directors
Chairman Managing Director Joint Managing Director Wholetime Director Director Director Mr. Brijmohan Lall Munjal Mr. Pawan Munjal Mr. Miki Yamamoto Mr. Shinichi Nakayama Mr. Satyanand Munjal d l Mr. Om Prakash Munjal

Joint Venture b J i V between H Hero G Group, the world's l h ld' largest bi l manufacturers and the H d M bicycle f d h Honda Motor Company of Japan, has today become the World's single largest two wheeler Company. The company sold an unprecedented 26,21,400 motorcycles in the year 2004-05, a remarkable growth of 27% way above the industry growth of 20.5%. HHML achieved a never seen before sales of 2,45,475 motorcycles, the highest ever recorded in a single hi d b f l f l h hi h d di i l month by any company in the global two wheeler industry. At present, HHML has a 40% share in the overall two wheeler industry. Hero Honda believes that the essence of Corporate Governance lies in the phrase Your Company'. It is Your'' C Company b because i b l it belongs to you - the shareholder. h h h ld

Business Highlights

Business highlights contd Over the last two decades, HERO HONDA MOTORS LIMITED has consistently delivered value and maximized returns to its shareholders. shareholders The 5-year trend in the Company's income, profit after tax (PAT), and profitability as measured by the ratios of PAT to total income, return on average equity [ROAE] and return on average capital employed [ROACE] [ROACE]. During 2004-05, your Company sold 2.62 million bikes, and for the fourth successive year, Hero Honda Motors retained its spot at the top as the world's largest two--wheeler manufacturer. manufacturer The `AAA' (triple A') rating by CRISIL, the rating agency to the above mentioned programme /instruments of the Company. The ratings indicate that the degree of safety with regard to timely payment of interest and principal on the instruments is very strong. strong Hero Honda has, over the years, honed its own research capabilities. This has helped in large-scale localization and integration, allowing the Company to keep costs low. Company's R&D has already developed requisite infrastructure and expertise to develop, test and approve develop products in-house as per Honda specifications and acceptance criteria. These facilities are upgraded from time to time, ahead of new technology adoptions, thus considerably reducing the product development cycle

Major players in the Industry


In two-wheelers, HHMLs market share stood at 37% during FY04. I t h l HHML k t h t d t d i FY04 In the premium segment, HHML enjoyed a 14% market share for FY04.

FOREIGN EXCHANGE EARNINGS AND OUTGO A) EXPORT ACTIVITIES/ INITIATIVES TO INCREASE EXPORTS/ DEVELOPMENT OF NEW EXPORT MARKETS / EXPORT PLANS Regular interaction with distributors and new product launches in export market have contributed significantly to growth in export business in the year under review. The new models CD Dawn, Splendor+ & Passion plus have been well received in the th export market. The main concentration was on Columbia , Bangladesh & Sri Lanka markets for this purpose. t k t Th i t ti C l bi B l d h S i L k k t f thi Development of new markets is carried out in consultation with Honda Motor Co., Ltd., Japan and the same has been an ongoing process.

Export plans With the launch of new models like CD Deluxe, Super Splendor & others, export would continue. The maximum business from the export markets comes from three major countries i.e. Columbia, Sri Lanka & Bangladesh and the same trend is expected to continue. The Company intends to try and explore some new markets in Africa in absolute consultation with Honda Motor Co Ltd Japan Co., Ltd., Japan. B) FOREIGN EXCHANGE EARNINGS & OUTGO Foreign exchange earnings during the period under report was Rs. 181.70 crores as compared to Rs. 118.21 crores in the previous year.

Comparison according to the Market Share of Motorcycle


Performance vis--vis competitors With rise in per capita income, lowering of interest rates, changes in consumer preference towards trendier two-wheelers, there was a conscious shift in the composition of two-wheeler industry led by increase in the demand of motorcycle as against scooters and moped. In FY04, out of the total two-wheeler industry of 5.6 m units, the share of motorcycles was 77%, as against 42% in FY99. During the period FY97 to FY04, while two-wheeler industry grew CAGR of 10%, the demand for motorcycle grew at 27% CAGR.

Forecasting
General Overview of the Industry y The two-wheeler industry thrives in developing countries especially in densely populated countries like Ind With income levels rising, customers are opting for entry-level motorcycles than scooters. The share of motorcycles in total two-wheeler sales continues to improve (76.6% from 74.4% in 2002-03) h e f t le i t t l t heele le ti e t i e (76 6% f 74 4% i 2002 03) while that of geared scooters continues to be on the decline. Identification of the factors that drive the Market Rising disposable income levels. Continuing poor public transport system. Declining interest rates. Wider Wid availability of finance. il bili f fi Decreasing product life cycles Increasing percentage of young population.

Time Series with Trend Line Analysis


Time Series
3000000 2500000 2000000 Sales 1500000 1000000 500000 0 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 Years Sales (in nos) Trend Line
13.71 %

Sales Forecast for the year 2005-2006 would be 2842877.2 units, growth at 13.71 %.

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