Economic Analysis of Indian Two Wheeler Industry
Introduction
Two wheelers •India is the second largest producer of two wheelers industry •Two wheeler segment contributes the largest volume amongst all the segments in automobile industry •The industry is growing at 30% annually. •The sales of two wheelers in the period 2006 - 07 was 7,857,548, which was a growth of 11.41 %.
History •Indian two wheeler industry is as old as 53 years. •Bajaj auto began trading in imported Vespa Scooters in 1948 . •Until the mid 80’s, there were only three major motorcycle manufacturers in India namely Rajdoot, Escorts, and Enfield •The two-wheeler market was opened to foreign manufacturers in the mid 80’s. •In 1984, Hero group entered the market in joint venture with Japan’s
Two wheelers industry MARKET STRUCTURE AND SHARE
Market structure
Two wheelers AUTOMOBILE industry
COMMERCIAL VEHICLE
O O C C
PASSENGER VEHICLE
SCOO
2-WHEELER
S
3-WHEELER
O
S
Segment Wise Analysis Of Indian two Wheeler Industries Segment
Two wheelers industry
Share in 2006-07
CAGR
Scooter with engine 5% capacity < 75 cc
0%
-33.9%
A2
Scooter with capacity 5% between 75-125 cc
10%
32.9%
B2
Motorcycle with capacity 75-125
62%
66%
14.9%
B3
Motorcycle with capacity between125-250cc
5%
17%
44.8%
B4
Motorcycle with 1% capacity above250 cc
1%
5.7%
A1
Description
Share in 2001-02
Breakup of Industry by Segme mopeds 5% scooters 12%
motercycles scooters motercycle s 83%
mopeds
Market Share Of Key Player In 2006-07 O thers, thers, 3 HMSIL, 9 TVS Moto co., 19% Bajaj Aut Ltd, 27%
Hero Honda Hero Hond 42%
Bajaj Auto Lt TVS Motor c HMSIL Others
India has the lowest penetration of two wheeler as compared to following countries:
Major players in 2- wheeler industry HERO HONDA •Established in 1984 – Joint Venture •Largest manufacturer of 2- wheelers in India •Manufacturing units – Daruhera & Gurgaon •Its sales has been increasing from 1.3 million units in 2001 to 3 million bikes in 05-06.
Product segmentation Up to 100cc – CD Dawn, CD Deluxe, Splendor plus, Splendor NXG, Passion plus.
Bajaj •Established in 1945 and started selling imported 2- wheelers. •It is India's largest and the world's 4th largest two- and three-wheeler maker •In 1959, it started manufacturing 2- wheelers in India. •In 1970, the company managed to sell 1,00,000 vehicles •It is based in Pune, Maharashtra with plants in Akurdi and Chakan, Waluj, Pantnagar in Uttaranchal
Product segmentation Up to 100cc – Platina, 100 to 135cc – XCD- 125 DTS Si, Discover 135, Kristal DTSi. More than 150cc- Pulsar- 150, 180, 200, 220 DTSi, Avenger DTSi.
TVS Motors •Third largest 2 wheeler manufacturer in India. •It is a flagship company of the $4 billion TVS group. •The company has 4 plants- Hosur, Mysore, Himachal Pradesh, and one at Indonesia •TVS Motor Company is the first two wheeler manufacturer to be honored with the hallmark of Japanese quality- The Deming Prize for Total Quality Management.
Product segmentation Up to 100cc – Scooty pep+, Star City 100 to 135cc – Flame, Victor GLX
FINANCIAL ANALYSIS- HERO HONDA • Hero Honda reported 13.75% growth in total sales in fy07as compared with fy06. •
Profit after tax (PAT) decreased by 11.6%
HERO HONDA 100000
S E R O R C N I S R
10000 1000
5195 581
5997
7559
8870
10090
728
810
971
858
100 10 1 2002-03 2002-03 2003-0 2003-04 4 2004-0 2004-05 5 2005-0 2005-06 6 2006-0 2006-07 7 SALES AND OTHER INCOME
• The company registered a compounded annual growth rate (CAGR) of 18% from the period fy03 to fy07 in
PROFIT AFTER TAX
YEARS
FINANCIAL ANALYSIS-HERO HONDA • EPS decreased to Rs.42.96 during fy07 as compared with 48.06 in the last year. HERO HONDA 100
•
•
Dividend payout ratio has declined from 69.82 in fy03 to 46.29 in fy07. Debt/Equity ratio declined continuously from .15 in fy03 to .06 in fy07.
S E E P U R D N A S O I T A R
69.82
61.86
29.08
12.36
11.32
10
46.88 46.29 56.25 48.64 42.96 40.59 36.47 1 0 .8 5
1 1 .0 6
1 0.15
0.15
0.13
0.1
0.09
2002 2002-0 -03 3
2003 2003-0 -04 4
2004 2004-0 -05 5
2005 2005-0 -06 6
YEARS EARNING PER SHARE
DIVIDEND PAYOUT RATO
Net profit ratio declined continuously from 11.32 in fy03 to 8.58 in fy07.
0.06
0.01
DEBT/EQUITY RATIO
•
8.58
NET PROFIT RATIO
2006 2006-0 -07 7
FINANCIAL ANALYSIS- BAJAJ LTD. • Bajaj auto ltd reported 24.5% growth in total sales in fy07as compared with fy06. • Profit after tax (PAT) increased by 14.5%.
BAJAJ AUTO LIMITED 10000
S 1000 E R O R C 100 N I S R
4310.6
538.4
4916.8
5927
731.5
766.8
7488.11
1124.27
9317.47
1286.92
10
1
• The company registered a compounded annual growth rate (CAGR) of 22% from the period fy03 to fy07 in sales and 24% in PAT.
2002 2002-0 -03 3
2003-0 03-04 4
200 2004-05 -05 YEARS
SALES AND OTHER INCOME PROFIT AFTER TAX
2005 2005-0 -06 6
2006006-07 07
FINANCIAL ANALYSIS- BAJAJ LTD. • EPS increased to Rs.122.35 during fy07 as compared with Rs.108.87 in fy06.
B A J AJ A J AU AU T O L I
1000 100
• Dividend payout ratio has increased from 30 in fy03 to 38.24 in fy07. • Debt/Equity ratio was in the range of .26 to .30 during the past 5 years.
S E E P U 1 0 R D N A 1 S O I T A R0 . 1
122.3 76 108.8 73 41.8 38.2 39 40 30 12.9 15.3 13.3 13.5 12.2
53
E A R N IN G P E SHARE D E B T/E Q U ITY R A TIO
0.2
0 .2
0 .2
0 .3
0 .2
D IV ID E N D P A R A TO
2 0 0 2 -2 0 0 3 - 2 0 0 4 -2 0 0 5 -2 0 0 6 03
04
05 YEAR
06
07
N E T P R O F IT R
FINANCIAL ANALYSIS-TVS • TVS motors ltd reported 18.8% growth in total sales in fy07as compared with fy06. • Profit after tax (PAT) decreased by 42.75%
TVS 10000 2726 S 1000 E R O R 100 C N I . S R 10
2856
128
3306
2955
137
138
3928
117 67
1 2002-03 2002-03 2003-04 2003-04 2004-05 2004-05 2005-06 2005-06 2006-07 2006-07 YEARS
• The company registered a compounded annual growth rate (CAGR) of 9.5% from the period fy03 to fy07 in
SALES AND OTHER INCOME PROFIT AFTER TAX
FINANCIAL ANALYSIS- TVS • EPS decreased to Rs.2.8 during fy07 as compared with Rs.4.93 in the last year. Its EPS shows a continuous decline from Rs.56 in fy03 to Rs.2.8 in fy07.
TVS 100 S E E P U R D N A S O I T A R
56 23.03 10 4.74
25.88 5.96 4.8
5.79
4.93
4.64
2.8
3.55
1.69
1 0.5 0.28
34.72
30.09
25.52
0.78
0.27
0.2
0.1 2002 2002-0 -03 3
• Dividend payout ratio increased from 23.03 in fy03 to 34.72 in fy07. • Debt/Equity ratio increased
20032003-04 04
2004 2004-0 -05 5 YEARS
EARNING EARNING PE R SHARE DEBT/EQUITY RA TIO TIO DIVIDEND PAYOUT RATO NET PROFIT RATIO
2005 2005-0 -06 6
20062006-07 07
COMPARATIVE FIANANCIAL ANALYSIS • Hero Honda is a leader in terms of sales. It recorded Rs.10,090 crores of sales during fy07. • Its growth in sales was only 13.75% as compared with with Bajaj auto and TVS motors who recorded a growth of 24.5% and 18.8% respectively. • Its CAGR in sales is 18% which is less than Bajaj auto’s auto’ s CAGR which is 22% during the past five years. • The highest PAT was reported by Bajaj Auto which was Rs.1286.92 crores. • Hero Honda and TVS motors PAT was Rs.858 crores and Rs.67crores respectively. • This high PAT was achieved due to the company’s high net profit margin ratio which was 13.59% way higher than Hero Honda and
Continued… • Bajaj auto’s operating profit is Rs.1221.84 crores which is more than Hero Honda and TVS motors which is 1201.96 crores and 139.95 crores respectively. • This high operating profit was achieved due to lower cost of sales which was Rs.8095.63 crores as compared with Hero Honda which was Rs.8703.99 crores. • Hero honda should go for capacity expansion as its debt as compared to its equity is just .06 • Bajaj auto and TVS motors are having a debt equity ratio of .29 and . 78 respectively. •
As far as EPS is concerned Bajaj auto paid Rs.122.35 as compared to
Capacity expansion Hero
Honda
•HHML(Hero Honda Motors Ltd) 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 utilization. •Hero Honda has embarked on a green field expansion plan (initial investment of Rs 2.5 bn).HHML added to its gross fixed assets at a higher rate compared to sales growth.
•Hero Honda to pump Rs 150 crore more in its Haridwar Facility.
Bajaj •In the first phase it has proposed to expand motorcycle capacity to 3.6 million per annum by 2007-08. •Expansion of capacities at its existing plants in Akurdi and Chakan . •Greenfield project at Pantnagar in Uttaranchal, which commenced operations in 2007 •Greenfield project at Chakan to manufacture the new range of 3 / 4wheelers which is expected to commence operations in 2009. •The company is also considering major expansion into the Far East markets followed by South America
TVS •The company spent about Rs 120-crore in capital expenditure last year — in expanding capacities for the Victor and to make room for the new vehicles that are to be launched this year
Pricing policy Hero Honda : •They have been pricing their products at higher range and focusing on the quality.
•Their strategy involves giving value to the customers.
Bajaj
•They have been pricing their 100 & 125 cc bikes at a little lower price and giving more quality in their products.
•However in 150 and more cc market segment, they are pricing their products at same rate as their competitors & focusing more on technological advancements.
TVS
Motors
•Their pricing strategy has been aggressive and they are pricing their products at a lower rate and also providing more features in their products.
•But in popular products like scooty they have priced their products in similar range to the competitors.
Price segmentation • Following are prices of some of the popular products in the market currently:
Product Differentiation Differentiation •The process of describing the differences between products or services available. •This shows the unique aspects of different products. •Without differentiation, the economy will become monopolistic, people will not have any more options i.e. no substitutes and there will be no competitors at all. •In fact the product remains the same , but it is all the way that how the product is distributed and marketed •For e.g.:• Bajaj Pulsar DTSi 200 cc has an oil cooled engine. •Glamour has mileage meter which shows trip mileage. •Bajaj Discover & Pulsar has exhaustec silencer. silencer.. silencer
Product Diversification – TVS and Hero Honda The various fields apart from automobiles in which Hero Honda holds a share are:•Munjal castings •Munjal Showa limited •Hero Cold Rolling Division •Hero Corporate Services Diversified fields of TVS are as follows:•TVS Motors has entered the three-wheeler business with the launch of 200 cc auto rickshaw 'TVS King' in Kerala •TVS is also manufacturing the mobile video monitor for car, truck
Product Diversification - Bajaj •Diversification is a form of growth marketing strategy for a company. •Diversification can occur either by expanding into a new segment of an industry in which the business is already in or outside the scope of the existing business unit. •Bajaj is already in 2 & 3- wheeler industry, and it is now coming in the 4- wheeler industry •Apart from that Bajaj has share in the following:Bajaj electrical ltd Bajaj finance Bajaj Hindustan Mill
MARKETING STRATEGIES •Marketing is establishing relationship with the customer which enables the repurchase of the product. •In marketing “you” is the most important word. •Marketing involves all the process that takes from the manufacturer’s house to the market of end user.
ATTRIBUTES OF TWO WHEELER MARKETING It involves two concepts : •
Traditional concept– It implies production, sales and profit making .
MANUFACTURER
SALES
PROFIT MAKING
Features of traditional concept: • Middle class was identified as the market of end user. • Not too much focus was on technology development and its use. • Complete customer satisfaction was not on top of priority list.
Continued.. Modern conceptIt implies production, sales customer satisfaction which will in turn pave the way for profit making.
MARKETING MANUFACTURE
& SALES
CUSTOMER
PROFIT
SATISFACTION
MAKING
Features of modern concept: • Constant use of advanced technology • Improved customer service • Emphasizes on customer satisfaction • Creation of brand image and sustaining it for a long period. • Youth were identified as the market of end user
STRATEGIES APPLIED (PRESENT SENARIO) • Consistent innovation in product development for example- Bajaj went into the bike segment with it is model pulsar. • High frequency of launching products with new technologies
STRATEGIES APPLIED (Contd…) • Help of mother brand for example-Bajaj has created a brand image so a new product launched has a tag line “ a Bajaj product” • Use of effective advertisement. for example- Hero Honda’s advertisement touched the chords of emotional Indians.
MARKET ANALYSIS •
Conversion of “problem of choice” into abundance of choice.”
•
Change of the market scenarios from monopolistic to perfect competition.
Reasons • Change in the taste and preference of the consumers • Increase in the average income of people. • Increase in population.
Two wheelers EXPORT TRENDS OF TWO industry WHEELER
Continued…
Two wheelers •Majority of exports are to Bangladesh, Sri lanka, Bhutan and Nepal industry . •Motorcycles constitute 88% of the total two wheeler export. • Most of bikes exported with engine capacity below 125 cc.
INVESTMENT TREND
Two wheelers •Two wheeler industry investment rose industry from 2.7 billion$ in fy03 to 10.1 billion$ in fy08 with a CAGR of 21.7%. •In Fy 06-07 the motorcycle exports from India was 321,321 units. •Till fy16 the CAGR will be 14.2% from fy08.
Is the competition healthy? •Perfect competition refers to the market market structure where competition among the sellers and buyers prevails in its most perfect form. •The price is determined by the forces of market, individual sellers have no control over the price at which they sell. •Market is increasingly becoming a price war field
Is competition healthier or not ? • Big players who have huge market share vs small players who are yet to establish. • Big players at advantage- Huge volumes>low component prices>Low final price>high profits. • Small players trapped in- Low volumes > High component prices > High final price > Low profitability OR
• Low volumes > Low component prices > Low Lo w final product price > High volumes > Low dependability > Low customer cu stomer satisfaction > Low volumes > Low profitability. Thus the fat gets fatter while the small gets smaller and it may eventually get wiped out.
Two Wheelers Manufacturers – 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 •Rapid Product introduction and Shorter Product life li fe Cycle.
Demand drivers Factors increasing the demand: •Increasing prices of cars which are substitute goods for traveling. •Inadequate public transportation system, •Increasing disposable income. •Favorable age demography and tastes and preferences. preferences.
P r i c e / u n i t Quantity demand
Factors decreasing the demand: demand: •Increasing prices of complementary goods i.e. petrol. •Increasing cost of input i.e. metal prices, etc. •Increasing rate of interest on financial purchase
P r i c e / u n i t Quantity demand
Scope and opportunities •Large untapped market in semi-urban and rural areas.
• Pricing policies •Market with engine efficiency of more than 200cc 200 cc in motorcycles. • Marketing strategies •Two wheelers with alternative fuel options. • Export trends • Conclusion
Two wheelers T h ha a industry n n k k y y o ou u
