industry analysis of two wheeler market

Industry Analysis of Two wheeler Market

ByAdnan KitabiAnil NandyalaAvishek MehraGaurav Agarwal

Ranabir Pal

Agenda

• Industry Overview• Market Players• SWOT• Industry Life Cycle and PLC• Porter’s 5 forces

Industry Overview

Automobile Industry in India

• Market share– 2 wheeler 76%– Passenger vehicle 16.25%– Commercial vehicle 4.35%– 3 wheeler 4.4%

Overview

• Consolidated Industry• Market size is 10,000-11,000 crores• 80% of market share between – Hero Motocorp- 41%– Bajaj Motors- 25%– TVS - 14%

Segmental Analysis

• Industry Segments

– Motorcycles- 78%

– Mopeds- 17%

– Scooters- 5%

Segmental Analysis

• Motorcycles– Hero Motocorp- 56%– Bajaj Motors- 25%– TVS- 6%

• Scooters– TVS- 19%– Hero Motocorp- 16%

• Mopeds– TVS- 49%– Bajaj Motors- 32%

Segmental Analysis

2010-11• Segment Growth

– Motorcycles- 24%– Scooters- 42%– Mopeds- 23%

2011-12• Segment Growth

– Motorcycles- 14%– Scooters- 26%– Mopeds- 12%

Industry Happenings

• Hero Honda dissolved their joint venture in 2010

• Honda is the clear market leader in the fastest growing scooter segment with over 50% of market share in the segment

• Honda sells close to 100,000 units per month

Industry Happenings

• 125cc motorbikes has become a distinct category

• Intense competition in the premium segment of motorcycles

• By 2015-16 industry is expected to reach maturity stage (ICRA)

Investment Required

• Investment required for a new entrant is unknown as all the players are present for more then 2decades and investment required at that time cannot be compare to what is needed today

Investment Required

• Hero invested 400 crores for an additional plant capacity of 750,000 units

• Hero invested another 1100 crores for another plant for a capacity of 1.2 million

• Hero invested another 500crores to expand its existing capacity to increase capacity of another 1 million

Capacity Utilization

• Hero Motocorp- 98%

• Bajaj Motors- 75%

• TVS- 86%

Expansion Plans

• Hero Motocorp– 750,000 capacity plant in Rajasthan – 1.2 million capacity which will increase to 1.8

million in next phase in Gujarat– 1 million in expanding existing plants

• Bajaj Motors– 1.26 million in expanding existing plants

• TVS– No such plans

Market Size

• The current market size is 15.4 million units as on 2011-12

• This is expected to reach 22 million units by 2015-16 (ICRA)

Future Capacity Utilization

• Hero Motocorp- 91%

• Bajaj Motors- 86%

• TVS- 100% (will lose 0.58million of sales)

Cost of Material

• Hero Motocorp- 68%

• Bajaj Motors- 71%

• TVS- 72%

Net Profit

• Hero Motocorp- 9%• Bajaj Motors- 15%• TVS- 3%

Average Collection Period

• Hero Motocorp- 3 Days

• Bajaj Motors- 12 Days

• TVS- 13 Days

Average Age of Inventory

• Hero Motocorp- 13 Days

• Bajaj Motors- 17 Days

• TVS- 40 Days

Average Payment Period

• Hero Motocorp- 45 Days

• Bajaj Motors- 51 Days

• TVS- 49 Days

Cash Conversion Cycle

• Hero Motocorp- -30 Days

• Bajaj Motors- -22 Days

• TVS- 3 Days

Asset Turnover Ratio

• Hero Motocorp- 58%

• Bajaj- 50%

• TVS- 60%

CSF

To survive and prosper in an industry a firm must meet 2 criteria

1. What do our customers want?2. What does a firm need to do to survive

competition?

CSF

What do customers want?How does the firm survives the

competition?

Analysis of Demand•Who are our customers?•What do they want?

Analysis of competition•What drives competition?•What are the main dimensions of competition?•How intense is competition?•How can we obtain a superior competitive position?

Prerequisites for success

CSF

• To keep customer satisfied and loyal• Clientele• Product Design• Market Segmentation• Differentiation• Servicing• Low cost factor

Recent Events

• Mahindra recently entered scooter segment• Hero and Honda split– Both continue to operate in the market seperately

Future Outlook

• By 2013 India will become largest 2 wheeler market in India

• India will over take China• India+ China+ Indonesia=60% of global 2

wheeler market• Among these 3, only India post positive

growth for FY 2012-13• Replacement demand will be key contributor

Future Outlook

• Motorcycles:– The growth rate of entry price segment is

expected to be lower then the industry (below 40,000)

– Competition is likely to intensify in executive segment (price 40,000-50,000)

– Premium class segment is expected to grow at the fastest rate (above 50,000)

Future Outlook

• Scooter:– Expected to increase the market share steadily– Expected to double in size by 2014-15– Segment to reach profitability due to expansion

Market Players

HERO MOTOCORP

• Hero MotoCorp Ltd. (Formerly Hero Honda Motors Ltd.) is the world's largest manufacturer of two - wheelers, based in India.

• In 2001, the company achieved the coveted position of being the largest two-wheeler manufacturing company in India.

MANUFACTURING

• Hero MotoCorp two wheelers are manufactured across three globally benchmarked manufacturing facilities. Two of these are based at Gurgaon and Dharuhera which are located in the state of Haryana in northern India. The third and the latest manufacturing plant is based at Haridwar, in the hill state of Uttrakhand.

MILESTONES

• 1983 – Joint Collaboration Agreement with Honda Motor Co. Ltd. Japan signedShareholders Agreement signed.

• 1985 - First motorcycle "CD 100" rolled out.• 1987 - 100,000th motorcycle produced.• 1992 - New motorcycle model - "CD 100 SS"

introduced 500,000th motorcycle produced.• 1994 - New motorcycle model - "Splendor"

introduced. 1,000,000th motorcycle produced.

MILESTONES

• 1998 - 2,000,000th motorcycle produced.• 1999 - New motorcycle model - "CBZ" introduced.• 2000 - 4,000,000th motorcycle produced.• 2003 - Becomes the first Indian Company to cross the

cumulative 7 million sales mark.• 2005 - Hero Honda is the World No. 1 for the 4th

year in a row.• 2011 - New licensing arrangement signed between

Hero and Honda (Hero Honda is renamed as Hero)

CSR

• Raman Munjal Vidya Mandir• Raman Munjal Memorial Hospital• Raman Munjal sports Complex• Vocational Training Complex• Adult Literacy Mission• Marriages of unprivileged girls• Rural Health Care• Safe side program

LISTING INFORMATION

The Company is listed in both:-• National Stock exchange• Bombay stock exchange

PRODUCTS

HERO TWO WHEELERS• Passion X Pro• IGNITOR• MAESTRO• IMPULSE• HF-DAWN• HF-DELUXE• PLEASURE• SPLENDOR +

PRODUCTS

• Splendor NXG• Passion PRO• Super Splendor• Glamour• Splendor PRO• Achiever• Xtreme• HUNK• Karizma• Karizma ZMR

Advantages Of Corporate sales at HERO

• Single window processing for delivery at multiple locations

• No running around for documentation• Attractive finance options• Hero MotoCorp Passport - Unique CRM Program• Bulk Incentive Schemes

SPORTS PRODUCTS

HERO also make sports products like BAT.• Kashmir Willow• English Willow

Hero Motocorp

• Past strategy:– Focus on economy segment with splendor and

passion being the flagship product– Minimal presence in the premium segment

• Impact – Largest selling 2 wheeler in the world– Started losing due to market evolution

Hero Motocorp

• Current Strategy– Fully utilize the domination in the economy

segment– Have bigger presence in the premium segment

Hero Motocorp

• It is enjoying 3% advantage in terms of cost of goods sold over Bajaj

• Still their bottom line is 6% thinner then Bajaj• Their operating and non operating cost is 9%

dearer then Bajaj• This is because of high non cash expenses which

is likely to go up with 2 new plants• Their utilization of capacity is the most

optimum among the three

Hero Motocorp

• They have a robust collection mechanism which ensures their collection period is by far the best in the industry

• Their production speed is the fastest among the 3 players

• They are also making their supplier happy by having the best payment period

• Due to the first 2 points their cash conversion cycle is the best despite getting less bargain from suppliers

Hero Motocorp

• They are able to roll money 3 times before paying to the supplier

• They are able to generate 58 paisa out of every rupee invested

BAJAJ GROUP

BAJAJ GROUP

BAJAJ SONS BAJAJ MOTORS

Ludhiana Motor

Agency

Esvee Precision

Component limited

Saroop Sons

industries limited

Veer Industrial

corporation

BAJAJ MOTORS

• Bajaj Motors Limited was incorporated in 1986 and started it’s commercial production in 1989.

• BAJAJ MOTORS was started as a machining unit with backward integration in Forgings of Auto Components

• They are into manufacturing of auto components mainly precision engine & transmission components for Two Wheelers, Four Wheelers, Tractors and other Heavy goods.

BAJAJ MOTORS

• Located on the Delhi-Jaipur Highway on 39-40 milestone, Bajaj Motors Limited is ISO 9001:2000certified & recommended for TS-16949, ISO-14001 certifications from TUV GmBH, Germany. Since its inception in 1986, BAJAJ MOTORS has its specialization in Machining for Auto components specifically Precision Engine Components.

MILESTONES

• 1989 - Start of Bajaj Motors Ltd• 1995 - Establishment of Current Location Bajaj

Motors Ltd.• 1998 - Introduction of Flexible Manufacturing

Concept.• 2000 - Establishment of Microtek Forgings as

Backward Integration.• 2004 - Started Export Activities• 2005 - Iintegrated Management System Certification

of BML, from TUV, Germany.

MILESTONES

• 2006 - Establishment of Ferrous Casting, as backward Integration.

• 2007 - IMS Certification for Microtek Forging Established Aluminium Forging. Plant at Pantnagar.

• 2010- Plant at Haridwar for HHML .• 2011 - New Dedicated Export Line for Machining in

IMT Manesar,Gurgaon.• 2012 - New Forgong Plant at Bawal Industrial area,

Gurgaon.

Facilities

The facilities can be divided in 3 categories:-• Machining• Forging • Casting

Products

• Bajaj Platina (all variant)

• Bajaj Discover

• Bajaj XCD

• Bajaj Pulsar (all variant)

• Bajaj Avenger

Bajaj Motors

• Past strategy:– Full reliance on scooter segment

• Impact:– Was numero uno when scooter was a dominant

segment– Lost out after the entry of motorcycles in the

market

Bajaj Motors

• Current Strategy

– Target the youth with sporty bikes

Bajaj Motors

• Need to reduce the cost of goods sold which is now as high as 71%

• Strategy of backward integration can be deployed

• Need to re enter the fastest growing scooter segment

• Need to capture more market share if they want to make more optimum use of their capacity

Bajaj Motors

• Their collection period is 4 times more lag then Hero but still better then TVS

• The production speed is just above 30% slower then Hero

• They are getting the best terms with their suppliers

• Like Hero they are also enjoying negative cash conversion cycle but a week worse then Hero due to the first 2 points

Bajaj Motors

• They are able to roll the money around 1.5 times before paying it to the suppliers

• They are generating 50 paisa out of every rupee invested worst among the 3

TVS

TVS Motor Company is the third largest two-wheeler manufacturer in India and one among the top ten in the world, with annual turnover of more than USD 1 billion in 2008-2009, and is the flagship company of the USD 4 billion TVS Group.

Milestones

• 1980 – Company launched the first two seater.• 1984 – Company launched 100cc bike and took

first mover advantage.• 1994 – Company launched scooty for women.• 1996-97 – They introduced green concept by

introducing 110 cc Shogun• 2000 – Introduced 150 cc, 4 stroke motorcycle• 2002 – They won total quality management

award

Continued

• 2005-06 – It launched its first Indonesian Plant.• 2007 – It introduced 7 new products.• 2009-10 – It introduced Jive- auto-clutch bike.

International Performance

TVS Motor Company has been awarded 'Star Performer - Silver Shield' in two/three wheelers category, by EEPC India, for excellent export performance for year 2007-08.

Products

Motorcycles• Apache RTR 180• Flame DS 125• Flame• TVS Jive• Star City• Sports

Continued

Variomatic Scooters• TVS Wego• Scooty Streak• Scooty Pep+• Scooty Teenz

Continued

Mopeds• TVS XL Super• TVS XL Heavy Duty.

Service

• Extended Warranty• Xpress Service• Online Service booking

TVS

• Past strategy– Focus on rural/semi urban population

• Impact– Did poorly in urban areas– Started losing due to • Population Migration• Increase in purchasing power

TVS

• Current strategy– Maintain dominance in rural/ semi urban

population– Focus on economy segment in urban population– Presence in premium segment

TVS

• Need to expand its capacity so as to not to lose market share

• Can take advantage of its financial leveragability which is as low as 0.61

• Need to reduce its cost of goods sold as it is most expensive for them

• They need to get their expansion plan in place

TVS

• The robustness of their collection mechanism is similar to that of Bajaj

• The production process is where they are losing big time with the other which is more then double then that of Bajaj and more then triple then that of Hero

• Their payment terms with suppliers are similar to the other 2

• Especially due to the production speed it is the only company with a positive cash conversion cycle

TVS

• Their money is locked in the system for 3 days• They are generating as high as 60 paisa out of

every rupee invested which is the best in the industry

SWOT Analysis

SWOT for HERO

• Strengths– Largest manufacturer of two wheelers in India– Many service stations– Easy availability of replacement part/spare parts– Products for all the segments

SWOT for HERO

• Weakness– After the demerger of Honda from Hero Honda,

Hero will not be getting the technical expertise of Honda in motor engineering

– Capacity utilisation is almost 100%– The word Hero Honda and Honda became

synonymous for normal people– Hero and Honda have almost similar type of

models

SWOT for HERO

• Opportunity– Increase in the sale of sports bike segment– Credit financing by different banks is increasing for

the 2 wheeler purchaser– Increase in disposable income

SWOT for HERO

• Threat– Increase in fuel price– Inflation– Economic slowdown

SWOT for Bajaj

• Strengths– In the last few years they are the innovators in

technology (specially for the brand Pulsar)– Providing technology which can make fuel

efficiency bike– Leader in 150+ cc segments

SWOT for Bajaj

• Weakness– Not full capacity utilisation– Not strong in all the categories– Do not have any presence in the moto-scooter

segment– Worst asset turnover ration in the industry

SWOT for Bajaj

• Opportunity– Increase in the sale of sports bike segment– Credit financing by different banks is increasing for

the 2 wheeler purchaser– Increase in disposable income– Can re-enter the fastest growing segment

SWOT for Bajaj

• Threat– Increase in fuel price– Inflation– Economic slowdown

SWOT for TVS

• Strengths– Strong in the moped segment– Gaining popularity in the 100 cc segment– Capacity utilisation is 100%

SWOT for TVS

• Weakness– Very less product portfolio in the motorcycle

segment– Least financial leveragability in relation to industry

standard– No expansion plans

SWOT for TVS

• Opportunity– Increase in the sale of sports bike segment– Credit financing by different banks is increasing– Increase in disposable income

SWOT for TVS

• Threat– Increase in fuel price– Inflation– Economic slowdown – Migration of people from moped to motorcycle

Industry Life Cycle and PLC

PLC of two wheeler industry- India

PLC of two wheeler industry- India

• Though various segments have reached various levels in the Industry PLC but the industry itself has just entered the maturity stage.

PLC of MotorCycles

PLC of MotorCycles

• Motor cycles had a very strong introduction and growth stage.

• The Indian motorcycle segment has entered the maturity stage

PLC of Scooters

PLC of Scooters

• Scooters enjoyed a pretty long stay in the market

• Decline started after the coming up of motor cycles scooters had reached the start of decline stage

• With scooty, honda activa,aviator the scooter market re-emerged and PLC got a new curve

PLC of Mopeds

PLC of Mopeds

• Started off strong • Had a strong growth phase• Is now in the end of the maturity

Porter’s 5 Forces

Porter’s 5 Forces

Threat of New Entrants

Very Low because• Entry barriers are very high• Product falls under the category of high level of

involvement• The biggest challenge is setting up sales service

center, which is very hard for a new entrant• Well established players are already existing• Industry is consolidated• Economies of scale

Threat of Buyer’s Bargaining Power

Very High because• So many options are available to buyers• Substitutes are available• Supply-demand mismatch in the industry• Supply is greater than the demand

Threat of Supplier's Bargaining Power

In automobile industry sellers can have bargaining power in the following areas• Metal• Tires• Batteries• Auto components

Threat of Supplier's Bargaining Power

• Metal : Prices are determined in international markets, chances of Bargaining power is less

• Tires: They are 40 listed tire manufactures in India, Industry is fragmented. Bargaining power of suppliers is low

• Batteries: Industry is fragmented. Bargaining power of suppliers is low

• Component Manufacturers: Industry is fragmented. Bargaining power of suppliers is low

Intensity of Competition

Intensity of competition is high• Aggressive competent players are already

present• 7 players are present in commuter segment • Manufacturing capacity already exceeding

demand

Threat of Substitutes

• Local trains• Cars• Electrical Vehicles• Public transport

Threat of Substitutes

The substitutes in one form or other have the following attributes• Relative price of substitutes is cheaper• Relative quality of substitutes is higher• Switching costs is lower

Threat of Substitutes

Why people are switching to Local trains?• Safety• Affordability• Time saving• Cost• Pollution

Threat of Substitutes

Why people are switching to Cars?• Safety• Comfort• Status Symbol

Threat of Substitutes

Why people are switching to Public Transport?• Safety• Affordability• Time saving• Cost• Pollution

Threat of Substitutes

Why people are switching to Electrical Vehicles?• Environmental Friendly• Maintenance cost

Threat of Substitutes

Reasons for Electrical Vehicles not doing well ?• Electrical vehicles at present not competitive

with respect to present petrol running vehicles• No established player is offering Electrical

vehicles

What 2 wheeler companies can do ?

Fill the gaps in their product portfolio– Electrical vehicles for environment friendly– Launch a new product which takes care of safety

and comfort

Thank You