automobile sector-two wheeler segment

7/27/2019 Automobile Sector-Two wheeler segment

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Automobile SectorTwo Wheeler Segment

MFM -Group–

D22nd Semester

1



Index

Overview of Indian Automobile Industry

Two wheeler segment

OverviewSegmental profile

Key Financials

Supply

Demand

Elasticity

Growth Strategies

2



One of the major Industrial Sector

Comprises of automobile and auto component

sector

One of the key driver of national economy-

provides large-scale employment

Contribution to GDP ~ 9%

Turnover of ~> USD 35 bn and provides direct and

indirect employment to over 13 mn people.

Overview – Automobile Sector

3



Auto Policy 2002,- 100 % FDIpicking up a 100 per cent equity stake or

by acquiring a share jointly with another company, in the auto

and auto ancillary segments.

Exim Policy 2001-02 -Non-tariff barriers to

protect the domestic industryImports would be allowed only from the country of manufacture.

Vehicles must conform to the provisions of the Motor Vehicles

Act, 1988.

A prototype of the vehicle must be approved by the notified

agencies in India.

Regulation

4



Before 1983Closed market

Growth of market limited by supply

Outdated models - Ambassador, Premier Padmini

Limited Players

Hindustan Motors

Premier

Telco Ashok Leyland

Mahindra & Mahindra

Entry Barrier

License Raj…

Market Structure – Oligopoly to Monopolistic

5



6


From 1993 onwardsDe-licensing of sector in 1993

Imports allowed from April 2001

Increased Competition > 21 manufactures , > 25

brands

Intense competition among players – Launch of Nano

created price war

Product differentiation allows range of price

Branding, advertising and personal selling use to

differentiate the product

Demand and Supply regulated by market forces .



The second largest two-wheeler manufacturer in

the world as well as the second largest market.

The fifth-largest commercial vehicle manufacturerin the world.

The ninth-largest car manufacturer in the world

Established Automobile Testing and R&D centers.

Profile of Indian Automobile Industry

8



CAGR

13.3%

Growth of Indian Automobile Industry

Indian automobile industry stands at 18 million vehicles at present

9



Total Industry estimated Rs 400 billion total volume of

13.3 million units in 2010-11

Domestic industry continue to grow a near 26 % in last 2years

Over last 5 years, the domestic industry has clocked a

growth at a CAGR of 10.8 % until 2010-11.

Two Wheeler Segment

10



The motorcycle segment - segregated into three category

Economy 30K to 45K ( 17.2%),

Executive segment 45K to 60K ( 64.5%) ,

Premium > 60K ( 18.3%)

Segment Wise Market Share

11



Major Players- Hero Honda, Bajaj Auto and TVS Motors

together holding over 80 % market share

HHML leads the motorcycle segment

HMSI leads the scooters segment.

Mopeds continues to have monopoly with TVS Motor being the

only player operating in the segment

Competitive Landscape

12



Player Wise Market Share

The three players - Hero Honda, Bajaj Auto and TVS Motors - continue to

hold around 82 per cent of volumes share.

13



Motorcycle Segment - Market Share

Hero Honda, the market leader, holds a dominant market in the

executive segment.

Whereas Bajaj Auto leads the premium segments with a market share

of around 48.2 per cent.

14



Head 2006-07 2007-08 2008-09 2009-10 2010-11

Raw Material 74.3 73.7 73.2 69.4 73.1

Employee Cost 4.0 4.0 3.9 3.7 3.4

Other Mfg cost 5.0 5.1 5.5 4.8 4.2

Selling Expenses 5.1 4.9 5.6 5.0 4.3

Operating Profit 11.7 12.2 11.8 17.1 15.0

Cost Structure ( %)

15



Two-wheelers - Financials of key players (stand-alone) (2009-10)

Agg. turnover Net profitOperating

Margin

Net Profit

MarginGearing RoCE

(Rs million) (Rs million) (per cent) (per cent) (times) (per cent)

Bajaj Auto 123,999 17,001 21.3 14.2 0.46 52.7

Hero Honda 174,104 22,318 16.9 13.3 0.02 82.1

TVS Motor 46,796 880 6.2 2.0 1.18 4.9

Note: Gearing: Debt divided by net worth.

Based on audited results.

Source: CRISIL Research

Key Financial

16



Two-wheelers - Player-wise operating margin trends (standalone)

(in per cent) 2005-06 2006-07 2007-08 2008-09 2009-10

Bajaj Auto 17.6 14.9 12.2 15.8 21.3

Hero Honda 15.8 12.2 12.9 13.7 16.9

TVS Motor 7.7 4.8 3.2 5.0 6.2

Note:

Operating margin - [Operating profit before depreciation, interest, tax(OPBDIT)/Operating Income]

Source: CRISIL Research

Margin

17



Pricing Strategy –Motorcycle Segment

18



Hero Honda Bajaj Auto TVS

June 10: 1% -1.7% (except

splendor & karishma)Jul 10: 1-2% Jul 10: 1-1.5%

Dec 10: 1 -2.5% Oct 11: 2% Sept 10: 1.2 -2.2%

Mar 11: 2% Jan 11: 1% Apr 11: 1.5 -2%

Apr 11: 1%

Price Hike

19



Joint Collaboration Agreement with Honda Motor Co. Ltd. (Japan)Increase in overall production capacity- 5.4 mn units from 4.6 mn in

10-11

17 products (excl variants).

Concentric diversification – all the variants available

Entry

Executive

Premium

Super Premium

Eyeing to take over the luxury bikes maker Ducati Motor Holding

SpA.

Tie up with Erik Buell Racing from US to further enhance and

expand its R&D capabilities

Non pricing Growth Strategy – Hero Motor

20



Creating Visibility- extensive PromotionBackward Integration-

Dealer Management System automating supply chain,

enhancing information availability as well as

transparencyForward Integration –

Goodlife Membership

5000+ customer touch points

100000+ villages covered , extensive in rural India

Sector contributes ~ 44% of total sales volume

Tie up with rural and co-operative banks Shwet-Labh, a

specially designed loan package for Milk Cooperative

members21

Non pricing Growth Strategy – Hero Motor



Moderate capital- intensive.

Avg. capex required for manufacturing car is ~1L per unit, for two

wheeler12K to 15K per unit.

Requires facilities for making engines, body fabrication and

assembly.

Currently use of flexible production line that reduce change-over

time when capacity is shifted between various products.

Estimated Capacity 16.3 mn units – 72-75% utilization.

Over the next 2 years, incremental capacity of over 5 million

units is likely to come up with a total investment of Rs 40-50

billion.

Factors Affecting Supply- Motor cycle

22



100% FDI

Quantitative restrictions on imports of new and

used two-wheelers have been removed.

Scope of increase the Market Penetration

Factors Affecting Supply- Motor cycle

23



Shift in Supply- Motor Cycle

24

Quantity Supplied

Price

S1

S

Price p .u

35K

13.4

33K

10.5

32K8.4

29K8.4 8.0

06-07 07-08 08-09 09-10 10-11

Qty Produced (mn)

Changes in Qty produced Change in Price p.u

59% 21%



Per capita real GDP growth of 7% (CAGR) over the last sixyears

Rural Demand

Demand in rural market is on rising trend due to increase in farm incomes,

supported by higher minimum support price and stable crop output

Increase in non-farm sources of household income in rural areas due to

higher business activity

Urban Demand

Growing urbanization

Higher income level

Improved finance scenario due to small ticket size.

Swelling replacement demand.

Factors affecting Demand- Motor Cycle

25



High fuel prices led consumers to shift towards more fuel

efficient products

Favourable demographic profile- young population

33% of India’s population of 1.2 billion (in 2011) belongs to the agebracket of 20-40 years.

Underdeveloped public transport system

Cheaper ownership cost

Factors affecting Demand- Motor cycle

26



Price

Quantity demanded

Shift in Demand- Motorcycle

27

Price p .u

35K

13.3

33K

10.5

32K

8.4

29K8.5 8.1

06-07 07-08 08-09 09-10 10-11

Qty Sales (mn)

Changes in Sales Qty Change in Price p.u

57% 21%

D1

D



Price Elasticity of Demand =% change in Qty

sold/ % change in Price

Ep = -2.75

Since Ep>1, the demand is relatively elastic.

Particular 2010-11 2006-07

Net Realization p.u 35000 29000

Unit Sold 13329895 8469345

Price Elasticity of Demand- motorcycle segment

28



Income Elasticity >1. Increase in the Per Capita Income has driven thegrowth in this segment

As per NCAER’s estimates, the number of households having annual

income between Rs. 2 lac- 5 lac is estimated to have increased to 22

million in 2009-10, a scale-up by a factor of 2.5x over 2001-02.

Income Elasticity- motorcycle segment

29



Promotional Elasticity :-Advertising and distribution expenses

have accounted for 6.0-6.5 per cent of the operating income.

Based on the number for Hero Motors calculation.

EA ~ 4.6 % .

Particular 2010-11 2009-10

Net Sales ( Rs in Cr) 19245 15758

Advt & Publicity Cost( Rs in

Cr)382.6 364.97

Promotional Elasticity of Demand- Hero Motor

30



31

Short-term & Long-term outlook

In 2011-12, domestic two-wheeler volumes growth is expected

to moderate to 10-12 per cent owing to tighter credit

availability, high inflation and the higher base of 2010-11.

Over the long term, the domestic two-wheeler market will

grow at a CAGR of 10-12 per cent to achieve volumes of 19-21

million units by 2015-16.

Growth will be driven by a rise in rural income, improvingfinance scenario, increasing number of attractive finance

options such as direct cash collection (DCC) and stable urban

demand.



32



33



44.5 % share in domestic 2W market

5000+ customer touch points

100000+ villages covered , extensive in rural India

Distribution network has grown nearly 2x compared to peersover past 4 years

Sector contributes ~ 44% of total sales volume

6 new products launched in 2010-11( incl variants)

Add on Features

New Karizma comes with an ensemble of new features (new

design stripes and colours, new seat texture and winkers with

clear lens. Maintenance-free battery and enhanced position

lamp illumination

Non Pricing Strategy – Hero Motor Corp

34



Creating VisibilityAdd campaign “ Desh Ki Dhakan”

Sponsored XIX Commonwealth Games in Delhi

Hero Honda Karishma lead brand ICC World Cup 2011.

Introduced Passion Pro Commonwealth Games Limited edition

Customer Centric Approach

Extended warranty option

8.2 mn + membership in Goodlife loyalty program- largest customer

relationship program of its kind in India.

14% of the sale comes thru referral in 2010-11

Rural Approach “ Har Ghar Har Angan – every Indian home and every

Indian village .

Saral finance for rural Indian –tie up with Rural & Co-operative banks

Swet –Labh- specially designed loan package for milk co-op societies


35



R&D efficiency-help in launching multi-models in short intervalwith high level of localization. Focus on new product

development

Strong Focus on supply chain integration

Accurate and prompt decision making- Cost Modeling Analysis


36



37



(Figures in million) 2009-10

Total number of households 222

-Households (with annual income <90,000) 114

-Households (with annual income between 90,000-1,000,000) 104-Households (with annual income >1,000,000) 4

2W population in India 80

2W Penetration

Based on total number of households 36%

Based on addressable income levels74%

2W Penetration in India

Source : Census, NCAER, ICRA’s Estimates

38



Motorcycle

Scooter

39



From 1983 –

1993

Government of India (GoI)-Suzuki joint venture (JV) to

form Maruti Udyog

JV with companies in commercial vehicles andcomponents

Players

Maruti Udyog

Hindustan Mot Premier

Telco

Ashok Leyland

Evolution of India as a global manufacturing hub

40



Evolution of India as a global manufacturing hub

From 1993 –

2011

De-licensing of sector in 1993

Global major original equipment manufacturers (OEM)

start assembly in India (Toyota, GM, Ford, Honda,Hyundai)

Imports allowed from April 2001; alignment of duty on

components and parts to Association of Southeast Asian

Nations (ASEAN)* levels

Implementation of value-added tax (VAT)

More global players, such as Volkswagen, BMW, Nissan,

automobile sector-two wheeler segment

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