marketing on hero honda

8/7/2019 Marketing on Hero Honda

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Marketing Management

Project

On

Hero Honda


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Content Page

1.0 Introduction .. . 11.0.1 Management .. 2

1.0.2 The Hero Group .. 31.0.3 The Honda Motor Co. .................. 42.0 The Finances .. 5

2.1 The Financial Analysis . 73.0 Industry Development and Growth of Hero

Honda .. 134.0 Primary Competitors .. 15

4.0.1Bajaj Auto ... 154.0.2Yamaha ...154.0.3TVS 16

5.0 Comparative Studies ...176.0 Product Categorization and Segmentation ..21

6.0.1 Segmentation of Hero Honda Product .217.0 Marketing Strategies of Hero Honda ..............248.0 Finance Schemes of Hero Honda and Others .........269.0 Product Positioning 2710.0 Competitors Product Positioning 2911.0 Dealership Contact Initiative for Hero Honda . 3112.0 Sales Promotion Strategies .. 33

12.1 Advertising Strategies ..... 3313.0 Survey Findings .. 3614.0 Hero Honda A S.W.O.T Analysis . 4215.0 Annexure .. 4516.0 Questionnaire ... 5517.0 Bibliography .62


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Executive Summary

Hero Honda is one of the most successful joint venture companies in India. It was thefirst company to manufacture four stroke motorcycle right from its inception. Recently ithas become the worlds largest motor cycle manufacturing company. Its success can be

attributed to high quality products and efficient service, improvement in costrationalization, better working capital management, efficiency in manufacturing andhigher productivity.

But recently as a market leader HHML has struggled to maintain its margins due to stiffcompetition from other brands like Bajaj and TVS. Due to this strong competition, itsgrowth rate has been slower than its competitors, especially Bajaj. This has been furtheraggravated by the pricing and the rising input cost pressure. As a result, operatingmargins for financial 2004-05 have been impacted heavily.

SURVEY FINDINGS:

The consumer prefers Hero Honda in terms of quality and reliability. However they donot perceive it as a value for money proposition. Due to this it has not been able tosucceed in the economy segment.

Hero Honda enjoys a very strong brand image and brand loyalty. But the company shouldnot get complacent as a better product from the competitor will dilute the companysbrand image.

Hero Honda is lacking products like pulsar which can ignite the passion of youth.

It was found that only a small number of consumers came to the dealers due to its salespromotion. This indicates that there is a scope for improvement in sales promotion otherthan free gifts and discounts as it was not an attractive proposition for their buyingdecision.

PROBLEMS:

Hero Honda is very strong in executive segment but far behind its competitor in theluxury and economy segments. It doesnt have a product to match Pulsar and CT100 andTVS star which was lunched recently.

The best selling model was launched ten years back and hasnt improved in terms oftechnology or features over the last 10 years. It has only undergone some minor facelifts.Hero Honda will soon have to upgrade it in all fronts else a good product from competitorcan eat its market share in no time.

For years it has not invested significantly in research and development and after Hondahas come up with its own subsidiary HMSI Ltd .It is now even more important to betechnology independent.


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No effective ad campaigns have came after the desh ki dhadkan campaign.

Company needs to look at its financing options as only 30 to 40% of its bike is sold infinancing schemes in Orissa in comparison to 60 to 70% of Bajaj.

RECOMMENDATIONS:

It has to come with a product that can not only match but supercede the looks andperformance of pulsar to increase its market share in luxury segment.

Similarly in the economy segment it has to develop a product better than CT100 andTVS Star and promote it aggressively to overtake Bajaj in the economy segment.

It needs to introduce an improved version of Splendor within a short period so as to retainthe market captured by Splendor.

It needs a significant investment I Research & Development so as to come up with newtechnologies & products before the competitors reap that market.

It has to come up with a new and catchy advertisement theme so as to be consistently intop of the mind awareness of the consumers.

The company needs to come up with new and innovative finance schemes so as to enablethe consumers to get finance easily and that too at a very low interest rate and processingcosts. The formalities required to be complied before granting finance should be madesimpler and hassle free.

Company needs to introduce a product so as to build an image which can be identifiedwith youth. It should be eye catching, powerful and give a rough and tough image.


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Introduction

1.0 Introduction

Hero Honda was the result of a joint venture between the Hero Group, the world's

largest bicycle manufacturer and the Honda Motor Company of Japan. Today, HeroHonda has become the world's largest two wheeler company. Hero Honda MotorsLimited came into existence on January 19, 1984 and gave India nothing less than arevolution on two wheels. This revolution was made even more famous by the 'Fill it -Shut it - Forget it ' campaign. With over 5 million customers, the Hero Honda productrange today commands a market share of 50% making it a veritable giant in the industry.The salient features of this success story include technological excellence, an expansivedealer network, reliable after sales service, and a reputation as one of the most customer-friendly companies in India.

It is debatable as to what are the best means of judging the quality of a company,

but most would agree that sales figures go a long way in giving us a realistic picture ofhow the companys products have been received by the people. The sales details of HeroHonda over the years are given in the following table, and ought to give us an idea of thephenomenal rate at which this company has grown.

Financial Year Sales (No. Of Units Sold)

1985-86 43,000

1989-90 96,200

1998-99 5,30,600

1999-2000 7,61,210

2000-01 10,29,5552001-02 14,25,195

2002-03 16,77,537

2003-04 2,070,157

2004-05 2,621,400

Sales Performance, 2004 and 2005 (comparative)

Jul'04 Jul'05 Apr'04-Jul'04 Apr'05-Jul'05

Domestic 201577 223150 797698 881176

Exports 4077 6900 17079 36441

The mission statement of the company is as follows:


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Introduction

We, at Hero Honda, are continuously striving for synergy between technology, systems,and human resources to provide products and services that meet the quality, performance,and price aspirations of our customers. While doing so, we maintain the highest standardsof ethics and societal responsibilities, constantly innovate products and processes, anddevelop teams that keep the momentum going to take the company to excellence in the

new millennium.

Recently, Hero Honda has roped in Hrithik Roshan (actor), Sourav Ganguly (Captain,Indian Cricket Team), Mohammad Kaif, Harbhajan Singh, Zaheer Khan, Yuvraj Singhand Virender Sehwag (Members of the Indian Cricket Team) as its brand ambassadors.Although a large number of diverse factors go into the success of a company and itsproduct, in the case of Hero Honda the key factors were immense customer satisfaction,high quality of the product, strong technology, and above all the Honda groupsdynamism.

1.0.1 Management

To quote Mr. Brijmohan Lall Munjal, the Chairman and Managing Director:

"We will continue to make every effort required for the development of the motorcycleindustry through new product development, technological innovation, investments inequipment and facilities, and through and through efficient management."

The story of Brijmohan Lall Munjal is one of the brightest stories of Indianentrepreneurship. His inspiration to enter the two-wheeler world came from a desire toprovide the cheapest form of transport for the poorest of the poor. He, along with hisbrothers, started off as manufacturers of bicycle components. The rest, as they say, is

history!

According to Munjal, his guiding principles throughout have been:

Trusting his uncanny instincts

A unique approach to people one from the heart

Ahead of his time, every time!

The ideal corporate citizen, showing others the way!

Today, Hero Honda employees constitute a family of about forty successfulentrepreneurs.

The following table contains the details of the Board of Directors, Hero Honda:


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Introduction

Chairman Mr. Brijmohan Lall Munjal

Managing Director Mr. Pawan Munjal

Joint Managing Director Mr. Miki Yamamoto

Whole-Time Director Mr. Shinichi Nakayama

Director Mr. Satyanand Munjal

Director Mr. Om Prakash Munjal

Director Mr. Satoshi Toshida

Director Mr. Koji Nakazono

Director Mr. S P Virmani

Director Mr. N N Vohra

Director Mr. Pradeep Dinodia

Director Gen. (Retd.) V P Malik

Director Mr. Analjit Singh

Director Dr. Pritam Singh

Director Dr. Vijay Laxman Kelkar

Director Ms. Shobhana Bhartia

1.0.2 The Hero Group

"Hero", a household name in India, came into being in the year 1956. The brandsymbolized the steely ambition of the enterprising Munjal brothers, who transformed themodest manufacturer of bicycle components in the early 1940s to what is today theworlds largest bicycle manufacturing company. The quest was fueled by a singular andunwavering vision - to build long-lasting relationships with everyone, including workers,

dealers and vendors. This philosophy has paid rich dividends through the years.

Today Hero is a multi-unit, multi-product, geographically diversified Group ofcompanies. Through fully integrated operations, the Munjals roll their own steel, makecritical components such as free wheels for their bicycles, and have the foresight tosimultaneously diversify into myriad ventures, like product designing, IT enabledservices, finance and insurance, just to name a few.

Like every success story, Hero's saga contains an element of spirit and enterprise; ofachievement through grit and determination, coupled with vision and meticulousplanning. Throughout its success trail, the Hero Group and its members have displayed

unwavering passion of setting higher standards for themselves and delivering simply thebest to their customers.

The Hero Group philosophy is:

"To provide excellent transportation to the common man at easily affordable prices and toprovide total satisfaction in all its spheres of activity."


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Introduction

Thus apart from being customer-centric, the Hero Group also provides its employees witha fine quality of life and its business associates with a total sense of belonging. In thefollowing pages, a table has been provided which gives us a timeline of milestones in thehistory of the Hero Group.

Today, the Hero Group comprises of 18 companies, 300 ancillary suppliers, deep marketpenetration with over 5,000 outlets, 23,000 + employees and a turnover of US$ 2.2billion.

A time line of the company is provided in the Annexure 1.0.

1.0.3 The Honda Motor Co

Established in 1948, Honda Motor Co. Ltd. is one of today's leading manufacturers ofautomobiles and the largest manufacturer of motorcycles in the world. The Company isrecognized internationally for its expertise and leadership in developing and

manufacturing a wide variety of products that incorporate Honda's highly efficientinternal combustion engine technologies, ranging from small general-purpose engines tohighly efficient cars which have made it a leading automobile company as well.

Throughout all of its operations from product development and manufacturing to sales Honda maintains a commitment to materialize our company's visions of "valuecreation", "globalization" and "commitment to the future" with the aim of sharing the joywith all their perspective and present groups of customers worldwide.

Seeking to maximize customer satisfaction levels, Honda works together with theirnumerous business partners to supply Honda products to countries worldwide. Integral in

this effort is their global network of 441 subsidiaries and affiliates (317 consolidatedsubsidiaries, 21 non-consolidated subsidiaries and 103 affiliates).

A time line of the company is provided in theAnnexure 2.0.


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Hero Honda-Finances

2.0 The Finances

The understanding of any company can never be complete without a look at its financialsituation. The following is intended to serve this purpose.

Un-audited Financial Results for the Quarter Ended June 30, 2005:

(Rs. in Crores)

S.No. Particulars

Quarter

ended

June 30,

2005

Corresponding

Quarter ended

June 30, 2004

Year ended

March 31, 2005

(Audited)

1 No. of

Motorcycles Sold

687,567 609,123 2,621,400

2 Gross sales/ Income fromoperations

2,286.03 1,993.55 8,596.81

Less: Excise duty 308.97 271.27 1,175.16

Net sales/ Incomefrom operations

1,977.06 1,722.28 7,421.65

3 Other income 30.57 22.93 141.03

4 Total Turnover 2,007.63 1,745.21 7,562.68

5

Total Expenditure 1,684.79 1,436.85 6,257.14

[A] {Increase}/ Decrease in stockin trade

(3.69) 5.51 (14.95)

[B] Consumption ofraw materials

1,408.11 1,202.13 5,214.57

[C] Staff cost 71.00 63.89 267.97

[D] Other expenditure 209.37 165.32 789.55

6 Interest (net) (0.30) (0.15) (1.09)

7 Depreciation 25.02 20.47 89.38

8 Profit for theperiod before tax

298.12 288.04 1,217.25

9 Provision for tax - Current 90.00 95.98 395.22

- Deferred 3.67 1.99 11.56


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Hero Honda-Finances

10 Net profit (8-9) 204.45 190.07 810.47

11 Paid-up EquityShare Capital

39.94 39.94 39.94

Face value per equity

share (Rs.)

2.00 2.00 2.00

12 Reserves excluding revaluationreserve

- - 1,453.44

13 Basic/diluted earningsper share

10.24 9.52 40.59

14 Aggregate of non-promoters shareholding

(Rs. 2.00per share)

(Rs. 2.00 pershare)

(Rs. 2.00 per share)

Number of shares 89,945,570 89,945,570 89,945,570

Percentage of

holding (to total holding)

45.04% 45.04% 45.04%

2.1 The Financial Analysis


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Hero Honda-Finances

The analysis of the statement is shown below:

HERO HONDA MOTORS LIMITED since its inception has consistentlycreated value and maximized returns to its shareholders. The following facts present a

true analysis of the growth and progress that Hero Honda has made over the last fewyears especially as compared with the best in the industry-

PROFITABILITY RATIOS:The following facts show the growth %age (over previous year) of

various key indicators which impacts the profitability of the company.(In terms of %age)

Hero Honda Bajaj Auto TVS Motors

01-02 02-03 03-04 01-02 02-03 03-04

01-02 02-03

03-04

Gross

Sales

40.75 14.22 32.24 14.97 15.79 13.83 21.56 40.55 4.78

PBDIT 63.21 20.49 16.7 48.39 38.93 12.11 0.95 91.20 5.79

PAT 73.78 17.72 24.44 20.52 47.94 18.80 (13.54) 125.7 12

The highlights of the analysis are:

Sales grew by 32.24% to Rs 5997 in 03-04 as compared to 5195 in 02-03.Whereas that of Bajaj grew by 13.83% and of TVS Motor grew by 4.78%.This is the vital reason of the rapid growth and success of the company. Itis this rapid growth which enabled the company to increase its marketshare to 48% from 37% in motorcycle and 2 wheeler segment.

Operating Profit Before Depreciation , Interest and Tax(OPBDIT) grew by16.7% from Rs 854cr in 02-03 to Rs 979cr in 03-04. This is despite thefact that cost of raw material as a %age of total sales has increased from68% to 69.1% owing to a change in sales mix & higher steel prices.

Continuous focus on cost management & operating efficiency has enabledCo. to improve OPBDIT margin (OPBDIT as a % of net sales) from16.7% in 02-03 to 16.8% in 03-04.

PAT grew by 24.44% from Rs 581cr to Rs 728cr in 03-04.

RETURN RATIOS:The following ratios show the income earned by the company

taking different bases.(Rs in crores)

Hero Honda Bajaj Auto TVS Motors


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Hero Honda-Finances

01-02 02-03

03-04

01-02 02-03

03-04 01-02 02-03 03-04

GrossRevenue(Rs)

4539 5195 5997 4172 4831 5525 2214 3111 3260

PAT(Rs) 463 581 728 360 533 633 54.58 123.17 138PAT as a %of GrossRevenue(%age)

10 11 12 8.63 11 11.46 2.47 3.96 4.23

PAT as a %of Totalassets

30.41 26.17

25.44

9.13% 11.59%

11.67%

6.48 12.71 11.78

ROAE(%age)*

67.7% 66.6%

61.4%

13.13%

17.5%

18.26%

16.05 33.02 28.01

ROACE(%

age)**

95.3% 94% 85% 16.74

%

21.4

5%

20.91

%

20.86 42.20 37.24

* ROE=PAT/Average Equity during the year

**ROCE=PBIT/Average Capital Employed during the year

The above financial results are the best in the industry. It is a consolidated effort ofefficiency in sales as well as excellence in resource management. This combination is oneof the reasons of the sharp rise in the shareholders wealth. The highlights of above tableare:

PAT as a %age of Gross Revenue for Hero Honda is hovering around 10-12%,whereas that for Bajaj and TVS is somewhere in the range of 3-5%. Thus profitmargin of Hero Honda is way above the industry standards, which reflect theinbuilt competencies of the company in reducing costs through increasedefficiency and productivity.

PAT as a % age of total assets of Hero Honda is way above that of the industryfigures which explains the dominance of Hero Honda. It reflects how it utilizes itsassets to the optimum use.

Return on Average Equity was at 61.4% in 03-04 where as that of Baja grew only

by 11.67% and that of TVS Motor by 11.78%. The company is able to earn a veryhigh percentage of return on its net worth which is an excellent indicator of thestrong fundamentals of the company.

Return on Average Capital Employed was at 85% in 03-04 where as that of Bajajis 18.26% and that of TVS Motor is 11.78%. This once again reflects the strongfundamentals of Hero Honda. This is a perfect reflection if the way company hasgrown in the past few years.


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Hero Honda-Finances

SOLVENCY RATIOS:The following ratios explain the long term solvency of the company.

Hero Honda Bajaj Auto TVS Motors01-02 02-03 03-04 01-02 02-03 03-04 01-02 02-03 03-04

Long termdebt/Equity

.172 .156 .153 .218 .259 .273 .409 .250 .202

Interestcoverageratio***

21.23 33.85 42.76 161.91 464.14 981.16 5.63 18.47 21.77

***Interest coverage ratio=PBIT/Interest expenseFrom the above table we can make the following conclusions:

Hero Honda is making a continuous effort to become debt free which is in linewith the trend in the industry. To achieve this, the company repaid a loan 0f

Rs9.67 cr during the year as a result its D/E ratio has fallen from 0.172 on 31-3-02 to 0.153 on 31-3-04. A lower D/E ratio means the interest cost ofservicing the loan would be very low and the control of the outsiders in thebusiness would be minimal as a result there is no such risk of the companyentering into a debt trap. This will reduce the risk of the equity shareholdersand increase the wealth of the shareholders.

If we look at the competitors D/E ratio, a similar trend can be found eventhough their D/E ratio is higher than that of Hero Honda. Thus Hero Honda is hasout performed its competitors in this sector also.

The interest coverage ratio has risen sharply as can be seen in the above data.In case of Hero Honda it rose from 21.23 in 01-02 to 42.67 in 03-04. This is anindication of the huge reduction in debt due to the wide debt reduction policyfollowed by the company and also of the huge rise in the profit during thisperiod. The interest coverage ratio of Bajaj is way too high over that of HeroHonda and TVS Motor, which gives a strong signal of its ability to meet itsinterest expenses

LIQUIDITY (WORKING CAPITAL) RATIOS:

HERO HONDA BAJAJ AUTO TVS MOTORS

01-02

02-03

03-04

01-02

02-03

03-04

01-02

02-03

03-04

Currentratio=CurrentAssets/CurrentLiability.

1.48 1.40 1.31

1.75 1.12 1.44

1.1 .86 .78


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Hero Honda-Finances

Quick/Liquid ratio 0.25 1.21 1.3 1.01 .77 1.57 .47 .31 .23

Raw materialinventory(daysconsumption)

10.71 9.62 10.53 7.71 9.8 11.2 14.08 11.52 11.49

Finished goods

inventory(daysconsumption)

2.33 4.76 3.31 8.3 9.01 6.41 13.80 16.16 14.49

Receivables(daysgross sales)

2.74 10.12 8.15 9.02 12.85 17.53 16.36 7.05 6.72

Creditors(dayscost of sales)

52.84 35.57 38.79 56.18 43.24 48.74 58.62 60.81 60.02

The above table gives the following inferences:

Current ratio of Honda has fallen to 1.31 and whereas quick ratio is 1.30. Thisindicates that the company does not maintain stock or maintains a veryminimum stock. So it can be interpreted that the company is following a Just in

Time method of inventory control. Thus it reduces the carrying cost of holdinginventory.

The receivables (days gross sales) is 8.15 whereas that of Bajaj is 17.53 and ofTVS motor is 6.72. It shows that Hondas debtor in the balance sheet isreflected at an amount equivalent to 8.15 days sales. This is in line with theindustry statistics.

The finished goods inventory (days consumption) of Hero Honda is better thenthat of its competitors.

CASH FLOW ANALYSIS:The net cash flow position can be depicted in the following table:

Rs in croresHero Honda Bajaj Auto TVS Motor

03-04 02-03 03-04 02-03 03-04 02-03

Cash from Operatingactivities

971.22 619.01 572.92 836.72 280.73 233.78

Cash from Investingactivities

(376.38) (484.67) (641.09) (811.09) (215.94) (247.92)

Cash from Financingactivities

(581.92) (218.94) 73 23.71 (45.07) (54.29)

The Cash flow from operations (CFO) of the Co. is rising at a rapid pace. TheCFO was 971.22cr in 03-04 as compared to 572.92 for Bajaj Auto and 280.73 forTVS Motors. This is a result of the increase in market share of Hero Honda from


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Hero Honda-Finances

37% in 02-03 to 48% in 03-04. The cash generated from operating activities is astrong indication of the growth of the Co as it is the major source from whichexpansion of the company is funded.

The Co. has made huge investments in Fixed assets apart from making

investments, which is evident from the fact that cash outflow of investingactivities is a whopping 376.38cr. The Co. is following an expansion plan and hasmade huge investments in increasing companys manufacturing capacity whichresulted in the growth of fixed assets by 13.95% in 03-04. This gives a positivesignal of the future growth prospects of the company.

Hero Honda is slowly moving towards becoming a debt free company which is inparity to the pattern followed in this industry. The co. had repaid a the long termloan of Rs 9.67cr. Even though the co. raised a loan of Rs 50cr but it was undersales tax deferment scheme. This would lead to reduction in interest expenses andthus contribute to the wealth of shareholders by increasing the profits.

It is clearly evident from the above cash flow pattern of Hero Honda and itscompetitors that Hero Honda is a fast growing company which uses the funds generatedfrom its operating activities to finance its expansion plans. This is one of the key reasonsof the sharp increase in market share irrespective of the stringent competition it faces.

ECONOMIC VALUE ADDED (EVA)

EVA, a measure of corporate value creation, indicates whether the management of aCompany generates returns that cover the weighted average cost of capital. By explicitlyincluding the cost of equity, EVA recognizes that capital is scarce and investors, whoclaim the residual share of a firm's earnings, need to be compensated adequately forassuming the risk of investing. The EVA of Hero Honda has increased from Rs.481Crore in 2002-03 to Rs.569 Crore in 2003-04. This shows the strong fundamentals onwhich the company is built and the core competencies with which it operates.


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Hero Honda-Finances


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Hero Honda-Growth

3.0 Industry Development and Growth of Hero Honda

In the last eight to ten years, the two-wheeler market has witnessed a marked shifttowards 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 ofmotorcycle segment has grown from 48% to 58%, the share of scooters declineddrastically from 33% to 25%, while that of mopeds declined by 2% from 19% to 17%.The Euro emission norms effective from April 2000 led to the existing players in the two-stroke segment to install catalytic converters. All the new models are now being replacedby 4-stroke motorcycles. Excise duty on motorcycles has been reduced from 32% to24%, resulting in price reduction. This has aided in propelling the demand formotorcycles. Fierce competition has also forced players to cut prices of certain models.

Hero Honda has been an early-entrant in the 4 stroke segment of the twowheeler industry. With a right mix of product styling and pricing, the company helped

garner a larger market chunk of the 4stroke market as compared to Bajaj Auto. Ashifting consumer preference towards motorcycles has also enabled the fast growth of thecompany in the last few years.

In the quarter ended on March 31, 2005 India's motorcycle sales rose by 19% to4,964,442 units versus 4,170,445 units in the previous fiscal year. It also exhibited agrowth in sales of 25.7%, selling 2,557,385 vehicles. In the quarter ended on 31 July2005 the two wheeler segment grew by 12. 7 % and export by 37.66% comparing to thesame period last year.

Competition has intensified over the last couple of years, altering the dynamics in

the motorcycle segment with various companies planning to cash in on this spurt indemand by calling off their JVs. A good example is that of Suzuki Motors, who areplanning to break-off with TVS. HHML, a part of the Hero group, is a reputed name inthe two-wheeler sector and the management has a rich experience in the business. HHMLis a joint venture with The Honda Corporation, Japan and over the years has been themost successful Indo-Japanese venture in two-wheelers. The company has been cashrichand has been effectively utilizing its surplus resources combined with prudent workingcapital management. The lowinterest regime has helped in reducing the cost of loans,which will help in boosting sales of 2-wheelers, since 80% of the two- wheelers arecreditstimulated

Hero Honda has opted for the powerful self service features of mySAP SupplierRelationship Management (mySAP SRM), plus the e-commerce capabilities of mySAPCustomer Relationship Management (mySAP CRM). It was chosen as the software canbe seamlessly integrated into existing environment. The new SAP solutions have

increased their competitive strength. It has planned to bring in operational efficiencieswith special focus on distribution, dealerships and pricing and the successful


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Hero Honda-Growth

implementation of SAP R/3 (ERP- Program-" Project Synergy ) has enabled properplanning and company wide efficiency.


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Hero Honda-Competitors

4.0 Primary Competitors

The following is a concise analysis of the companies besides Hero Honda whichare major players in the motorcycle sector. These companies form the major competition

for Hero Honda, and hence assume importance in the context of this study. The primarymajor competitors are Bajaj Auto and Yamaha.

4.0.1 Bajaj Auto

The Bajaj Group came into existence during the Indian National Movement.Jamnalal Bajaj, founder of the Bajaj Group, was a confidante and disciple of MahatmaGandhi, and was deeply involved in the effort for freedom. The integrity, dedication,resourcefulness and determination to succeed which are normally associated with theCompany today, are often traced back to its birth during those long days of relentlessdevotion to a common cause.

Kamalnayan, the eldest son of Jamnalal Bajaj, succeeded his father in 1942, at the age oftwenty-seven. Putting the Nation before business, he devoted himself to the latter onlyafter India achieved independence in 1947. But when he did so, he put his heart and soulinto it. Within a short while, he not only consolidated the Group, but also diversified intovarious manufacturing activities, elevating the Group to the status it enjoys till this day.

Rahul Bajaj today heads the Group. He has been the Chief Executive Officer of Bajajsince 1968 and is recognized as one of the most outstanding business leaders in India. Asdynamic and ambitious as his illustrious predecessors, he has been recognized for hisachievements at various national and international forums.

Bajaj is currently India's largest two and three-wheeler manufacturer and one of theLARGEST in the world.

4.0.2 Yamaha

Yamaha's history goes back over a hundred years, to 1887 when TorakusuYamaha founded the company. Initially the company used to produce reed organs. TheYamaha Motor Corporation, Ltd., begun on July 1, 1955, is a major part of the entireYamaha group, but is a separately managed business entity from the YamahaCorporation. The Yamaha Motor Corporation is the second largest manufacturer ofmotorcycles in the world. In 1954 production of the first motorcycles began, a simple

125cc single-cylinder two-stroke. It was a copy of the German DKW design, which theBritish BSA Company had also copied in the post-war era and manufactured as theBantam.

The first Yamaha, the YAI, known to Japanese enthusiasts as Akatombo, the "RedDragonfly", established a reputation as a well-built and reliable machine. Racingsuccesses helped boost its popularity and a second machine, the 175cc YCI was soon inproduction.


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Hero Honda-Competitors

The first Yamaha-designed motorcycle was the twin-cylinder YDI produced in 1957. Theracing version, producing 20bhp, won the Mount Asama race that year. Production wasstill modest at 15,811 motorcycles, far less than Honda or Suzuki.

The company grew rapidly over the next three years and in 1959 introduced the first

sports model to be offered by a Japanese factory, the twin-cylinder YDSI with five-speedgearbox. Owners who wanted to compete in road racing or motocross could buy kits toconvert the machine for both road and motocross racing.

4.0.3 TVS

What is today known as the TVS Group comprises more than 30 companies,which employ a combined total of more than 40,000 people. TVS Motor Co. Ltd., whichis the flagship company of the group, is one of the major Indian players in the

manufacturing of two-wheelers, auto components. This company has many achievementsto its credit, which include being the first such company in the world to be honored withthe Hallmark of Japanese Quality The Deming Prize for TQM. Other achievementsinclude launching Indias first two-seater Moped, being the first Indian company tointroduce Indo-Japanese motorcycles (1984), and many such similar path-breakinginitiatives.


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Hero Honda-Comparative Studies

5.0 Comparative Studies

The following tables enable us to get a broad view of how other competitors have beenfaring in general.

Hero Honda Limited:

Model Sales

Karizma 9736

CBZ 16935

Passion/ 34782

Splendor 38401

CD 100/CD 100 SS/Sleek 11099

CD-Dawn 1880

Hero Honda Sales Distribution

9%

15%

31%

33%

10% 2%

Karizma

CBZPassion/

Splendor

CD 100/CD 100 SS/Sleek

CD-Dawn

Bajaj Auto Ltd.:


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Products Plying On Roads Sales Figures (Quarter Ending June 05)

Pulsar 29003

Discover 18957

CT 100 229880

Wave 2397M-80 4S 2106

Chetak 4S 7843

Eliminator Stopped Manufacture

Avenger 450

Wind 1900

Bajaj Auto

10%

7%

82%

0%1%

Pulsar

Discover

CT 100

Avenger

Wind

TVS Motors:



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Centra 30903

Victor 45891

Fiero 17693

Star 5039

Scooty 18240

TVS

31%

46%

18%

5%

Centra

Victor

FieroStar

Yamaha Motors:


RX 135 20349

Enticer 1038

Fazer 11293

Libero 19439

Crux 3209


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YAMAHA

37%

2%

20%

35%

6%

RX 135

Enticer

Fazer

Libero

Crux


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Customization And Segmentation

6.0 Product Categorizations and Segmentation

Indian motorcycle market

SegmentsPriceRange Hero Honda

BajajMotors

TVSmotors Yamaha

Luxury

> 65000 KarizmaEliminator

/ Avenger

Executive

HigherExecutive >50000 CBZ/CBZ Plus Pulsar Fierro

Fazer,Enticer

MiddleExecutive

40000 -45000

Passion/Passionplus/Splendor/SplendorPlus Discover Victor RX 135

LowerExecutive

35000 -40000 CT 100 Centra Libero

Lower

Economy


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Higher CBZ Pulsar Fiero Fazer

Strengths1. High break horse power. Sopower is maximum2. Style of the bike is at par.3. The break system and fuelignition system is very good4. Colors and stickers areexcellent and also attractive.

Weakness1. The fuel efficiency is verynegligible2. The vehicle is heavy.3. The spare parts of the bikeare very expensive.

MiddleHigher

Passion/Splendor Discover Victor RX 135

Strengths1. The fuel efficiency is good2. Style of the bike is decent

and maximum people admire it3. The bike is time tested so itis reliable in its segment.4. Colors and stickers aregood.

Weakness1) The bike is bit expensive ascompared to its segment2) The vehicle is heavy.3) The spare parts of the bikeare very expensive.

MiddleLower

CD 100/CD 100SS/Sleek

CT 100 Centra Libero

Strengths1. The fuel efficiency is good2. These category bikes arestrong and robust3. The bike is time tested so itis reliable in its segment.4. Spare parts are not thatexpensive5. After sales service is goodas it is an old brand6. The bike is generally cheapin this category

Weakness1. Style of the bike is not thatattractive2. The power of the bike is notcomparable to executive levelor Luxury level


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Lower CD-Dawn CT 100 Star Crux

Strengths1. The fuel efficiency is good2. These category bikes arestrong and robust3. Spare parts are not thatexpensive4. After sales service is good5. The bike is generally cheapin this category

Weakness1. Style of the bike is not thatattractive2. The power of the bike is notcomparable to executive levelor Luxury level3. No design improvement forslickness


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Hero Honda-Marketing Strategies

7.0 Marketing Strategies for Hero Honda

Product:

Hero Honda has a presence in all segments of Indian Motorcycle market catering to allprice ranges and customer age groups. Its strength lies in the executive segment where itsmodels Splendorand Passion hog the limelight in terms of sales. The models comprise ofmore than 65% of the sales of Hero Honda.

However at the upper end of the executive segment, its offering the CBZ has lost thecompetition to its peers namely BajajPulsarwhich has been able to capture the marketwith its technological superiority and looks.

The companys foray into the luxury segment with Karizma has failed mainly due to itslow fuel efficiency and a very high price.

At the lower segment of the spectrum, Hero Honda has had limited success with its CDDawn and CD Deluxe although it has successfully warded off the challenges thrown upby CT 100 and more recently TVS Star.

Product Development:

From time to time Hero Honda has upgraded its products according to customer feedbackand market conditions. For Example it upgraded Splendorand Passion to Splendor plusand Passion Plus respectively. Further it launched an upgrade of Splendor to Splendor125 CC for those who wanted higher power to go with already established credentials

that it boasts of.

The company is all set to launch a new bike, the 125 CC Glamour, in order toregain theground lost toBajaj Discover. It has also stopped producing the 135 CC Ambition and isplanning to launch it with a better engine in the near future. CBZ was re-launched bygiving it a new look with newer graphics in 2004, which has resulted in sales going up awee bit.

Price:

Hero Honda has priced almost all its products a bit on the higher side compared to theircompetitors. It can afford to charge a premium as it has a high brand loyalty and apositive perception in the customers mind. But there have been exceptions. Theexorbitantly priced 223 CC Karizma (INR 82000 initially) had a reduction of INR 13000last year (2004) but was not able to capture any significant market share.It also stopped the manufacture ofJoy and replaced it with CD Dawn having aconsiderably lower price tag. Similarly the price ofCBZwas reduced by INR 4000 withintwo months of its launch in the market.


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Hero Honda-Marketing Strategies

In all the examples sited the price adjustments havent served the company well in termsof sales the exception being CD Dawn. Hero Honda having a strong brand image in themarket has been able to get premium rates for its products from the consumers.

Bajaj Model Price ('000) Hero Honda Price (000)

Byk 28.8 Splendor Plus 42.5

Boxer CT New 32.9 Passion Plus 44.4

Pulsar 150 DTS-i 55.5 CD Dawn 30.8

Pulsar 180 58.1 CD Deluxe 33.9

Avenger 62.6Super Splendor kickstart 45.1

Wind 125 42.2 CBZ (Disc) 50.1

Discover (ElectricStart) 42.2 Karizma 70.9

TVS Motor Price ('000) Yamaha Price ('000)

Star 31 Crux 33

Centra 34.9 Enticer 46.4

Victor GX 40 Libero 41.3

Victor GLX Disc 45.3 Fazer DLX 48.1

Fiero FX Disc 50

Product Price PropositionProductQuality High Medium low

High Pulsar/Karizma/CBZ Splendor/Passion CT100/Star

Medium Enticer/Fazer/Fiero Wind/Victor/Discover/LiberoCD Dawn/CDDeluxe

Low Centra Byk/Max 100


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Hero Honda-Finance Schemes

8.0 FINANCE SCHEMES OF HERO HONDA ANDOTHERS

The market is buzzing with financing options for different products and two-

wheelers are no exception. Ahead of the festive season, there are often a slew of optionsavailable for consumers. The impact of finance schemes on sales has been so enormousthat almost every manufacturer has an exclusive tie up with a banks/financial institution.Hero Honda does not have a finance scheme of its own but is in tie up withBanks/NBFCs to finance its customers. Hero Honda has a tie up with ICICI , HDFCamong others to take forward the finance scheme. The officials of these banks have theirrepresentatives in the showrooms of Hero Honda to provide on spot assistance and toavoid any delay in executing a finance contract. Other banks also in tie up with HeroHonda are Canara Bank, UTI, etc. The customers can get the finance at an interest rate of8-9% depending on market conditions. The customers do need to fulfill a number offormalities before the finance is granted. They may also be asked to provide security on

basis of which finance will be given

However Bajaj Auto is providing finance through its group entity Bajaj AutoFinance. Thus the customers of Bajaj Auto are subject to less botheration. For instance,on buying a Pulsar, Bajaj Auto Finance gives 0% financing up to Rs 30,000 for 12months (with no advance EMIs). Unlike the normal 0% finance, where there is roughly a2% processing charge and 4 EMIs to be paid in advance, here, the buyer actually paysnothing out of his pocket. Also no such security deposits is required for taking a financeand also there is expedition in the finance related matters as it directly impacts theprofitability of Bajaj Group through Bajaj Autos performance.

The other companies like TVS Motors, Yamaha also have made arrangements toassist the customers in getting easy finance. Their scheme is also in same line as above.The customer needs to carefully study the various scheme, as there are lot of addedbenefits with various offerings, so that they dont miss to catch on the various offerings.


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Hero Honda- Product Positioning

9.0 PRODUCT POSITIONING

The product of Hero Honda is classified into following 3 segments:

ECONOMY SEGMENT:

The characteristics of products from this segment focus on basic transportationfrom one point to another. The emphasis is on fuel efficiency and comfort. Thepromotion strategies used in this segment can be discussed through the followingproducts :

CD DAWN Public ka naya transport & value naye zamane ki

Through this campaign the company tries to position this product as a basic

means of transport at an affordable price. Value for money and fuel efficiency arethe core focus areas of the product.

CD Deluxe Jiyo deluxe..chalo deluxe

The main focus of promotion campaigns for CD Deluxe is on style and a trueValue for 100cc motorcycle.

CD 100SS tough and rugged

This product represents toughness. The ability to handle even off-road, dirt

conditions with ease is its main USP. It is basically meant for the rural market.

EXECUTIVE SEGMENT:

The promotion strategies used in this segment can be discussed through thefollowing products:

SPLENDOR designed to excel

The ad shows a blind man identifying the product and assuring its quality.This shows the blind faith that people have in this bike. It also promotes theSplendor as the worlds best selling motorcycle which got better with theSplendor Plus model.

PASSION when style matters more


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Hero Honda- Product Positioning

Though this product shares the same engine as that of Splendor it differs onthe styling front. It is targeted at young urban male who want a stylish andattractive looking vehicle without compromising in fuel efficiency. In thestarting it came up with an add campaign of born in a studio not in a factorybut later it has modified it to when style matters more

SUPER SPLENDOR Sarva guna sampanna

Super Splendor is another product which company lunched very recently. itpromotes itself by saying Sarva guna sampanna means something that isgood at everything. the design is a derivative version of splendor and it usesan 125 cc engine. Company claims it to be better than splendor in all respectincluding power and fuel efficiency. Hero Honda believed some of those 100cc bike owners would eventually shift to higher segments in the long run. So itwants to retain all these Splendor buyers with in Hero Honda by providing ahigher version of Splendor.

GLAMOUR Leave the G life

The Glamour is a brand new bike from the Hero Honda stable. Though it isyet to be launched, all the pre-launch promotions and specifications suggestthat it is an attempt to gain some of the lost market share in the 125 cc upper-end executive segment. Super Splendor and Glamour will operate in the samemechanism in the 125 cc segment as that of Splendor and Passion in 100 ccsegment.

CBZ Motorcycling unplugged

CBZ was the first sports bike launched by Hero Honda in India. It wastargeted at those customers who have a passion for style and speed. This isone of the most stable bikes at high speeds. Hrithik Roshan and cricket starSourav Ganguly endorse this product.

KARIZMA Jet set go

Karizma was targeted at a niche segment. It was a premium segment bike for

those people who can afford to pay a few extra rupees for the unmatched styleand speed. Karizma was positioned as a total pleasure bike. Hrithik Roshan isthe brand for this premium segment two wheeler product from Hero Honda.


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Competitor Product Positioning

10.0 COMPETITORS PRODUCT POSITIONING

BAJAJ AUTO Inspiring leadership

BAJAJ PULSAR Definitely male

It is positioned as a powerful and fast bike which despite its speed is able todeliver a good mileage because of its new technology twin spark plug. The Pulsaris aimed at the power hungry fun filled bike enthusiast who wouldnt compromisefor fuel efficiency or style.

BAJAJ DISCOVER The last temptation

The main USP of the Discover is the excellent mileage it provides because of theuse of the latest 125cc DTS-I engine. Actor Jackie Chan appears in itsadvertisement.

BAJAJ WIND Wind biking

It is a 125cc bike which was priced in the mid-range and promoted as givingmore value for money. Hero Honda has now stopped promoting this bike inIndia and is just using it for the export market.

BAJAJ CT100 Jackpot

It is promoted as a value for money bike. It provides the maximum fuelefficiency in its class. Recently it has been ranked as the second largest sellingbike, though it is subject to argument.

BAJAJ AVENGER Feel GOD like

It uses the latest technology which delivers a linear and smooth power delivery.This is the only Cruiser bike launched by Bajaj.

TVS MOTORS Inspiration in motion


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VICTOR GLX 125 Smiles forever

It provides excellent mileage as it uses temperature sensors when the temperatureis low. Thus it allows the bike to start faster and use lower fuel by activating sparkplug and advancing the ignition timing.

VICTOR GX More smiles per hour

It uses a 110cc engine which generates 6kw of power for awesome power delivery.

TVS STAR Damdar nai tvs star

This is promoted as a strong and robust bike with a decent look, and is targetedespecially towards the urban and rural segments. Aamir Khan appears as MangalPandey in its promotional campaign.

TVS FIERO F2 Advanced biking

This bike was built to cater to the changing needs of customers and times. It isavailable in two different models to suit the needs of the wide range of customers.Its main focus is to attract attention due to its style and performance.

YAMAHA MOTORS

CRUX S Ready for responsibility

The new CRUX S has been designed as a very rugged and reliable bike which

will give its best performance even in the toughest conditions. It is beingpositioned on its Solid Body, Solid power and Solid Mileage as a dependablebike, which is ready for responsibility in all your traveling needs.

YAMAHA G5 Grab attention

This bike is positioned on the basis of its beauty, grace and rhythm. Theaffordable price would be a major point of attraction.

FAZER DX Ignite your life


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Experience the thrill of real biking with Fazer - an exhilarating combination of pick-upand International Design. The counter balance in engine gives a smooth and vibrant freeride.

LIBERO LX City cruiser

With stylish new looks, advanced technology and greater features including a fuel meteran Air Induction System, the Yamaha Libero LX is ultimate in riding comfort and style.


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Contact Initiatives of Hero Honda

11.0 Dealership Contact Initiatives for Hero Honda

The Company appoints a Service Engineer for each zone (For Example: One forBhubaneswar). These Service Engineers keep in touch with the technicians of the dealers

within the zone for technical support. All equipments needed for after sales service is alsoprovided to the technicians by the Service Engineer.

The Company follows two levels of contact with the dealers. One is with theowners and the other with the managers of the showrooms owned by.

Once every quarter the Managers of the showrooms from a region meet at a forumwhere the zonal representatives from Hero Honda are also present. (For Example:Calcutta for East region). Some of the important issues for discussion are the salestargets, the customer feedback on problems faced by specific models and their remedies.Occasionally training programmes for launching strategies for new products for HeroHonda are also done.

Once a year the Owners of all Dealerships across India meet up at Delhi with the

company Top Brass for discussions on various company initiatives pertaining to salestargets, strategies with a view on the market.

In addition to these, the company also provides technical training to techniciansbut no training programmes are provided to the managers of the showrooms or tosalesmen.


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Hero Honda - Sales Promotion And Advertisement Strategies

12.0 Sales Promotion Strategies

The company follows various strategies for sales promotion. Some of the methodsinvolved at the Dealer level are:

I. Test Drives for prospective customers.II. Sponsorship Schemes for customers in association with HDFC and ICICI

banks.III. Advertisement in showrooms on a company-dealer 50-50 basis

partnership.IV. Mobile Vans in remote areas for customer services i.e. after sales service.V. Periodic rural fairs and to showcase the company models for prospective

buyers.VI. Musical Nights conducted at important cities with a view to promote

products.

12.1 Advertising Strategies

The company mainly uses Billboards and signboards at major business districts andmajor routes. Newspaper and TV advertisements to improve consumer recall are alsovery prevalent. At the dealership level, the customers are sent promotional material in theform of leaflets to initiate further contact and increase customer awareness.

The advertisement expenditure for the various companies is as follows:

Company Year 2003 -2004 2002 -2003

Hero Honda 124.46 121.86

Bajaj 129.32 129.06

TVS 112.94 105.94

The figure below shows various distribution in the graphical format:


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Ad Expenditure

0

20

40

60

80

100

120

140

Hero

Honda

Bajaj TVS

2003 -2004

2002 -2003

Here is a brief comparison of various brands in terms of Customer Satisfaction doneby TNS Automotive for 2004[1].


39/68


This clearly shows Hero Hondas comparative advantage in customer perception.


40/68

Survey Findings

13.0 Survey Findings

The factors that motivate people to buy Hero Honda bikes are as follows:

Motivator Numbers

No of Person consultingFamily 17

Friends 10

Independent 9

Magazines 2

Motivator Distribution Chart

45%

26%

24%

5%

No of Person consultingFamily

Friends

Independent

Magazines

Promotion strategies for the Hero Honda bikes are as follows

Promoters Numbers

Over All Reputation 25Proximity of the dealer to the area ofresidence 2

Test Drive 1


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Survey Findings

Promotions Distribution Chart

89%

7% 4%

Over All Reputation

Proximity of the dealer to

the area of residence

Test Drive

0

1

2

3

4

5

6

7

8

no ofperson as

there first

recall

Hero

honda

splendor/

Bajaj

pulser

Enfield

bullet

Yamaha

RX

135,RX

100

Others

brand/model

top of the mind awarenes s

Preference of model across the age group:


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Survey Findings

Type Of Bikes

Age Splendor/Splendor+ Passion/Passion+ Karizma CD DawnCDDeluxe

SuperSplendor

40 1 1

Inference: Splendor is preferred irrespective of the age group but the age group of 30-40(Middle age) seems to have a special liking towards Splendor.

The economy segment bikes are more preferred in the 25 -30 age group as there first choicevehicle. This can be attributed to starting of the professional career where the disposableincome may not be very high.

The choice of passion is well distributed throughout the different age group.

28

65

26

6

27

111

89

8

27

61

30

3

17

78

42

8

23

84

39

4

15

68

33

3

13

36

222

18

35

28

7

0

50

100

150

200

250

Scores

Power,PickUp,

Speed

FuelEfficiency

DesignandStyle

Comfort(Seating,Suspension)

Price

BrandName

FreeGifts/Discounts

AfterSalesService

Attributes

Agewise Break Up of Preferences of Customers

40+

30-40

25-30


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Survey Findings

50000 2 1

Substantial amount of customer choose their bike above their budget level due to thefinancing schemes available.

The 40000-45000 budget slab prefers Splendor over other bikes where as 45000 50000prefer passion over Splendor.

Interestingly, it was found that people having a higher budget for purchase still preferredeconomy model due to high fuel efficiency and low ownership cost.

Super splendor found one customer each in 40000-45000 and 45000-50000.


44/68

Survey Findings

2

2

3

3

8

7

7

8

8

7

5

4

6

6

6

3

5

5

5

5

8

8

7

4

2

6

3

6

7

3

4

6

4

2

4

11

2

11

0

5

10

15

20

25

30

35

40

Scores

Powe

rpickup

Fuel

Design

nStyle

Comfort

Price

Bran

dName

AfterSales

Service

FreeGifts

Attributes

Budget wise Breakup of Customer Prefrrences

>50000

45000 - 50040000 - 450

35000 - 400


45/68

Survey Findings

For the age group above 40, Fuel efficiency, comfort and after sales service is a top mostimportant criteria. The top 3 criteria across all the age group was found to be FuelEfficiency, price and comfort.

Preference of Attributes According to Budget Range:

For those who are having less than 35000 as their budget, price, fuel efficiency and brandname is the top three deciding criteria.For the budget group of 35K -40K, the top threeimportant criteria are price , fuel efficiency, and after sales service.

For the next group having a budget more than 45 K and less than 50K fuel efficiency,brand name , design and style are the top concern in the purchasing decision.Power andpick up, fuel efficiency and style are the major factor for the buyers having more than50K as their budget.

Preference of Brand according to Attributes:

Consumers were asked to rate the brands according to the attributes on a 10 point scale.They showed their preferences which is given in the table below:

AttributesHeroHonda Bajaj TVS Yamaha

Power 7 9 6 8

Fuel Efficiency 9 8 7 6

Style 7 9 8 5

Comfort 8 7 9 7

High Price 8 7 7 9

Brand Name 9 8 6 7After SalesService 8 7 7 6

Discount 7 9 7 5


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Annexure

14.0 Hero Honda - A S.W.O.T. Analysis

As has been established by now, Hero Honda is Indias premier two wheeler company.The company produces economical products within a large price range, and is the market

leader. The motorcycles that are produced by this company are fuel efficient and exhibitlongevity. Among all the motorcycles sold by Hero Honda, the Splendor alonecontributes around 50% of the revenue.

An attempt is now made to carry out a brief SWOT analysis of Hero Honda and itsvarious products:

Strengths:

1) The company was the first to launch two wheeler bikes in India. Consequently,their main strength lies in their brand name.

2) Hero Honda service centers are available almost everywhere, due to thecomparatively old age of the company. Spare parts are easily available in everyshop.

3) The distribution network of Hero Honda Ltd is far superior to that of any othercompany in the two-wheeler segment.

4) Due to the large range of products that are available, almost the entire customerbase is covered.

The following table illustrates the growth of Hero Honda as against the overall growth ofthe industry:

As can be seen from the following table, the sales as well as the profits have increasedenormously over the years. The net sales have shown a CAGR of 27% and net profitshave shown a CAGR of 39%. The operating margin of the company has improved by 290basis points to 16.8%.


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Annexure

(Rs m) FY00 FY01 FY02 FY03 FY04

Motor Cycles sold (m) 0.76 1.03 1.43 1.68 2.07

Net sales 22,464 31,687 44,654 51,017 58,324

Other income 204 221 767 956 1,681

Total revenues 22,668 31,907 45,422 51,973 60,005

Operating profit 3,070 4,285 6,807 8,636 9,801

Depreciation 347 443 510 580 733

PBIT 2,724 3,843 6,297 8,056 9,068

Interest 47 25 15 17 17

PBT 2,880 4,038 7,049 8,995 10,732

Extraordinary Items -34 -268 -105 (149) (7)

Tax 925 1,301 2,315 3,038 3,441

Net Profit 1,921 2,469 4,629 5,808 7,283Operating profit margin 13.7% 13.5% 15.2% 16.9% 16.8%

Net profit margin 8.6% 7.8% 10.4% 11.4% 12.5%

Number of shares (m) 39.9 199.7 199.7 199.7 199.7

Face Value (Rs) 10.0 2.0 2.0 2.0 2.0

DPS (Rs) 10.0 3.0 17.0 18.0 20.0

EPS (Rs) 48.1 12.4 23.2 29.1 36.5

Fully Diluted EPS (Rs) 9.6 12.4 23.2 29.1 36.5

Weaknesses:

1) The company launched two models of bikes called Karizma and CBZ, whichcould not hold on to the high end customers. The main reason was that the fuelefficiency of both the models was very low. The price was also high. The nearestcompetitor, Bajaj Motors Ltd., launched similar bikes called Pulsar 150 andPulsar 180 which were very fuel efficient.

2) The lower end bike segment was also captured by Bajaj Motors Boxer whichswayed the market. The Bajaj Boxer was very fuel efficient and also cheap.

Although Hero Honda had captured the market before Bajaj, Bajaj introduced thebike at a very low price. The prices for Hero Honda were high, particularly for themodels CD 100 and CD 100 SS. Hero Honda also faces competition fromTVS Motors Victor in the middle segment market.

3) The technological changes in the bike sector occurred at a very fast rate. BajajAuto Ltd. patented the DTSI model of the Pulsar. The technology was introducesby Hero Honda into the market with the launch of the Ambition, but it was notpatented.


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Annexure

Opportunities:

1) The company already has a wide customer base and there has been a shift of thepreference of the people. Most people who would earlier go for a scooter/moped

nowadays prefer to go for motorcycles. So in the future there is like to be a lotmore demand for motorcycles than there was before. Hero Honda can capitalizeon its superior distribution channel to facilitate the selling of more bikes.

2) New launches of middle category bikes like the Super Splendor which is a re-engineered version of the highly successful Splendor may catch the middlesegment and may attract some new customers.

3) It can penetrate into the market for scooters and mopeds, using its longdistribution channel.

4) As the Indian population consists of a large number of teenagers and youngpeople, Hero Honda can capture the young market by offering various pay backschemes or it may provide financing options.

Threats:

1) The main threats are in the form of competition from Bajaj Auto Ltd., TVS Motors,Yamaha, and Honda Motors. These companies adopt advanced technology, soHero Honda must stay on its toes. Bajaj Auto has found popularity with both itslow-end and premium offerings, which have helped chip away at Hero Honda'sdominance

2) The second threat is from partner Honda Motors. As Honda Motors eyes high endcustomers through its model, the Unicorn, Hero Honda may lose some revenueas the customer base is divided.

3) Since Hero Honda has no patented products, people may go for some other brandpatented product.

4) Rising steel, rubber and plastic prices, coupled with a cut-throat market has seenmore money go into advertising and discounts.

Hero Hondas range of products can be found in Annexure 3.0.


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Annexure

Annexure 1.0

The Hero Group A Timeline

1956 Hero Cycles Limited is established.

1961 Rockman Cycles Industries Limited established, which today is thelargest manufacturer of bicycle chains and hubs.

1963 It pioneered bicycle exports from India - a foray into the internationalmarket.

1971 Highway Cycles was set up to meet the demands of Hero Cycles. It istoday the largest manufacturer of single speed and multi-speed

freewheels.

1975 Hero Cycles Limited became the largest manufacturer of bicycles in

India.

1978 Majestic Auto Limited was formed and the Hero Majestic Moped wasintroduced.

1981 Munjal Castings established.

1984 Hero Honda Motors Limited established in joint venture with HondaMotors of Japan, to manufacture motorcycles.

1985 Munjal Showa Limited established to manufacture shock absorbers andstruts and is today among the top two shock absorber manufacturingcompanies in India.

1985 The 100 cc Hero Honda Motorcycle arrived and by 1988 was the No. 1among all motorcycles in India.

1986 Hero Cycles Limited entered the Guinness Book of Records as thelargest bicycle manufacturer in the World.

1987 Hero Motors, a division of Majestic Auto Limited set up in collaborationwith Steyr Daimler Puch of Austria.

1987 Gujarat Cycles Limited, now known as Munjal Auto Industries Limitedwas established to manufacture and export state-of-the-art bicycles and

allied products in its fully automated plant at Waghodia.

1987 Sunbeam Auto Limited, earlier a unit of Highway Cycles Limited,established as an ancillary to Hero Honda. It is the largest die castingplant in India.

1988 Introduced "Hero Puch" from Hero Motors Limited. This revolutionarymachine immediately set new records of petrol efficiency and usablepower in 50 - 65 cc machines.

1990


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Annexure

steel cold rolling plants.

1991 Hero Honda receives National Productivity Council's Award.

1991 Hero Honda receives the Economic Times - Harvard Business SchoolAssociation Award against 200 contenders.

1992 Munjal Showa Limited receives National Safety Award.

1993 Hero Exports established as the International Trading Division for Groupand non-Group products.

1995 Hero Corporate Services Limited as the service segment for the HeroGroup Companies, ancillaries, suppliers, dealers and other associates.

1996 - Hero Winner, a large-wheeled scooter was introduced by Hero MotorsLimited with a choice of 50 cc and 75 cc engines.

1996 Munjal Showa Limited receives British Council's National Safety Award.

1998 - Hero Briggs and Stratton Auto Private Limited was set up to produce4-stroke two-wheeler engines in various cubic capacities.

1998 Munjal Auto Components established to manufacture gear shafts andgear blanks for motorcycles.

2000 The Hero Group diversifies into IT and IT enabled services through itsservice segment Hero Corporate Services Limited.

2000-2001 Hero Honda emerges as the market leader in motorcycles with sales ofover a million motorcycles and a strong market share of 47%.

2001 Hero Global Design established to offer engineering services inCAD/CAM/CAE related to New Product Development, Design,Engineering and Manufacturing.

2002 Hero Cycles ties up with National Bicycle Industries, part of MatsushitaGroup to manufacture high-end bicycles.

2002 Fastener World Established.

2002 Easy Bill Established to offer utility bill collection & retail services.

2003 Tie up with Livebridge Inc., USA.

2004 Tie up with Bombardier - Rotax GmbH for scooter engines.

2004 Tie up with Aprilia Scooters, Italy.

2004 Hero Honda continues as the World's largest manufacturer of two-wheelers with annual sales volume of 2.07 motorcycles and a market

share of 48%.

2004 Retail Insurance business established.


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Annexure

Annexure 2.0

Head Office

2-1-1 Minami Aoyama, Minato-ku Tokyo 107-8556, JapanTel: +81-(0)3-3423-1111

Established: September 24, 1948

President & CEO: Takeo Fukui

Capital: 86,067 million (as of March 2004)

Sales (Results of fiscal 2004):

Consolidated: 8,162,600 millionUnconsolidated: 3,319,793 million

Total number of employees

Consolidated: 131,600 (as of the end of March 2004)Unconsolidated: 27,187 (as of the end of March 2004)

Consolidated subsidiaries: 317 subsidiaries (as of the end of March 2004)

Chief Products: Motorcycles, automobiles, power products

Annexure 3.0


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Annexure

Range Of Products

The following is a brief description of the various kinds of motorcycles that aremanufactured by Hero Honda.

a. CBZ:

Engine 4-stroke, single cylinder , air - cooled, OHC

Displacement 156.8cc

Clutch Type Manual

Clutch Primary -

Clutch Secondary Multi-plate wet

Transmission 5-speed constant mesh

Final Drive Roller chain

Ignition ElectronicStarting Kick starter

Frame Tubular single cradle

Suspension (Front ) Telescopic hydraulic fork

Suspension (Rear ) Swing arm with hydraulic damper- 5-step adjustment

Dimensions (L*W*H) 2100*755*1130mm

Wheel Base 1335mm

Ground Clearance 160mm

Kerb Weight 138 kg

Tires: Front/ Rear 2.75*18-42P/100/90*18-56PMax. Pow er 12.8 PS@8000 rpm

Max. Speed 100 kmph

Fuel Tank Capacity 12.5 1tr(2.5 ltr reserve)

b) Splendor Plus:

Engine 4-stroke, single cylinder lair-cooled, OHC


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Displacement 97.2.cc


Ignition Electronic

Head light 12V 35/35W multi-reflector with lamp

Frame Tubular double cradle typeSuspension (front) Telescopic hydraulic fork

Suspension (rear) Hydraulic spring loaded type with both side

action

Wheelbase 1230 mm

Ground clearance 159 mm

Kerb weight 109 kg

Tire (front) 2.75*18-4 PR

Tire (rear) 2.75*18-6 PR

Type of brake (front) Drum type (130 mm diameter)Optional Disc type (240 mm diameter)

Type of brake (rear) Drum type (110mm diameter)

Max power 7.5PS @ 8000 rpm / 5.5 KW @ 8000rpm

Max speed 85 kmph

Fuel tank capacity 10.5 litres (reserve 1.4 litres)

c) Passion Plus:

Engine 4-stroke, Single Cylinder, Air - Cooled OHC

Displacement 97.2 cc

Maximum P ower 7.5 Ps at 8000 rpm

Gear Box 4 Speed Constant Mesh

Clutch Multi-Plate Wet Type

Max. Speed 85 Kmph.

Frame Tubular Double Cradle

Suspension (Front) Telescopic Hydraulic Fork

Suspension(Rear ) Swing Arm with 5 step adjustable hydraulic damper.

Tire Size (Front ) 2.75 * 18- 4 PR /42 P

Tire Size(Rear ) 3.00*18-4/6 PR

Brakes (Front) Internal Expanding Shoes Type

(130mm)/ Hydraulic Disc Type (Optional)

Brakes (Rear) Internal Expanding Shoes Type (130 mm)

Final Drive Roller Chain


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Annexure

Battery 12 V-2.5 Ah

Ignition Electronic CDI

Starting Kick Starter

Wheelbase 1235 mm

Ground Clearance 160mm

Length 1980 mm

Width 720 mm

Height 1060 mm

Kerb Weight 116 kg

Fuel Tank Capacity 12.8 litres (Reserve 1.1 litres)

Head light Halogen Bulb 35 W / 35 W

d. CD Deluxe:

Engine 4-Stroke OHC, Single Cylinder, Air Cooled

Bore X Stroke 50 X 49.5 mm

Displacement 97.2 cc

Compression Ratio 8.8 : 1

Max Power 5.44 KW (7.4 PS) @ 8000rpm

Torque 0.79 Kg.m @ 5000 rpm

Clutch Multi Plate Wet Type

Transmission 4-Speed Constant MeshFinal Drive Roller Chain

Ignition Capacitor Discharge Ignition

Starting Kick Start

Frame Tubular Double Cradle

Suspension Front : Telescopic Hydraulic ForkRear : Swing Arm with Hydraulic Shock Absorbers

Dimensions (LXWXH) 1970 X 720 X 1045 mm

Wheel Base 1230 mm

Ground Clearance 159 mm

Kerb Weight 108 Kg

Tires Front : 2.75 X 18 - 4PR

Rear : 2.75 X 18 - 6PR

Brakes Front : Internal Expanding Shoe Type - 130 mm Dia

Rear : Internal Expanding Shoe Type - 110 mm Dia

Fuel Tank Capacity 10.5 Ltrs


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Head Light Rectangular Multi Focal Reflector - 35/35W(Halogen Bulb)

d) CD Dawn:

Engine 4-stroke, air-cooled, single cylinder OHC

Displacement 97.2cc

Clutch Multi-plate wet

Gear box 4 speed constant mesh

Frame Tubular double cradle

Battery 12V - 2.5 Ah

Head lamp 35W / 35W - Halogen bulb

Suspension(front) Telescopic hydraulic shock absorber

Suspension(rear) Swing arm with hydraulic shock absorber

Wheelbase 1230 mm

Dimensions (LxWxH) 1980x720x1045 mm

Ground clearance 150 mm

Kerb weight 108 kgs

Tire (front) 2.75 x 18-4 PR

Tire (rear) 2.75 x 18-6 PR

Max power 7.4 PS @ 8000 rpm

Max torque 0.79 Kg-m @ 5000 rpm

Bore x Stroke 50.0 x 49.5 mm

Compression ratio 8.8: 1

Starting Kick start

Fuel tank capacity 10.5 litres (reserve 1.8 litres)

e) CD 100SS:

Engine 4-stroke, single cylinder, air - cooled, OHC

Displacement 97.2cc

Clutch Type ManualClutch Primary -

Clutch Secondary Multi-plate wet


Final Drive Roller chain

Ignition Electronic

Starting Kick starter


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Frame Back bone type

Suspension (Front ) Telescopic hydraulic fork

Suspension (Rear) Spring loaded hydraulic type with both side action

Dimensions (L*W*H) 1960*720*1050mm

Wheel Base 1225mmGround Clearance 165mm

Kerb Weight 112kg

Tires: Front/ Rear 2.75"*18"-4PR/3.00"*18"-4PR

Max. Pow er 7.2 PS @ 8000 rpm

Max. Speed 80 kmph

Fuel Tank Capacity 10.1 1tr(2.8 ltr reserve)

Hero Hondas Market Share

Market Share - Motorcycles India

48%

3%

31%

0%

13% 1% 3%1%

Hero Honda Motor

Honda Motorcycle

Bajaj Auto Ltd.

Royal Enfield Motors

TVS Motor Co.

Kinetic Engg.Ltd.

Yamaha Motor India

LML Limited


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Graphs Analyzing Financial Statements

Return On Average Equity

0

10

20

30

40

50

60

70

80

1/4/01 to

31/3/02

1/4/02 to

31/3/03

1/4/03 to

31/3/04

Year

Return%age

Hero Honda

Bajaj

TVS

Return On Capital Employed

0

20

40

60

80

100

120

1/4/01 to

31/3/02

1/4/02 to

31/3/03

1/4/03 to

31/3/04

Year

Return%age

Hero H

Bajaj

TVS


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Annexure

Growth of Sales

05

1015202530354045

1/4/01to

31/03/2002

1/4/02to

31/03/03

1/4/03to

31/03/04

Year

%ageGrowth

Hero Honda

Bajaj

TVS

Growth of Profit After Tax

-40

-200

20

40

60

80

100

120

140

1/4/01to

31/03/2002

1/4/02to

31/03/03

1/4/03to

31/03/04

Year

%ageGrowth

Hero Ho

Bajaj

TVS

Debt-Equity Ratio

00.050.1

0.150.2

0.250.3

0.350.4

0.45

1/4/01 to

31/3/02

1/4/02 to

31/3/03

1/4/03 to

31/3/04

Year

Ratio

Hero Honda

Bajaj

TVS

Interest Coverage Ratio

0

200

400

600

800

1000

1200

1/4/01 to

31/3/02

1/4/02 to

31/3/03

1/4/03 to

31/3/04

Year

Nooftimes

Hero Ho

Bajaj

TVS


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Cash From Operating Activities

0

200

400

600

800

1000

1200

Hero

Honda

Bajaj TVS

Companies

Cash(inCro

res)

1/4/02 to 31/3/03

1/4/03 to 31/3/04

Cash from Investing Activities

-900

-800

-700

-600

-500

-400

-300-200

-100

0

Hero

Honda

Bajaj TVS

Companies

Cash(inCrores

)

1/4/02 to 31

1/4/03 to 31

Cash from Financing Activities

-700

-600

-500

-400

-300

-200

-100

0

100

200

Hero

Honda

Bajaj TVS

Companies

Cash(inCrores)

1/4/02 to 31/3/03

1/4/03 to 31/3/04


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Questionnaire

Questionnaires 1-4

Questionnaire 1

Q1) Please specify the age group to which you belong: (Tick one)

? Below 25 ? 25 to 30 ? 30 to 40 ? Above 40

Q2) Up to how much money are you willing to spend on a bike at this time:

?


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Questionnaire

? Free test drive? Discounts/free gifts? Proximity to area of residence? Reputation of dealer

? Overall reputation of Hero Honda products

Q7) What (if anything) is it that you dont like about Hero Honda and/or Hero Hondaproducts?

Q8) What other vehicle models did you consider before coming to a decision?

Q9) What made you choose Hero Honda over and above your other options?

Q10) What would have been your second preference, after Hero Honda?

Questionnaire 2

Q1) Approximately how many times have you faced any problems with your vehicle?


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Questionnaire

Q2) Did any of the problems you faced with your vehicle recur again?(Yes/No)

Q3) How would you rate the technical expertise of the staff that helped you with yourproblem? (Disappointing/Avg./Good/Very Good)

Q4) Was the service swift and timely? (Yes/No)

Q5) How would you rate the service facilities? (Disappointing/Avg./Good/Very Good)

Q6) Were the employees at the service station courteous and friendly?(Disappointing/Avg./Good/Very Good)

Q7) Will you recommend Hero Honda to others?

? Yes, strongly ? Yes ? Will not recommend ? Will discourage

Questionnaire 3

Q1) Did you receive any training from Hero Honda? (Yes/No)

Q2) What are the sales promotion methods recommended by the company?


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Questionnaire

Q3) What sales promotion methods do you practice independent of the company?

Q4) What are the advertising strategies that you have used?

Q5) How many events you have sponsored in last 1 year?

Q6) How often do you meet with company officials to discuss customer needs?

Questionnaire 4

Q1) Please specify the age group to which you belong: (Tick one)

? Below 25 ? 25 to 30 ? 30 to 40 ? Above 40

Q2) Up to how much money (in INR) would you like to spend on a bike? (Tick one)

?


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Questionnaire

Q4) When you think of a motor cycle, which brand /model comes to your mind first?

Q5) Which companys bike do you have or are planning to buy?

? Hero Honda ? Bajaj ? TVS ? Yamaha ? Others

Q6) Which model are you looking forward to buy?

Q7) Kindly rate the criteria based on which you would choose a bike (allot them markssuch that they add up to a hundred, give higher marks to the criteria you find moreimportant and less to the criteria that is less important to you.)

? Power, pickup, speed, etc

? Fuel Efficiency

? Design and style

? Comfort (Seating, suspension, etc)

? Price

? Brand name

? Free gifts/discounts

? After sales service

? Resale value

Q8) Who are the people you would normally consult before deciding to buy a bike?

? Family members? Friends? Any other, please specify: __________________________? Nobody, independent decision

Q9) What were the factors that persuaded you to come to your chosen brand? (If youhave already bought a bike)

? Company advertisements:? Television


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Questionnaire

? In magazines and newspapers? Sign boards, posters, etc

? Dealers efforts:? Sponsorship by the company.

? Free test drive? Discounts/free gifts? Proximity to area of residence? Reputation of dealer

? Overall reputation of the brand.

Q10) Why do you prefer your model/brand over others?

Q11) What would have been your first preference, if u could spend more money?

Q12) Please indicate your preferences of on the following attributes

HEROHONDA BAJAJ YAMAHA TVS LML KINETIC

POWER

PRICE

FUELEFFICIENCY

STYLE

PRICE

BRAND

AFTERSALESSERVICE


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Questionnaire


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Bibliography

Bibliography

1. http://www.bsmotoring.com/roads/index.htm

2. http://www.herohonda.com/site/home/home.asp

3. http://www.bajajauto.com/

4. http://www.tvsmotor.co.in/default.asp

5. http://www.yamaha-motor.co.jp

6. http://www.siamindia.com/

7. http://www.indiainfoline.com

8. ISI emerging markets Database

9. Auto India May,2005

10. Overdrive May 2005,June 2005,July 2005

11. AutoCar India June 05


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