automobile sector-two wheeler segment
TRANSCRIPT
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Automobile SectorTwo Wheeler Segment
MFM -Group–
D22nd Semester
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Index
Overview of Indian Automobile Industry
Two wheeler segment
OverviewSegmental profile
Key Financials
Supply
Demand
Elasticity
Growth Strategies
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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
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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
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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Outdated models - Ambassador, Premier Padmini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
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Market Structure – Oligopoly to Monopolistic
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 .
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Market Structure – Oligopoly to Monopolistic
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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
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CAGR
13.3%
Growth of Indian Automobile Industry
Indian automobile industry stands at 18 million vehicles at present
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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
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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
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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
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Player Wise Market Share
The three players - Hero Honda, Bajaj Auto and TVS Motors - continue to
hold around 82 per cent of volumes share.
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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.
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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 ( %)
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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
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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
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Pricing Strategy –Motorcycle Segment
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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
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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
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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
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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
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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
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Shift in Supply- Motor Cycle
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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%
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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
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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
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Price
Quantity demanded
Shift in Demand- Motorcycle
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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
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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
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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
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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
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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.
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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
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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
Non Pricing Strategy – Hero Motor Corp
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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
Non Pricing Strategy – Hero Motor Corp
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(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
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Motorcycle
Scooter
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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
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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,